10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K

x Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 30, 2007.

¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Commission File Number 0-15782

CEC ENTERTAINMENT, INC.

(Exact name of registrant as specified in its charter)

Kansas	48-0905805
(State or jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
4441 West Airport Freeway
Irving, Texas	75062
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (972) 258-8507

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $0.10 par value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933.    Yes   ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934.    Yes   ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes   x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934.

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨    Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).     Yes   ¨    No  x

At July 1, 2007, the aggregate market value of our common stock held by non-affiliates of the registrant was $673,020,234.

At February 13, 2008, an aggregate of 26,641,444 shares of the registrant’s common stock, par value of $0.10 each (being the registrant’s only class of common stock), were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement, to be filed pursuant to Section 14(a) of the Securities Exchange Act of 1934 in connection with the registrant’s 2008 annual meeting of stockholders, have been incorporated by reference in Part III of this report.

CEC ENTERTAINMENT, INC.

TABLE OF CONTENTS

		Page
Part I
Item 1.	Business.	3
Item 1A.	Risk Factors	7
Item 1B.	Unresolved Staff Comments	11
Item 2.	Properties	12
Item 3.	Legal Proceedings	13
Item 4.	Submission of Matters to a Vote of Security Holders	14
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	15
Item 6.	Selected Financial Data	17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 8.	Financial Statements and Supplementary Data	29
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	48
Item 9A.	Controls and Procedures	48
Item 9B.	Other Information	49
Part III
Item 10.	Directors, Executive Officers and Corporate Governance	50
Item 11.	Executive Compensation	50
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	50
Item 13.	Certain Relationships and Related Transactions, and Director Independence	50
Item 14.	Principal Accountant Fees and Services	50
Part IV
Item 15.	Exhibits and Financial Statement Schedules	51
Signatures		56

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P A R T I

Item 1. Business

General

CEC Entertainment, Inc. (the “Company”) was incorporated in the state of Kansas in 1980 and is engaged in the family entertainment-restaurant center business. The Company considers this to be its sole industry segment. Our principal executive offices are located at 4441 W. Airport Freeway, Irving, Texas 75062. The Company maintains a website at www.chuckecheese.com. Documents available on our website include the Company’s (i) Code of Business Conduct and Ethics, (ii) Code of Ethics for the Chief Executive Officer and Senior Financial Officers, (iii) Corporate Governance Guidelines, and (iv) Charters for the Audit, Compensation, and Nominating/Corporate Governance Committees of the Board of Directors. These documents are also available in print to any stockholder who requests a copy. In addition, we make available free of charge through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after electronic filing or furnishing of such material with the Securities and Exchange Commission. Within this report, unless otherwise indicated, any use of the terms “our,” “we” and “us” refer to CEC Entertainment, Inc and its consolidated subsidiaries.

Company Overview

Chuck E. Cheese’s

Chuck E. Cheese’s^® is a nationally recognized leader in full-service family entertainment and dining. Chuck E. Cheese’s stores feature musical and comic entertainment by robotic and animated characters, games, rides and arcade-style activities intended to appeal to families with children between the ages of two and 12 and offers a variety of pizzas, sandwiches, appetizers, a salad bar and desserts. Each Chuck E. Cheese’s store typically employs a general manager, one or two managers, an electronic specialist who is responsible for repair and maintenance of the robotic characters, games and rides, and 45 to 75 food preparation and service employees, most of whom work part-time.

The Company opened its first location in March 1980. As of December 30, 2007, the Company operated 490 Chuck E. Cheese’s stores and franchisees of the Company operated 44 Chuck E. Cheese’s stores. The Company and its franchisees operate in a total of 48 states and five foreign countries/territories. The Company owns and operates Chuck E. Cheese’s in 44 states and Canada. See Item 2. “Properties.”

TJ Hartford’s Grill and Bar

During the periods presented in this Annual Report on Form 10-K, the Company had operated one full-service casual dining restaurant with a game room area under the name TJ Hartford’s Grill and Bar (“TJ Hartford’s”) aimed at a broad demographic target offering medium priced, high quality food, including alcoholic beverages, in a relaxed entertaining atmosphere. TJ Hartford’s was closed on February 17, 2008.

Business Development Strategy

The Company’s business development plan involves a sharp focus on maintaining and evolving its existing units, primarily developing high volume Company stores in densely populated areas and selling development rights to franchisees for markets the Company does not intend on developing within the next five years.

Existing Stores

To maintain a unique and exciting environment in the stores, the Company believes it is essential to reinvest capital through the evolution of its games, rides and entertainment packages and continuing enhancement of its facilities. The Company invests capital in its existing store base through the following initiatives: (a) major remodels, (b) expanding the square footage of the store, and (c) a game enhancement initiative that includes new games and rides.

The major remodel initiative typically includes increasing the space allocated to the game room, an increase in the

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number of games and rides and in most cases includes a new exterior and interior identity. A new exterior identity includes a revised Chuck E. Cheese’s logo and signage, updating the exterior design of the buildings and, for some stores, colorful new awnings. The interior component includes new paint, updating décor, a new menu board, enhanced lighting, remodeled restrooms and an upgraded salad bar. The Company expects to complete 20 to 24 major remodels during 2008. The average cost of major remodels in 2008 will approximate $625,000 to $675,000 per store.

In addition to expanding the square footage of a store, store expansions typically include all components of a major remodel including an increase in the number of games and rides and on average range in cost from $1,000,000 to $1,100,000 per store. The Company expects to complete 18 to 22 expansions in 2008.

The primary components of the game enhancement initiative are to provide new games and rides. The average cost of a game enhancement in 2008 will approximate $125,000 to $175,000 per store. The Company expects to complete 120 to 130 game enhancements during 2008.

New Company Store Development

During 2007, the Company added 10 new Company-owned stores, including three relocations. In 2008, the Company expects to open approximately six to seven new Company stores, with an average cost of approximately $2.5 million to $2.7 million per store. The Company currently expects these stores will generate average annual unit volumes of $2.0 million representing a 25% increase over the comparable company store average of $1.6 million in 2007.

The Company currently projects it will open 30 to 40 Company-owned stores, including store relocations, during the next five years.

The Company periodically reevaluates the site characteristics of its stores. The Company will consider relocating a store to a more desirable location in the event certain site characteristics considered essential for the success of a store deteriorate or the Company is unable to negotiate acceptable lease terms with the existing landlord.

New Franchise Store Development

The Company added one new franchise store in 2007, and in 2008 expects to open four franchise stores.

The Company is currently selling the development rights for approximately 40 domestic franchise locations. The Company is currently projecting it will open 20 to 30 franchise stores during the next five years.

Store Design and Entertainment

Chuck E. Cheese’s are typically located in shopping centers or in free-standing buildings near shopping centers and generally occupy 9,000 to 14,000 square feet in area, or an average of approximately 11,000 square feet. Chuck E. Cheese’s stores are typically divided into three areas: (1) a kitchen and related areas (cashier and prize area, salad bar, manager’s office, technician’s office, restrooms, etc.) occupies approximately 35% of the space, (2) a showroom area occupies approximately 25% of the space, and (3) a playroom area occupies approximately 40% of the space. Total table and chair seating in both the showroom and playroom areas averages 325 to 425 guests per store.

The showroom area of each Chuck E. Cheese’s features a variety of comic and musical entertainment by computer-controlled robotic characters, together with video monitors and animated props, located on various stage-type settings.

Each Chuck E. Cheese’s store generally contains a family oriented playroom area offering approximately 45 token-operated attractions, including arcade-style games, rides, video games, skill oriented games and other similar entertainment. A limited number of tokens are included as part of food orders, however additional tokens may be separately purchased. Tokens are used to activate the games and rides in the playroom area. A number of games dispense tickets that can be redeemed by guests for prize merchandise such as toys and dolls. Also included in the playroom area are tubes and tunnels suspended from or reaching to the ceiling known as SkyTubes^® or other free attractions for young children, with booth and table seating for the entire family.

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Food and Beverage Products

Each Chuck E. Cheese’s offers a variety of pizzas, sandwiches, appetizers, a salad bar and desserts. Soft drinks, coffee and tea are also served, and beer and wine where permitted by local laws. The Company believes that the quality of its food compares favorably with that of its competitors.

The majority of food, beverages and other supplies used in the Company-operated stores are currently distributed under a system-wide agreement with a major food distributor. The Company believes that this distribution system creates certain cost and operational efficiencies for the Company.

Marketing

The primary customer base for the Company’s stores consists of families having children between the ages of two and 12. The Company conducts advertising campaigns targeted at families with young children that feature the family entertainment experiences available at Chuck E. Cheese’s and are primarily aimed at increasing the frequency of customer visits. The primary advertising medium continues to be television, due to its broad access to family audiences and its ability to communicate the Chuck E. Cheese’s experience. The television advertising campaigns are supplemented by promotional offers in newspapers, cross promotions with companies targeting a similar customer base, the Company’s website, internet advertising campaigns and direct e-mail.

Franchising

At December 30, 2007, 44 Chuck E. Cheese’s were operated by a total of 24 different franchisees, as compared to 45 at December 31, 2006. Currently, franchisees have expansion rights to open an additional 16 franchise stores.

The Chuck E. Cheese’s standard franchise agreement grants to the franchisee the right to construct and operate a store and use the associated trade names, trademarks and service marks within the standards and guidelines established by the Company. The franchise agreement presently offered by the Company has an initial term of 15 years and includes a 10-year renewal option. The standard agreement provides the Company with a right of first refusal should a franchisee decide to sell a store. The earliest expiration dates of outstanding Chuck E. Cheese’s franchises are in 2009.

The Company and its franchisees created The International Association of CEC Entertainment, Inc., (the “Association”), to discuss and consider matters of common interest relating to the operation of corporate and franchised Chuck E. Cheese’s, to serve as an advisory council to the Company and to plan and approve contributions to and expenditures from the Advertising Fund, a fund established and managed by the Association that pays the costs of system-wide advertising, and the Entertainment Fund, a fund established and managed by the Association to further develop and improve entertainment attractions. Routine business matters of the Association are conducted by a Board of Directors of the Association, composed of five members appointed by the Company and five members elected by the franchisees. The Association is included in the Company’s consolidated financial statements.

The franchise agreements governing existing franchised Chuck E. Cheese’s in the United States currently require each franchisee to pay: (i) to the Company, in addition to an initial franchise fee of $50,000, a continuing monthly royalty fee equal to 3.8% of gross sales; (ii) to the Advertising Fund an amount equal to 2.9% of gross sales; and (iii) to the Entertainment Fund an amount equal to 0.2% of gross sales. Under the Chuck E. Cheese’s franchise agreement, the Company is required, with respect to Company-operated stores, to spend for local advertising and to contribute to the Advertising Fund and the Entertainment Fund at the same rates as franchisees. The Company and its franchisees could be required to make additional contributions to the Association to fund any cash deficits that may be incurred by the Association.

Competition

The family entertainment and dining industries are highly competitive, with a number of major national and regional chains operating in these spaces. Although other restaurant chains presently utilize the combined family entertainment-dining concept, these competitors primarily operate on a regional, market-by-market basis.

The Company believes that it will continue to encounter competition in the future. Major national and regional chains, some of which may have capital resources as great or greater than the Company, are competitors of the Company. The Company believes that its principal competitive strengths are an established recognized brand, the relative quality of food and service, quality and variety of offered entertainment, and location and attractiveness of its stores as compared to its competitors in the family entertainment-dining industries.

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Trademarks

The Company, through a wholly owned subsidiary, owns various trademarks, including “Chuck E. Cheese’s” that are used in connection with its stores and have been registered with the appropriate patent and trademark offices. The duration of such trademarks is unlimited, subject to continued use. The Company believes that it holds the necessary rights for protection of the trademarks considered essential to conduct its present operations. The Company believes its ownership of trademarks in the names and character likenesses featured in the operation of its stores are an important competitive advantage.

Seasonality

The Company’s sales volumes fluctuate seasonally and are generally higher during the first and third quarters of each fiscal year. Holidays, school operating schedules and weather conditions may affect sales volumes seasonally in some operating regions. Because of the seasonality of the Company’s business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

Government Regulation

The Company and its franchisees are subject to various federal, state and local laws and regulations affecting the development and operation of Chuck E. Cheese’s, including, but not limited to, those that impose restrictions, levy a fee or tax, or require a permit or license, or other regulatory approval, relating to the operation of video and arcade games and rides, the preparation and sale of food and beverages, the sale and service of alcoholic beverages, and those relating to building and zoning requirements. Difficulties or failures in obtaining required permits, licenses or other regulatory approvals could delay or prevent the opening of a new store, and the suspension of, or inability to renew, a license or permit could interrupt operations at an existing store. The Company and its franchisees are also subject to laws governing their relationship with employees, including minimum wage requirements, overtime, working and safety conditions, and immigration status requirements. A significant portion of the Company’s store personnel are paid at rates related to the minimum wage established by federal, state and municipal law and, accordingly, increases in such minimum wage result in higher labor costs to the Company. In addition, the Company is subject to regulation by the Federal Trade Commission, Federal Communications Commission and must comply with certain state laws which govern the offer, sale and termination of franchises and the refusal to renew franchises. The Company is also subject to the Fair Labor Standards Act, the Americans with Disabilities Act, and Family Medical Leave Act mandates.

Working Capital Practices

The Company attempts to maintain only sufficient inventory of supplies in its stores to satisfy current operational needs. The Company’s accounts receivable typically consists of credit card receivables, tax receivables, vendor rebates and leasehold improvement incentives.

Employees

The Company’s employment varies seasonally, with the greatest number of people being employed during the summer months. On December 30, 2007, the Company employed approximately 18,500 employees, including approximately 18,100 in the operation of its stores and approximately 400 employed by the Company in its executive offices. None of the Company’s employees are members of any union or collective bargaining group. The Company considers its employee relations to be good.

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Item 1A. Risk Factors

Our business operations and the implementation of our business strategy are subject to significant risks inherent in our business, including, without limitation, the risks and uncertainties described below. The occurrence of any one or more of the risks or uncertainties described below and elsewhere in this Annual Report on Form 10-K could have a material adverse effect on our financial condition, results of operations and cash flows. While we believe we have identified and discussed below the key risk factors affecting our business, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect our business, operations, industry, financial position and financial performance in the future. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual results could be materially different.

Risks Related to Our Industry

We may be negatively affected by trends in the family entertainment/dining industry and national, regional and local economic conditions.

The family entertainment/dining industry is affected by national, regional and local economic conditions, demographic trends and consumer preferences. The performance of individual stores may be affected by factors such as changes in consumer disposable income, demographic trends, weather conditions, traffic patterns and the type, number and location of competing businesses. Dependence on frequent deliveries of fresh food products also subjects businesses such as ours to the risk that shortages or interruptions in food supplies caused by adverse weather or other conditions could adversely affect the availability, quality and cost of ingredients. In addition, factors such as inflation, increased food, labor and employee benefit costs, fluctuations in price of utilities, interest rates, consumer confidence, consumers’ disposable income and spending levels, energy prices, job growth, unemployment rates, insurance costs and the availability of experienced management and hourly employees may also adversely affect the restaurant industry in general and our stores in particular. The entertainment industry is affected by many factors, including changes in customer preferences and increases in the type and number of competing entertainment offerings. Operating costs may also be affected by further increases in the minimum hourly wage, unemployment tax rates, sales taxes and similar matters over which we have no control.

Changes in consumers’ health, nutrition and dietary preferences could adversely affect our financial results.

Our industry is affected by consumer preferences and perceptions. Changes in prevailing health or dietary preferences and perceptions may cause consumers to avoid certain products we offer in favor of alternative or healthier foods. If consumer eating habits change significantly and we are unable to respond with appropriate menu offerings, it could adversely affect our financial results.

Risks Related to Our Company

We may not be successful in the implementation of our business development strategies.

Our continued growth depends, to a significant degree, on our ability to successfully implement our long-term growth strategies. Among such strategies, we plan to continue to open new stores in selected markets and for existing stores we plan to remodel and expand our facilities and upgrade the games, rides and entertainment. The opening and success of new Chuck E. Cheese’s stores is dependant on various factors, including the availability of suitable sites, the negotiation of acceptable lease terms for such locations, store sales cannibalization, the ability to meet construction schedules, our ability to manage such expansion and hire and train personnel to manage the new stores, as well as general economic and business conditions. Our ability to successfully open new stores or remodel, expand or upgrade the entertainment at existing stores will also depend upon the availability of sufficient capital for such purposes, including operating cash flow, our existing credit facility, future debt financings, future equity offerings or a combination thereof. There can be no assurance that we will be successful in opening and operating the number of anticipated new stores on a timely or profitable basis. There can be no assurance that we can continue to successfully remodel or expand our existing facilities or upgrade the games and entertainment. Our growth is also dependent on our ability to continually evolve and update our business model to anticipate and respond to changing customer needs and competitive conditions. There can be no assurance that we will be able to successfully anticipate changes in competitive conditions or customer needs or that the market will accept our business model.

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Part of our growth strategy depends on our ability to attract new franchisees to recently opened markets and the ability of these franchisees to open and operate new stores on a profitable basis. Delays or failures in opening new franchised stores could adversely affect our planned growth. Our new franchisees depend on the availability of financing to construct and open new stores. If these franchisees experience difficulty in obtaining adequate financing for these purposes, our growth strategy and franchise revenues may be adversely affected.

We may be unsuccessful in opening and remodeling our stores.

Our long-term growth is dependent on the success of strategic initiatives to increase the number of our stores and enhance the facilities of existing stores. We incur significant costs each time we open a new store and other expenses when we relocate or remodel existing stores. The expenses of opening, relocating or remodeling any of our stores may be higher than anticipated. If we are unable to open or are delayed in opening new stores, we may incur significant costs which may adversely affect our financial results. If we are unable to remodel or are delayed in remodeling stores, we may incur significant costs which may adversely affect our financial results.

We are dependent on the service of certain key personnel.

The success of our business will continue to be highly dependent upon the continued employment of Richard M. Frank, the Chairman of the Board of Directors and Chief Executive Officer of the Company, Michael H. Magusiak, the President of the Company, and other members of our senior management team. Although the Company has entered into employment agreements with each of Mr. Frank and Mr. Magusiak, the loss of the services of either of such individuals could have a material adverse effect upon our business and development. Our success will also depend upon our ability to retain and attract additional skilled management personnel to our senior management team and at our operational level. There can be no assurances that we will be able to retain the services of Messrs. Frank or Magusiak, senior members of our management team or the required operational support at the store level in the future.

Our business is highly seasonal and quarterly results may fluctuate significantly as a result of this seasonality.

We have experienced, and in the future could experience, quarterly variations in revenues and profitability as a result of a variety of factors, many of which are outside our control, including the timing and number of new store openings, the timing of capital investments in existing stores, the timing of school vacations and holidays, weather conditions and natural disasters. We typically experience lower revenues and profitability in the second and fourth quarters than in the first and third quarters. If revenues are below expectations in any given quarter, our operating results will likely be adversely affected for that quarter.

We are subject to intense competition in both the restaurant and entertainment industries.

We believe that our combined restaurant and entertainment center concept puts us in a niche which combines elements of both the restaurant and entertainment industries. As a result, the Company, to some degree, competes with entities in both industries. Although other restaurant chains presently utilize the concept of combined family entertainment-dining operations, we believe these competitors operate primarily on a local, regional or market-by-market basis. Within the traditional restaurant sector, we compete with other casual dining restaurants on a nationwide basis with respect to price, quality and speed of service, type and quality of food, personnel, the number and location of restaurants, attractiveness of facilities, effectiveness of advertising and marketing programs, and new product development. Such competitive market conditions, including the effectiveness of our advertising and promotion and the emergence of significant new competition, could adversely affect our operating results.

Negative publicity concerning food quality, health and other issues could adversely affect our financial results.

Food service businesses can be adversely affected by litigation and complaints from guests, consumer groups or government authorities resulting from food quality, illness, injury or other health concerns or operating issues stemming from one store or a limited number of stores. Publicity concerning food-borne illnesses and injuries caused by food tampering may negatively affect our operations, reputation and brand. Such publicity may have a significant adverse impact on the financial results of the Company. We could incur (i) significant liabilities if a lawsuit or claim resulted in a judgment against us, or (ii) significant litigation costs, regardless of the result.

We may experience an increase in food, labor and other costs.

An increase in food, labor, utilities, insurance and/or other operating costs may adversely affect the financial results of the Company. Such an increase may adversely affect the Company directly or adversely affect our vendors, franchisees and others whose performance have a significant impact on our financial results.

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Specifically, any increase in the prices for food commodities, including cheese, could adversely affect our financial results. The performance of our stores is also adversely affected by increases in the price of utilities on which the stores depend, such as natural gas, whether as a result of inflation, shortages or interruptions in supply, or otherwise. Our business also incurs significant costs for and including among other things, insurance, marketing, taxes, real estate, borrowing and litigation, all of which could increase due to inflation, rising interest rates, changes in laws, competition, or other events beyond our control.

In addition, a number of our employees are subject to various minimum wage requirements. Several states and cities in which we operate stores have established a minimum wage higher than the federally mandated minimum wage. There may be similar increases implemented in other jurisdictions in which we operate or seek to operate. These minimum wage increases may have an adverse effect on our financial results.

We are subject to risks from disruption of our commodity distribution system

Any disruption in our commodity distribution system could adversely affect our financial results. We use a single vendor to distribute most of the products and supplies used in our stores. Any failure by this vendor to adequately distribute products or supplies to our stores could increase our costs and have a material adverse affect on our financial results.

Our stores may be adversely affected by local conditions, events and natural disasters.

Certain regions in which our stores are located may be subject to adverse local conditions, events or natural disasters. A natural disaster may damage our stores or other operations which may adversely affect the financial results of the Company. In addition, if severe weather, such as heavy snowfall or extreme temperatures, discourages or restricts customers in a particular region from traveling to our stores, our sales could be adversely affected. If severe weather occurs during the first and third quarters of the year, the adverse impact to our sales and profitability could be even greater than at other times during the year because we generate a significant portion of our sales and profits during these periods.

Unanticipated conditions in foreign markets may adversely affect our ability to operate effectively in those markets.

In addition to our stores in the United States, we currently own or franchise stores in Canada, Chile, Guatemala, Puerto Rico and Saudi Arabia. We may in the future expand into additional foreign markets. We are subject to the regulation and economic and political conditions of any foreign market in which we operate our stores and any change in the regulation or conditions of these foreign markets may adversely affect our financial results. Changes in foreign markets that may affect our financial results include, but are not limited to, taxation, inflation, currency fluctuations, political instability, war, increased regulations and quotas, tariffs and other protectionist measures.

We are subject to risks in connection with owning and leasing real estate.

As owner and lessee of the land and/or building for our stores we are subject to all of the risks generally associated with owning and leasing real estate, including changes in the supply and demand for real estate in general and the supply and demand for the use of the stores. Any obligation to continue making rental payments with respect to leases for closed stores could adversely affect our financial results.

We may not be able to adequately protect our trademarks or other proprietary rights.

We own certain common law trademark rights and a number of federal and international trademark and service mark registrations and proprietary rights relating to our operations. We believe that our trademarks and other proprietary rights are important to our success and our competitive position. We, therefore, devote appropriate resources to the protection of our trademarks and proprietary rights. The protective actions that we take, however, may not be enough to prevent unauthorized usage or imitation by others, which could harm our image, brand or competitive position and, if we commence litigation to enforce our rights, we may incur significant legal fees.

We cannot be assured that third parties will not claim that our trademarks or menu offerings infringe upon their proprietary rights. Any such claim, whether or not it has merit, may result in costly litigation, cause delays in introducing new menu items in the future or require us to enter into royalty or licensing agreements. As a result, any such claim could have a material adverse effect on our business, results of operations, and financial position.

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We are dependent on certain systems and technologies which may be disrupted.

The Company’s operations are dependent upon the successful functioning of our computer and information systems. Damage, interruption or failure of our systems may result in additional development costs, loss of customers, loss of customer data, negative publicity, harm to our business and reputation and exposure to losses or other liabilities.

We may be adversely affected by negative publicity relating to our target market.

The Company’s target market of children between the ages of two and 12 and families with small children may be highly sensitive to adverse publicity that may arise from an actual or perceived negative isolated event within one of our stores. We are also subject to risks of litigation and regulatory action regarding advertising to our target market. Any such litigation or regulatory action may adversely affect our financial results. There can be no assurance that the Company will not experience negative publicity regarding one or more of its stores. The occurrence of negative publicity regarding one or more of the Company’s locations could materially and adversely affect the Company’s image with its customers and its results of operations.

We are subject to various government regulations which may adversely affect our operations and financial performance.

The development and operation of our stores are subject to various federal, state and local laws and regulations in many areas of our business, including, but not limited to, those that impose restrictions, levy a fee or tax, or require a permit or license, or other regulatory approval. Difficulties or failure in obtaining required permits, licenses or other regulatory approvals could delay or prevent the opening of a new store, and the suspension of, or inability to renew, a license or permit could interrupt operations at an existing store. The Company is also subject to laws governing its relationship with employees, including minimum wage requirements, overtime, working and safety conditions, and immigration status requirements. A significant portion of the Company’s store personnel are paid at rates related to the minimum wage established by federal, state and municipal law. Increases in such minimum wage result in higher labor costs to the Company, which may be partially offset by price increases and operational efficiencies. While the Company endeavors to comply with all applicable laws and regulations, governmental and regulatory bodies may change such laws and regulations in the future, which may require the Company to incur substantial cost increases. If the Company fails to comply with applicable laws and regulations, it may be subject to various sanctions, and/or penalties and fines. Additionally, failure to protect the integrity and security of our customers’ personal information could expose us to litigation, as well as materially damage our standing with our customers.

We face litigation risks from customers, franchisees, employees and other third parties in the ordinary course of business.

The Company’s business is subject to the risk of litigation by current and former employees, consumers, suppliers, shareholders or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation. The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. The cost to defend future litigation may be significant. There may also be adverse publicity associated with litigation that could decrease customer acceptance of our food or entertainment offerings, regardless of whether the allegations are valid or whether we are ultimately found liable.

We are continually subject to risks from litigation and regulatory action regarding advertising to our market of children between the ages of two and 12 years old. In addition, since certain of our stores serve alcoholic beverages, we are subject to “dram shop” statutes. These statutes generally allow a person injured by an intoxicated person to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. Recent litigation against restaurant chains has resulted in significant judgments and settlements under dram shop statutes.

Under certain circumstances plaintiffs may file certain types of claims which may not be covered by insurance. In some cases, plaintiffs may seek punitive damages which may not be covered by insurance. Any litigation the Company faces could have a material adverse effect on the Company’s business, financial condition and results of operations.

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We face risks with respect to product liability claims and product recalls.

We purchase merchandise from third-parties and offer this merchandise to customers for sale or in exchange for prize tickets. This third-party merchandise could be subject to recalls and other actions by regulatory authorities. We have experienced, and may in the future experience, issues that result in recalls of merchandise. In addition, individuals have asserted claims, and may in the future assert claims, that they have sustained injuries from third-party merchandise offered by us, and we may be subject to future lawsuits relating to these claims. There is a risk that these claims or liabilities may exceed, or fall outside of the scope of, our insurance coverage. Any of the issues mentioned above could result in damage to our reputation, diversion of development and management resources, reduced sales and increased costs, any of which could harm our business.

Changes in financial accounting standards or interpretations of existing standards could affect reported results of operations.

Generally accepted accounting principles and accompanying accounting pronouncements, implementation guidelines, and interpretations for many aspects of our business are highly complex and involve subjective judgments. Changes in these accounting standards, new accounting pronouncements and interpretations may occur that could adversely affect the Company’s reported financial position, results of operations and/or cash flows.

Other risk factors may adversely affect our financial performance.

Other risk factors that could cause our actual results to differ materially from those indicated in the forward-looking statements by affecting, among many things, pricing, consumer spending and consumer confidence, include, without limitation, changes in economic conditions, increased fuel costs and availability for our employees, customers and suppliers, health epidemics or pandemics or the prospects of these events, consumer perceptions of food safety, changes in consumer preferences and behaviors, governmental monetary policies, changes in demographic trends, availability of employees, terrorist acts, energy shortages and rolling blackouts, and weather (including major hurricanes and regional snow storms) and other acts of God.

Risks Related to Our Common Stock

A failure to establish, maintain and apply adequate internal control over financial reporting could have a material adverse affect on our business and/or market valuation of our common stock.

The Company is subject to the ongoing internal control provisions of Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”). These provisions provide for the identification of material weaknesses in internal control over financial reporting, which is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. We had previously identified a material weakness relating to our historical stock option granting process, and have taken steps to improve our corporate governance process in regards to granting of equity compensation awards in the future. As of December 30, 2007, we have concluded that our internal controls over financial reporting are effective; however there can be no assurance that we will be able to maintain all of the controls necessary to remain in compliance with Sarbanes-Oxley in the future. Should the Company identify any material weaknesses in internal control over financial reporting in the future, there can be no assurance that we will be able to remediate such material weaknesses in a timely manner. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report financial results accurately and timely or to detect and/or prevent fraud. A failure to maintain an effective system of internal control may also result in a negative market reaction in regards to the valuation of our common stock.

Item 1B. Unresolved Staff Comments.

None.

11

Item 2. Properties.

The following table sets forth certain information regarding the Chuck E. Cheese’s operated by the Company as of December 30, 2007.

Domestic	Chuck E. Cheese’s
Alabama	7
Alaska	1
Arizona	2
Arkansas	6
California	74
Colorado	10
Connecticut	6
Delaware	2
Florida	23
Georgia	16
Idaho	1
Illinois	22
Indiana	14
Iowa	5
Kansas	4
Kentucky	3
Louisiana	9
Maine	1
Maryland	14
Massachusetts	11
Michigan	19
Minnesota	5
Mississippi	3
Missouri	7
Nebraska	2
Nevada	5
New Hampshire	2
New Jersey	15
New Mexico	3
New York	21
North Carolina	13
Ohio	18
Oklahoma	3
Oregon	1
Pennsylvania	22
Rhode Island	1
South Carolina	7
South Dakota	2
Tennessee	12
Texas	56
Virginia	11
Washington	7
West Virginia	1
Wisconsin	9
	476
International
Canada	14
	490

12

Of the 490 Chuck E. Cheese’s owned by the Company as of December 30, 2007, 431 occupy leased premises and 59 occupy owned premises. The primary lease terms of these stores will expire at various times from 2008 to 2028 and available lease terms, including options to renew, expire at various times from 2008 to 2040, as described in the table below.

Year of Expiration	Number of Stores	Range of Renewal Options (Years)
2008	27	None to 20
2009	47	None to 20
2010	30	None to 20
2011	33	None to 20
2012	41	None to 20
2013 through 2028	253	None to 20

The leases of Chuck E. Cheese’s stores contain terms that vary from lease to lease, although a typical lease provides for a primary term of 10 years, with two additional five-year options to renew, and provides for annual minimum rent payments of approximately $5.00 to $38.73 per square foot, subject to periodic adjustment. It is common for the Company to take possession of leased premises prior to the commencement of rent payments for the purpose of constructing leasehold improvements. The leases require the Company to pay the cost of repairs, insurance and real estate taxes and, in many instances, provide for additional rent equal to the amount by which a percentage of gross revenues exceeds the minimum rent.

Item 3. Legal Proceedings.

On June 19, 2006, a lawsuit was filed by a personal representative of the estates of Robert Bullock, II and Alysa Bullock against CEC Entertainment, Inc., Manley Toy Direct, LLC (“Manley Toy”), et. al. in the Circuit Court for the Fourth Judicial Circuit, Duval County, Florida, Case No. 2006 CA 004378 (“Bullock Litigation”). In his complaint, the Bullock Litigation’s plaintiff alleges that the May 8, 2006 mobile home fire which resulted in the deaths of his two children, Robert Bullock, II and Alysa Bullock, was caused by a defective disco light product that was purchased at a Chuck E. Cheese’s. The Bullock Litigation’s plaintiff is seeking an unspecified amount of damages. The Company tendered its defense of this matter to Manley Toy, from which the Company had purchased certain disco light products. Manley Toy accepted the Company’s tender and has indicated it will indemnify the Company in the event of any judgment or settlement that exceeds coverage afforded under Manley Toy’s insurance policies. The Company filed its answer to the complaint on September 7, 2006, and discovery has commenced. The Bullock Litigation’s ultimate outcome, and any ultimate effect on the Company, cannot be precisely determined at this time. However, the Company believes that it has meritorious defenses to this lawsuit and is asserting a vigorous defense against it. Having considered its available insurance coverage and indemnification from Manley Toy, the Company does not expect this matter to have a material impact on its financial position or results of operations.

On January 23, 2007, a purported class action lawsuit against the Company, entitled Blanco v. CEC Entertainment, Inc., et. al., Cause No. CV-07-0559 (“Blanco Litigation”), was filed in the United States District Court for the Central District of California. The Blanco Litigation was filed by an alleged customer of one of the Company’s Chuck E. Cheese’s stores purporting to represent all individuals in the United States who, on or after December 4, 2006, were knowingly and intentionally provided at the point of sale or transaction with an electronically-printed receipt by the Company that was in violation of U.S.C. Section 1681c(g) of the Fair and Accurate Credit Transactions Act (“FACTA”). The Blanco Litigation is not seeking actual damages, but is only seeking statutory damages for each willful violation under FACTA. On January 10, 2008, the Court denied class certification without prejudice and stayed the case pending the appellate outcome of the Soualian v. Int’l Coffee & Tea LLC case; which is presently pending before the Ninth Circuit. Thus, the Blanco Litigation’s ultimate outcome, and any ultimate effect on the Company, cannot be precisely determined at this time. However, the Company believes that it has meritorious defenses to this lawsuit and intends to vigorously defend against it, including the Blanco Litigation plaintiffs’ further efforts, if any, to certify a nationwide class action.

On November 19, 2007, a purported class action lawsuit against the Company, entitled Ana Chavez v. CEC Entertainment, Inc., et. al., Cause No. BC380996 (“Chavez Litigation”), was filed in the Central District Superior Court of California in Los Angeles County. The Company received service of process on December 21, 2007. The Chavez Litigation was filed by a former store employee purporting to represent other similarly situated employees and former employees of the Company in California from 2003 to the present. The lawsuit alleges violations of the state wage and hour laws involving unpaid vacation wages, meal and rest periods, wages due upon termination, waiting time penalties and seeks an unspecified amount in damages. On January 18, 2008, the Company removed the Chavez Litigation to Federal Court. The Company believes that it has meritorious defenses to this lawsuit and intends to vigorously defend against it, including the Chavez Litigation plaintiff’s efforts to certify a California class action. However, the Chavez Litigation’s ultimate outcome, and any ultimate effect on the Company cannot be determined at this time.

13

On January 9, 2008, a purported class action lawsuit against the Company, entitled Cynthia Perez et. al. v. CEC Entertainment, Inc., et. al., Cause No. BC3853527 (“Perez Litigation”), was filed in the Central District Superior Court of California in Los Angeles County. The Company was served with the complaint on January 30, 2008. The Perez Litigation was filed by former store employees purporting to represent other similarly situated employees and former employees of the Company in California from 2004 to the present. The lawsuit alleges violations of the state wage and hour laws involving unpaid overtime wages, meal and rest periods, itemized wage statements, waiting time penalties and seeks an unspecified amount in damages. The Company believes that it has meritorious defenses to this lawsuit and intends to vigorously defend against it, including the Perez Litigation plaintiff’s efforts to certify a California class action. However, the Perez Litigation’s ultimate outcome, and any ultimate effect on the Company cannot be determined at this time.

Item 4. Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of security holders during the fourth quarter of 2007.

14

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities.

The Company’s common stock is listed on the New York Stock Exchange under the symbol “CEC.” The following table sets forth the highest and lowest price per share of the common stock during each quarterly period within the two most recent years, as reported on the New York Stock Exchange:

		High		Low
2007
	- 1st quarter	$	43.83	$	38.94
	- 2nd quarter	$	43.19	$	34.50
	- 3rd quarter	$	37.11	$	26.17
	- 4th quarter	$	30.69	$	24.37
2006
	- 1st quarter	$	38.46	$	30.99
	- 2nd quarter	$	36.26	$	30.95
	- 3rd quarter	$	33.90	$	27.69
	- 4th quarter	$	41.14	$	30.91

As of February 13, 2008, there were an aggregate of 26,641,444 shares of the Company’s common stock outstanding and approximately 2,120 stockholders of record.

The Company has not paid any cash dividends on its common stock and has no present intention of paying cash dividends thereon in the future; however, the Company’s intent in regards to paying cash dividends is subject to continual review. The Company currently plans to retain any earnings to finance anticipated capital expenditures, repurchase the Company’s common stock and reduce its long-term debt. In addition, pursuant to the Company’s revolving credit facility agreement, there are restrictions on the amount of dividends that may be paid based on certain financial covenants and criteria.

From time to time, the Company repurchases shares of its common stock under a plan authorized by its Board of Directors. For further discussion of this matter, see the section titled “Financial Condition, Liquidity and Capital Resources” under Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The following table presents information related to repurchases of common stock the Company made during the fourth quarter of 2007 pursuant to a repurchase program authorized by the Company’s Board of Directors in July 2005, and increased in October 2007:

	Total Number of Shares Purchased (1)	Average Price Paid per Share (1)		Number of Shares Purchased Under the Program	Maximum Dollar Amount that May Yet be Purchased Under the Program (2)
Oct. 1 – Oct. 28, 2007	92,000	$	29.76	92,000	$	344,100,983
Oct. 29 – Nov. 25, 2007	2,342,657	$	29.21	2,342,600	$	275,666,036
Nov. 26 – Dec. 30, 2007	1,561,513	$	27.82	1,561,513	$	232,222,241
Total	3,996,170	$	28.68	3,996,113

(1) For the period ended November 25, 2007, the total number of shares purchased included 57 shares owned and tendered by employees at an average price per share of $29.49 to satisfy tax withholding requirements on the vesting of restricted shares.

(2) On October 22, 2007, the Company’s Board of Directors authorized a $200.0 million increase in the repurchase program, bringing the total share repurchase authorization to $600.0 million, of which $232.2 million remained for purchase as of December 30, 2007.

15

Stock Performance Graph

The following graph compares the annual change in the Company’s cumulative total stockholder return for the five fiscal years ended December 30, 2007 based upon the market price of the Company’s common stock, compared with the cumulative total return on the NYSE Market Index and an industry peer group index assuming $100 was invested. Prior to 2007, the Company used the NYSE Index for U.S. companies with a standard industrial classification (“SIC”) for eating and drinking places (“NYSE Eating and Drinking Places Index”) as its comparative peer group. In 2007, the comparative peer group was changed to the S&P SmallCap 600 Restaurants Index because the NYSE Eating and Drinking Places Index includes several companies which are substantially larger than the Company in terms of number of stores, revenues and market capitalization. The S&P SmallCap 600 Restaurant Index, of which the Company is a member, is comprised of companies that are more comparable to the Company in terms of size of operations and market capitalization, and thus considered a more comparable peer group.

	Dec. 29 2002		Dec. 28 2003		Jan. 2 2005		Jan. 1 2006		Dec. 31 2006		Dec. 30 2007
CEC Entertainment	$	100.00	$	159.24	$	200.89	$	171.08	$	202.30	$	132.03
NYSE Stock Market (US Companies)	$	100.00	$	129.55	$	146.29	$	158.37	$	185.55	$	195.46
NYSE Stocks - Eating and Drinking Places (US Companies SIC 5800 to 5899)	$	100.00	$	143.35	$	190.28	$	206.25	$	265.80	$	328.22
S&P SmallCap 600 Restaurants	$	100.00	$	133.60	$	164.48	$	168.49	$	187.41	$	136.89

16

Item 6. Selected Financial Data.

The following selected financial data presented below should be read in conjunction with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Company’s consolidated financial statements under Item 8. “Financial Statements and Supplementary Data.” The Company operates on a 52 or 53 week fiscal year ending on the Sunday nearest December 31. Fiscal year 2004 was 53 weeks in length and all other fiscal years presented were 52 weeks.

	2007		2006(4)		2005(4)		2004(4)		2003(4)
	(in thousands, except per share data)
Statement of earnings data:
Company store sales	$	781,665	$	769,241	$	722,873	$	723,637	$	649,741
Franchise fees and royalties		3,657		3,312		3,296		3,647		3,824
Total revenues		785,322		772,553		726,169		727,284		653,565
Company store operating costs:
Cost of sales		126,413		121,808		115,930		118,747		107,125
Labor expenses		214,147		210,010		202,780		200,447		183,198
Depreciation and amortization		70,701		64,292		59,849		54,574		48,314
Rent expense		63,734		60,333		57,022		54,723		50,053
Other operating expenses		113,789		106,025		98,094		96,746		87,915
Total Company store operating costs		588,784		562,468		533,675		525,237		476,605
Advertising expense		30,651		32,253		29,294		27,589		25,919
General and administrative		51,705		53,037		45,527		47,283		48,888
Asset impairment		9,638		3,910		360		—		—
Total operating costs and expenses		680,778		651,668		608,856		600,109		551,412
Operating income		104,544		120,885		117,313		127,175		102,153
Interest expense, net		13,170		9,508		4,532		2,514		2,144
Income before income taxes		91,374		111,377		112,781		124,661		100,009
Income taxes		35,453		43,120		43,110		47,683		39,425
Net income	$	55,921	$	68,257	$	69,671	$	76,978	$	60,584
Per share data:(1) (2)
Earnings per share:
Basic	$	1.81	$	2.09	$	1.99	$	2.07	$	1.52
Diluted	$	1.76	$	2.04	$	1.93	$	2.00	$	1.50
Weighted average shares outstanding:
Basic		30,922		32,587		35,091		37,251		39,654
Diluted		31,694		33,465		36,188		38,472		40,389
Balance sheet data:
Total assets	$	737,893	$	704,185	$	651,920	$	612,129	$	583,162
Long-term obligations (including current portion of debt and capital leases) (3)		338,310		190,364		163,671		100,808		84,258
Shareholders’ equity		217,993		359,206		343,183		365,978		373,374

⁽¹⁾ No cash dividends on common stock were paid in any of the years presented.

⁽²⁾ Share and per share information reflect the effects of a 3 for 2 stock split effected in the form of a special stock dividend that was effective on March 15, 2004.

⁽³⁾ Long-term obligations include long-term debt, capital lease obligations and accrued insurance.

⁽⁴⁾ Amounts presented in the consolidated statement of earnings for fiscal years prior to 2007 have been reclassified to conform to the presentation in fiscal year 2007. The reclassification had no impact on net income and the change in total revenue was immaterial.

17

	2007			2006			2005			2004			2003
	(in thousands, except store count data)
Cash flow data:
Cash provided by operating activities	$	162,742		$	149,602		$	134,998		$	162,974		$	155,588
Cash used in investing activities		(108,647	)		(115,516	)		(91,247	)		(80,327	)		(94,226	)
Cash used in financing activities		(54,030	)		(27,962	)		(43,365	)		(78,916	)		(65,506	)
Number of stores at year end:
Company-owned		490			484			475			449			418
Franchise		44			45			44			46			48
		534			529			519			495			466

Non-GAAP Performance Measures

The Company reports and discusses its operating results using financial measures consistent with accounting principles generally accepted in the United States (“GAAP”). From time to time in the course of financial presentations, earnings conference calls or otherwise, the Company may disclose certain non-GAAP performance measures such as Adjusted EBITDA or Free Cash Flow, both of which are defined below. The Company believes that the presentation of non-GAAP measures provides useful information to investors and other interested parties regarding the Company’s operating performance, its capacity to incur and service debt, fund capital expenditures and other corporate uses. Non-GAAP performance measures should not be viewed as alternatives or substitutes for the Company’s reported GAAP results.

The following table sets forth a reconciliation of the Company’s historical net income to Adjusted EBITDA and certain other supplemental financial data for the periods shown:

	2007			2006			2005			2004			2003
	(in thousands, except percentages)
Total revenues	$	785,322		$	772,553		$	726,169		$	727,284		$	653,565
Net income	$	55,921		$	68,257		$	69,671		$	76,978		$	60,584
Add:
Income taxes		35,453			43,120			43,110			47,683			39,425
Interest expense, net		13,170			9,508			4,532			2,514			2,144
Depreciation and amortization		71,919			65,392			61,310			55,771			49,502
Asset disposal and impairment losses		14,465			10,254			2,389			1,576			1,964
Stock-based compensation		4,384			5,601			7,962			8,858			10,388
Adjusted EBITDA (Non-GAAP)	$	195,312		$	202,132		$	188,974		$	193,380		$	164,007
Adjusted EBITDA Margin		24.9	%		26.2	%		26.0	%		26.6	%		25.1	%
The following table sets forth a reconciliation of the Company’s historical cash provided by operating activities to Free Cash Flow:
	2007			2006			2005			2004			2003
	(in thousands)
Cash provided by operating activities	$	162,742		$	149,602		$	134,998		$	162,974		$	155,588
Less:
Capital expenditures		109,066			115,810			91,637			80,088			93,899
Free Cash Flow (Non-GAAP)	$	53,676		$	33,792		$	43,361		$	82,886		$	61,689

Adjusted EBITDA, a non-GAAP measure, is defined by the Company as net income excluding income taxes, net interest expense, depreciation, amortization, long-lived asset disposal and impairment losses, and stock-based compensation. Adjusted EBITDA Margin represents Adjusted EBITDA divided by total revenues expressed as a percentage. Free Cash Flow, also a non-GAAP measure, is defined by the Company as cash provided by operating activities less capital expenditures. Adjusted EBITDA and Free Cash Flow as defined herein may differ from similarly title measures presented by other companies.

18

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

The Company and its subsidiaries develop, operate and franchise family entertainment-restaurant centers under the name “Chuck E. Cheese’s” in 48 states and five foreign countries/territories. The primary sources of the Company’s revenues are from Company-owned store sales (food, beverage, game and merchandise, collectively “Company store sales”) and franchise royalties and fees.

Certain costs and expenses relate only to Company-owned stores. These include:

• Cost of sales which include food, beverage and related supplies costs less rebates from suppliers, paper and birthday supplies, the costs of merchandise sold to and related costs of prizes provided to customers.

• Labor expenses which include all direct store labor costs, related taxes and benefits.

• Depreciation and amortization expense directly related to store assets.

• Rent expense related to store facilities, excluding common occupancy costs (e.g. common area maintenance (“CAM”) charges, property taxes, etc.).

• Other operating expenses which include utilities, repair costs, liability and property insurance, CAM, property taxes, preopening expenses and store asset disposal losses, and all other costs directly related to the operation of a store facility.

Advertising expense includes production costs for television commercials, newspaper inserts, coupons and media expenses for national and local advertising, with offsetting contributions made by the Company’s franchisees pursuant to its franchise agreements.

General and administrative costs represent all expenses associated with the Company’s corporate office operations including regional and district management and corporate personnel payroll and benefits, depreciation of corporate assets and other administrative costs not directly related to the operation of a store facility.

Asset impairment represents non-cash charges related to long-lived assets within the stores that are not expected to generate sufficient projected cash flows in order to recover their net book value.

Comparable store sales (sales of domestic stores that were open for a period greater than eighteen consecutive months at the beginning of each respective year or twelve months for acquired stores) are a critical factor when evaluating the Company’s business. A summary of average annual comparable store sales is shown below:

	2007		2006		2005
	(in thousands, except store data)
Average annual sales per comparable store	$	1,602	$	1,647	$	1,633
Number of stores included in comparable store base		436		416		388

The following table summarizes information regarding Company-owned and franchised stores:

	2007		2006		2005
Number of Company-owned stores:
Beginning of period	484		475		449
New	10		14		25
Acquired from franchisees	1		—		2
Closed	(5	)	(5	)	(1	)
End of period	490		484		475
Number of franchise stores:
Beginning of period	45		44		46
New	1		1		1
Acquired by the Company	(1	)	—		(2	)
Closed	(1	)	—		(1	)
End of period	44		45		44

19

Results of Operations

The following table summarizes the Company’s costs and expenses expressed as a percentage of total revenues, except where otherwise noted:

	2007		2006		2005
Company store sales	99.5	%	99.6	%	99.5	%
Franchise fees and royalties	0.5	%	0.4	%	0.5	%
Total revenues	100.0	%	100.0	%	100.0	%
Company store operating costs (as a percentage of Company store sales):
Cost of sales	16.2	%	15.8	%	16.0	%
Labor expenses	27.3	%	27.3	%	28.0	%
Depreciation and amortization	9.0	%	8.4	%	8.3	%
Rent expense	8.2	%	7.8	%	7.9	%
Other operating expenses	14.6	%	13.8	%	13.6	%
Total Company store operating costs	75.3	%	73.1	%	73.8	%
Advertising expense	3.9	%	4.2	%	4.0	%
General and administrative	6.6	%	6.9	%	6.3	%
Asset impairment	1.2	%	0.5	%	—
Total operating costs and expenses	86.7	%	84.4	%	83.8	%
Operating income	13.3	%	15.6	%	16.2	%
Interest expense, net	1.7	%	1.2	%	0.7	%
Income before income taxes	11.6	%	14.4	%	15.5	%

Fiscal Year 2007 Compared to Fiscal Year 2006

Revenues

Company store sales increased 1.6% to $781.7 million in 2007 compared to $769.2 million for the same period in 2006 primarily due to the net increase in the number of Company-owned stores in 2007, partially offset by a 1.4% decrease in comparable store sales during the year. In 2007, the weighted average number of Company-owned stores open during the year increased by 11 stores as compared to 2006. We believe that comparable store sales in 2007 were negatively affected by a weak consumer environment and a significant increase in competition including family movies. Menu prices increased 2.2% between the two years.

Revenue from franchise fees and royalties were $3.7 million in 2007 compared to $3.3 million in 2006. During 2007, one new franchise store opened, one franchise store was acquired by the Company and one franchise store closed. Domestic franchise comparable store sales decreased 0.7% between the two years.

Costs and Expenses

Cost of sales as a percentage of store sales increased 0.4% to 16.2% in 2007 from 15.8% for the same period in 2006 primarily due to higher cheese prices and a larger beverage rebate received in the prior year as compared to 2007. These increases were partially offset by higher menu prices. The average price per pound of cheese in 2007 increased approximately $0.50 compared to prices paid in 2006.

Labor expense as a percentage of store sales remained constant at 27.3% in 2007 and for the same period in 2006 primarily due to a 5.7% increase in hourly wage rates which was offset by improvement in labor productivity and an increase in menu prices.

Depreciation and amortization expense related to our stores increased $6.4 million to $70.7 million in 2007 compared to $64.3 million for the same period in 2006. The increase was due to ongoing capital investment initiatives occurring at our existing stores and new store development.

20

Store rent expense increased $3.4 million to $63.7 million in 2007 compared to $60.3 million for the same period in 2006 due to new store development.

Other store operating expenses as a percentage of store sales increased 0.8% to 14.6% in 2007 compared to 13.8% for the same period in 2006. The increase was primarily due to negative comparable store sales and a 0.6% increase in insurance expense as percentage of store sales in 2007 attributable to the favorable impact of prior year claims reserves adjustments, resulting from improved trends of general liability and workers compensation claims recognized in 2006, which did not recur to the same extent in 2007.

Advertising expense as a percentage of total revenues decreased 0.3% to 3.9% in 2007 from 4.2% for the same period in 2006 primarily due to lower advertisement production costs in 2007 compared to 2006.

General and administrative expenses associated with our corporate office operations as a percentage of total revenues decreased 0.3% to 6.6% in 2007 from 6.9% for the same period in 2006. The decrease was primarily due to reductions in corporate office compensation and non-recurring professional service fees. During 2007, corporate compensation expense decreased $2.5 million, or 0.3% as a percent of total revenues, primarily due to reductions in bonus costs. The Company also benefited in 2007 from a decrease in professional service fees primarily associated with the conclusion of the Company’s 2006 review of its stock option granting practices. These reductions were partially offset by certain tax related charges and increases in other corporate office expenses.

Impairments related to our store assets increased to $9.6 million in 2007 compared to $3.9 million for the same period in 2006. The asset impairment charges were recorded to write down the carrying amount of the property and equipment at six and five of our stores, in 2007 and 2006, respectively.

Interest expense increased to $13.2 million in 2007 compared to $9.5 million for the same period in 2006 primarily due to a greater amount of debt outstanding under the Company’s credit facility and higher average interest rates incurred in 2007.

The Company’s effective income tax rate was 38.8% and 38.7% in 2007 and 2006, respectively.

Net Income

The Company reported net income of $55.9 million in 2007 compared to $68.3 million for the same period in 2006 due to the changes in revenues and expenses discussed above. The Company’s diluted earnings per share decreased to $1.76 per share in 2007 from $2.04 per share for the same period in 2006 due to the 18.1% decrease in net income which was partially offset by a 5.3% decrease in the number of weighted average shares outstanding.

Fiscal Year 2006 Compared to Fiscal Year 2005

Revenues

Company store sales increased 6.4% to $769.2 million in 2006 compared to $722.9 million for the same period in 2005 primarily due to the net increase in the number of Company-owned stores in 2006 and a 2.7% increase in comparable store sales. In 2006, the Company opened 14 new stores and closed five stores. Menu prices increased approximately 0.8% between the two years.

Revenue from franchise fees and royalties were $3.3 million in both 2006 and 2005. During 2006, one new franchise store opened. Domestic franchise comparable store sales increased 1.8% in 2006 compared to 2005.

Costs and Expenses

Cost of sales as a percentage of store sales decreased 0.2% to 15.8% in 2006 from 16.0% for the same period in 2005, primarily due to a 15% reduction in average cheese prices paid during 2006 compared to 2005. This was partially offset by additional costs of store prizes which increased approximately 0.2% as a percent of store sales due to the distribution of free tokens related to a marketing promotion in the first quarter of 2006.

Labor expense as a percentage of store sales decreased 0.7% to 27.3% in 2006 from 28.0% for the same period in 2005 primarily due to the increase in comparable store sales and improved operational efficiencies.

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Depreciation and amortization expense related to our stores increased $4.4 million to $64.3 million in 2006 compared to $59.8 million for the same period in 2005. The increase was primarily due to new store development and capital initiatives focused on our existing stores.

Store rent expense increased $3.3 million to $60.3 million in 2006 compared to $57.0 million for the same period in 2005 primarily due to new store development and increased rents.

Other store operating expenses as a percentage of store sales increased 0.2% to 13.8% in 2006 compared to 13.6% for the same period in 2005. The increase was primarily due to increases in utilities expense and asset write-offs, which were partially offset by leverage on fixed costs associated with the increase in comparable store sales and a reduction in insurance costs. Utilities expense as a percentage of store sales increased approximately 0.3% in 2006 primarily due to an 18% increase in the average electricity expense per store. In 2006, asset write-off charges attributable to store remodels and the write down of used games increased by approximately $4.3 million, or 0.5% of store sales. Insurance expense decreased approximately $1.5 million, or 0.2% of store sales between the two years due to improved trends in workers’ compensation and general liability claims and a reduction in insurance premiums.

Advertising expense as a percentage of total revenues increased 0.2% to 4.2% in 2006 compared to 4.0% for the same period in 2005 primarily due to an increase in television advertising and newspaper insert costs.

General and administrative expenses associated with our corporate office operations as a percentage of total revenues increased 0.6% to 6.9% in 2006 compared to 6.3% for the same period in 2005. The increase was primarily due to increases in corporate office compensation and professional service fees. During 2006, corporate compensation expense increased 0.4% as a percent of total revenues primarily due to the achievement of bonus performance criteria. In 2006, the Company also incurred an increase in professional service fees of 0.3% as a percentage of total revenue primarily associated with a review of its stock option granting practices.

Impairments related to our store assets increased to $3.9 million in 2006 compared to $0.4 million for the same period in 2005. In 2006, we recorded asset impairment charges of $3.9 million to write down the carrying amount of the property and equipment at five of our stores.

Interest expense increased to $9.5 million in 2006 compared to $4.5 million for the same period in 2005 primarily due to a greater amount of debt outstanding under the Company’s credit facility and an increase in interest rates.

The Company’s effective income tax rate was 38.7% and 38.2% in 2006 and 2005, respectively.

Net Income

The Company reported net income of $68.3 million in 2006 compared to $69.7 million for the same period in 2005 due to the changes in revenues and expenses discussed above. The Company’s diluted earnings per share increased 5.7% to $2.04 per share in 2006 from $1.93 per share for the same period in 2005. Weighted average diluted shares outstanding decreased 7.5% to 33.5 million in 2006 from 36.2 million in 2005 primarily due to the Company’s share repurchase program.

Financial Condition, Liquidity and Capital Resources

Cash provided by operating activities is a significant source of liquidity for the Company. Since substantially all of the Company’s sales are tendered with cash or credit cards, and accounts payable are generally due in five to 30 days, the Company is frequently able to carry current liabilities in excess of current assets. The net working capital deficit increased to $11.9 million at December 30, 2007 from $10.0 million at December 31, 2006 primarily due to the timing of payments for accounts payable and a decline in inventories. The Company’s primary requirements for cash relate to planned capital expenditures, the repurchase of the Company’s common stock and debt service. As discussed further below, in 2007, the Company increased the maximum available borrowings obtainable under its credit facility by a total of $350.0 million and the Board of Directors authorized a $200.0 million increase in the Company’s share repurchase program.

Net cash provided by operating activities increased to $162.7 million in 2007 from $149.6 million in 2006. The increase was primarily attributable to a $15.8 million federal income tax refund received in 2007 in connection with the implementation of certain tax strategies partially offset by the timing of payments for accrued expenses and changes in operating assets and liabilities between the two years.

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Net cash used in investing activities decreased to $108.6 million in 2007 from $115.5 million in 2006, due to a decrease in capital expenditures during 2007. Capital expenditures were $109.1 million in 2007 compared to $115.8 million in 2006. The decrease in capital expenditures was attributable to the opening of four fewer stores in 2007 than had been opened in the prior year and a lower average cost incurred per store for capital initiatives in 2007 compared to 2006. In 2007, capital initiatives affected 165 existing stores compared to 152 stores in 2006.

Net cash used in financing activities increased to $54.0 million in 2007 from $28.0 million in 2006, primarily due to a $181.8 million increase in the cost of repurchases of the Company’s common stock, partially offset by a $117.4 million increase in net borrowings obtained under the Company’s recently amended credit facility, and a $37.3 million increase in proceeds obtained through the exercise of employee stock options.

Future capital expenditures will primarily be for the development of new stores and reinvestment into the Company’s existing store base through various capital initiatives.

The Company’s plan for new store development is primarily focused on opening high volume stores in densely populated areas. In 2008, the Company plans to open approximately six to seven new Company-owned stores. The Company currently anticipates its cost of opening such new stores will vary depending upon many factors including the size of the unit and whether the Company acquires land or the store is an in-line or freestanding building. The average capital cost of all new stores expected to open in 2008 will approximate $2.5 million to $2.7 million per store. The average square footage of new stores in 2008 should approximate 14,000 square feet with projected average annual sales in excess of $2.0 million. The Company currently projects it will open 30 to 40 Company stores, including store relocations, during the next five years.

For its existing stores, the Company utilizes the following capital initiatives to maintain a unique and exciting environment providing a solid foundation for long-term revenue growth: (a) major remodels, (b) expanding the square footage of the store, and (c) a game enhancement initiative that includes new games and rides.

The major remodel initiative typically includes increasing the space allocated to the game room, an increase in the number of games and rides and in most cases includes a new exterior and interior identity. A new exterior identity includes a revised Chuck E. Cheese’s logo and signage, updating the exterior design of the buildings and, in some stores, colorful new awnings. The interior component includes new paint, updating décor, a new menu board, enhanced lighting, remodeled restrooms and an upgraded salad bar. The Company is currently planning to complete 20 to 24 major remodels in 2008, with an average cost of approximately $625,000 to $675,000 per store.

In addition to expanding the square footage of a store, store expansions typically include all components of a major remodel including an increase in the number of games and rides and on average range in cost from $1,000,000 to $1,100,000 per store. The Company is currently planning to complete 18 to 22 store expansions in 2008.

The primary components of the game enhancement initiative are to provide new games and rides. The average cost of a game enhancement in 2008 will approximate $125,000 to $175,000 per store. The Company is currently planning to complete 120 to 130 game enhancement initiatives.

The Company is estimating capital expenditures in 2008 to total approximately $80.0 million to $85.0 million, including approximately $54.0 million the Company is expecting to invest in its existing stores, approximately $19.0 million related to new unit development and the remainder for general store maintenance and corporate capital expenditures. The Company plans to fund its capital expenditures through cash flow from operations and, if necessary, borrowings under the Company’s revolving credit facility.

In August 2007, the Company increased its $200.0 million revolving credit facility by $100.0 million in accordance with the terms of the agreement. In October 2007, the credit facility agreement was amended to provide for total available borrowings of up to $550 million for a term of five years. As of December 30, 2007, there were $316.8 million of borrowings and $12.1 million of letters of credit outstanding under the credit facility. The amended credit facility, which matures in October 2012, includes an accordion feature allowing the Company to request an additional $50 million in borrowings at any time. As amended, the credit facility bears interest at LIBOR plus an applicable margin of 0.625% to 1.25% determined based on the Company’s financial performance and debt levels, or alternatively, the higher of (a) the prime rate or (b) the Federal Funds rate plus 0.50%. As of December 30, 2007, borrowings under the credit facility incurred interest at LIBOR (5.088%) plus 0.875% or prime (7.25%). All borrowings are unsecured, but the Company has agreed not to pledge any of its existing assets to secure future indebtedness. The credit facility agreement contains certain restrictions and conditions, as defined in the agreement, that require the Company to maintain financial covenant ratios, including a minimum fixed charge coverage ratio of 1.5 to 1.0 and a maximum leverage ratio of 3.0 to 1.0. At December 30, 2007, the Company was in compliance with these covenants.

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From time to time, the Company repurchases shares of its common stock under a plan authorized by its Board of Directors (the “Board”). The plan authorizes repurchases in the open market or in private transactions. In July 2005, the Board approved a $400 million share repurchase authorization. On October 22, 2007, the Board authorized a $200 million increase to the share repurchase authorization, bringing the total outstanding share repurchase authorization available at that time to approximately $347.0 million. During 2007, the Company repurchased 7,887,337 shares at an aggregate purchase price of approximately $248.1 million. At the end of 2007, approximately $232.2 million remained available for share repurchases under the $600 million repurchase authorization approved by the Board.

The Company continually assesses the most optimal means by which to repurchase its common stock, including but not limited to open market repurchases, private transactions or other structured transactions such as an accelerated share repurchase entered into with a banking partner. The Company currently anticipates, subject to market conditions, that it will increase its borrowings under the amended credit facility to reflect a debt to Adjusted EBITDA ratio of 2 to 1 and use cash provided by operations to complete the $232.2 million share repurchase authorization by the end of fiscal year 2010.

Contractual Obligations

The following are contractual cash obligations of the Company as of December 30, 2007 (in thousands):

	Cash Obligations Due by Period
	Total		Less than 1 Year		1 – 3 Years		3 – 5 Years		More than 5 Years
Operating leases (1)	$	818,111	$	65,277	$	128,910	$	129,511	$	494,413
Capital leases		20,066		1,699		3,398		3,315		11,654
Revolving line of credit (2)		316,800		—		—		316,800		—
Purchase commitments (3)		17,150		5,811		11,339		—		—
Uncertain tax positions (4)		6,207		6,207		—		—		—
	$	1,178,334	$	78,994	$	143,647	$	449,626	$	506,067
(1)    Includes the initial non-cancellable term plus renewal option periods provided for in the lease that can be reasonably assured and excludes obligations to pay property taxes, insurance and maintenance on the leased assets. (2)    The amount for the revolving credit facility excludes interest payments that are variable in nature. (3)    The Company is required to purchase a minimum volume under a contract with its beverage supplier. Failure to purchase the minimum volume could result in a higher price paid by the Company. The Company is also required to purchase certain store furniture totaling $380 thousand that has been or will be manufactured to specifications by the Company. (4)    Due to the uncertainty related to the timing and reversal of uncertain tax positions, only the short-term uncertain tax benefits have been provided in the table above. The long-term amounts excluded from the table above were approximately $4.7 million.

In addition to the above, the Company estimates that the accrued liabilities for group medical, general liability and workers’ compensation claims of approximately $16.2 million as of December 30, 2007 will be paid as follows: approximately $7.8 million to be paid in 2008 and the remainder paid over the six year period from 2009 to 2014.

As of December 30, 2007, capital expenditures totaling $10.3 million were outstanding and included in accounts payable. These amounts are expected to be paid in less than one year.

Inflation

The Company’s cost of operations, including but not limited to labor, food products, supplies, utilities, financing and rental costs, are significantly affected by inflationary factors. The Company pays most of its part-time employees rates that are related to federal, state and municipal mandated minimum wage requirements. Management anticipates that any increases in federal or state mandated minimum wage would result in higher costs to the Company, which the Company expects may be partially offset by menu price increases.

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Critical Accounting Policies and Estimates

The Company’s consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The application of GAAP requires the Company to make estimates and assumptions that affect the reported values of assets and liabilities at the date of the financial statements, the reported amount of revenues and expenses during the reporting period, and the related disclosures of contingent assets and liabilities. The use of estimates is pervasive throughout the Company’s financial statements and is affected by management judgment and uncertainties. The Company’s estimates, assumptions and judgments are based on historical experience, current market trends and other factors that it believes to be relevant and reasonable at the time the consolidated financial statements are prepared. The Company continually evaluates the information used to make these estimates as the business and the economic environment change. Actual results may differ materially from these estimates under different assumptions or conditions.

The significant accounting policies used in the preparation of the Company’s consolidated financial statements are described in Note 1 “Summary of significant accounting policies” under Item 8. “Financial Statements and Supplementary Data.” The Company considers an accounting policy or estimate to be critical if it requires difficult, subjective or complex judgments, and is material to the portrayal of financial condition, changes in financial condition or results of operations. The accounting policies and estimates that management considers most critical are: estimation of reserves and valuation allowances specifically related to insurance, tax and legal contingencies; valuation of long-lived assets; stock-based compensation; and lease accounting. The selection, application and disclosure of the critical accounting policies and estimates have been reviewed by the Audit Committee of the Board of Directors.

Estimation of Reserves and Valuation Allowances

The amount of liability the Company records for claims related to insurance, tax and legal contingencies requires the Company to make judgments about the amount of expenses that will ultimately be incurred. The Company uses history and experience, as well as other specific circumstances surrounding these contingencies, in evaluating the amount of liability that should be recorded. As additional information becomes available, the Company assesses the potential liability related to its various claims and revises its estimates as appropriate. These revisions could materially impact the Company’s results of operations and financial position or liquidity.

The Company is insured for certain losses related to workers’ compensation, general liability, property and other liability claims, with deductibles up to approximately $0.2 million to $0.4 million per occurrence. This insurance coverage limits the Company’s exposure for any catastrophic claims that may arise above the deductible. The Company also has a self-insured health program administered by a third party covering the majority of the employees that participate in the Company’s health insurance programs. The Company estimates the amount of reserves for all insurance programs discussed above at the end of each reporting period. This estimate is based on information provided by either an independent actuarial firm or third party. The information includes historical claims experience, demographic factors, severity factors, and other factors the Company deems relevant. A 10% change in the insurance reserves at December 30, 2007, would have affected net income by approximately $0.9 million for the fiscal year ended December 30, 2007. As of December 30, 2007, actual losses had not exceeded the Company’s expectations. Additionally, for claims that exceed the deductible amount, the Company records a gross liability and a corresponding receivable representing expected recoveries, since the Company is not legally relieved of its obligation to the claimant.

The Company is subject to periodic audits from multiple domestic and foreign tax authorities related to income tax, sales and use tax, personal property tax, and other forms of taxation. These audits examine the Company’s tax positions, timing of income and deductions, and allocation procedures across multiple jurisdictions. As part of the Company’s evaluation of these tax issues, the Company establishes reserves in the consolidated financial statements based on the estimate of current probable tax exposures. Effective January 1, 2007, the Company began recognizing uncertain income tax positions based on the assessment of whether the tax position was more likely than not to be sustained on audit, using the guidance provided in Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109.” Depending on the nature of the tax issue, the Company could be subject to audit over several years; therefore, the estimated reserve balances might exist for multiple years before an issue is resolved by the taxing authority.

Additionally, the Company is from time to time involved in legal proceedings and governmental inquiries associated with employment and other matters. Reserves are established based on the Company’s best estimates of the potential liability in these matters. These estimates are developed in consultation with in-house and outside legal counsel and are based upon a combination of litigation and settlement strategies.

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Although the Company believes that its assessments of tax and legal reserves are based on reasonable judgments and estimates, actual results could differ, which may expose the Company to material gains or losses in future periods. These actual results could materially affect the Company’s effective tax rate, earnings, deferred tax balances and cash flows in the period of resolution.

Valuation of Long-Lived Assets

Long-lived assets, such as property and equipment, are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable, such as historical negative cash flows or plans to dispose of or sell long-lived assets before the end of their previously estimated useful lives. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying amount is not recoverable, the Company recognizes an impairment loss equal to the amount by which the carrying amount exceeds fair value. Fair value is determined by discounting expected future cash flows using a risk-free rate of interest or other market information.

Impairment losses, if any, are recorded in the period in which the Company determines that an impairment occurred. The carrying value of the asset is adjusted to the new carrying value, and any subsequent increases in fair value are not recorded. Additionally, if it is determined that the estimated remaining useful life of the asset should be decreased, the periodic depreciation expense is adjusted based on the new carrying value of the asset unless written down to salvage value, at which time depreciation ceases.

The impairment calculation requires the Company to apply judgment and estimates concerning future cash flows, strategic plans, useful lives and discount rates. If actual results are not consistent with the Company’s estimates and assumptions, the Company may be exposed to additional impairment charges, which could be material to the Company’s results of operations.

Stock-Based Compensation

The Company has historically granted certain stock-based compensation awards to employees and directors in the form of stock options and restricted stock. In accordance with Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” at the date that an award is granted, the Company determines the fair value of the award and recognizes the compensation expense over the period that services are required to be provided (“requisite service period”) in exchange for the award, which typically is the period over which the award vests.

The Company determines the fair value of all stock-based compensation awards as of the measurement date (i.e. grant date), which is the first date on which both are known with finality (1) the number of shares an individual employee is entitled to receive and (2) the award price. The Company uses all available evidence to determine the measurement date. For awards granted after 2005, this is the date that the Company’s Board of Directors or the Compensation Committee of the Company’s Board of Directors meets and approves the granting of a stock-based award.

Restricted stock is valued at the closing market price of the Company’s common stock on the date of grant. The fair value of stock options were estimated using the Black-Scholes option-pricing model, which requires management to apply judgment and use highly subjective assumptions of factors required to be input into the model, including estimating the length of individuals will retain their vested stock options before exercising them (“expected term”), the estimated volatility of the Company’s common stock price over the expected term (“volatility”), a dividend yield and risk-free interest rate. The Company used historical data and judgment to estimate the expected term and the stock price volatility. Effective during the 2006 fiscal year, the Company discontinued granting stock options; however it continues to recognize compensation expense for option awards previously granted to employees and non-employee directors based on the fair values used for the pro forma disclosures previously required by Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation.”

The Company recognizes stock-based compensation only to the extent that an award vests and applies an estimated forfeiture rate assumption to adjust compensation cost for the effect of those individuals that are not expected to complete the requisite service period and will forfeit non-vested awards. The forfeiture rate assumption is based on the Company’s historical experience of award forfeitures, and as necessary, is adjusted for certain events that are not expected to recur during the expected term of the award.

While the assumptions that have been developed are based on the Company’s best expectations, they involve inherent uncertainties based on market conditions and employee behavior that are outside of the Company’s control. If actual results are not consistent with the assumptions used, the stock-based compensation expense reported in the Company’s consolidated financial

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statements may not be representative of the actual economic cost of the stock-based compensation. Additionally, if actual employee forfeitures significantly differ from the Company’s estimated forfeitures, the Company may have an adjustment to the financial statements in future periods.

Lease Accounting

The Company estimates the expected term of a lease by assuming the exercise of renewal options, in addition to the initial non-cancelable lease term, if the renewal is in the sole discretion of the Company and can be reasonably assured due to the existence of an economic penalty that would preclude the abandonment of the lease at the end of the initial non-cancelable lease term. The expected term is used in the determination of whether a lease is a capital or operating lease and in the calculation of straight-line rent expense. Additionally, the useful life of leasehold improvements is limited by the expected lease term or the economic life of the asset, whichever is shorter. If significant expenditures are made for leasehold improvements late in the expected term of a lease and renewal is reasonably assured, the useful life of the leasehold improvement is limited to the end of the renewal period or economic life of the asset.

The determination of the expected term of a lease requires the Company to apply judgment and estimates concerning the number of renewal periods that are reasonably assured. If a lease is terminated prior to reaching the end of the expected term, this may result in the acceleration of depreciation or impairment of long-lived assets, and it may result in the reversal of deferred rent balances that assumed higher rent payments in renewal periods that were never ultimately exercised by the Company.

Recent Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This statement does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, which is the Company’s 2008 fiscal year. On February 12, 2008, the FASB issued FASB Staff Position (“FSP”) No. 157-2 (“FSP 157-2”) which defers the effective date of SFAS 157 until fiscal years and interim periods beginning after November 15, 2008, for nonfinancial assets and liabilities that are measured at fair value on a non-recurring basis. For the Company, the deferral provided by FSP 157-2 will apply to property and equipment measured at fair value in connection with its periodic assessments for impairment. Additionally, on February 14, 2008, the FASB issued FSP No. 157-1 which amends SFAS 157 to exclude from its scope fair value measurements for purposes of lease classification or measurement under Statement of Financial Accounting Standards No. 13, “Accounting for Leases.” In 2008, the Company will apply the provisions of SFAS 157 to its financial assets and liabilities. The Company’s partial adoption of this statement in 2008 has not had a material impact on its consolidated financial statements.

In February 2007, the FASB issued Statement of Financial of Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. If the fair value option is elected, unrealized gains and losses will be recognized in earnings at each subsequent reporting date. SFAS 159 is effective for fiscal years beginning after November 15, 2007, which is the Company’s 2008 fiscal year. The Company’s adoption of this statement in 2008 has not had a material impact on its consolidated financial statements; however any further impact of SFAS 159 will depend on the extent to which the Company elects to measure eligible items at fair value in the future.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“SFAS 141(R)”) and Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”). SFAS 141(R) establishes new guidance for how business combinations are accounted for in the acquirer’s financial statements. SFAS 160 establishes accounting and reporting standards for minority ownership interests in subsidiaries, which will be characterized as noncontrolling interests and classified as a component of equity. SFAS 141(R) and SFAS 160 are effective for fiscal years beginning on or after December 15, 2008, which will be the Company’s fiscal year beginning December 29, 2008. The Company is currently evaluating the impact the adoption of these statements will have on its consolidated financial statements.

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Forward-Looking Statements

Certain statements in this report, other than historical information, may be considered forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, and are subject to various risks, uncertainties and assumptions. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “project,” “estimate” and similar expressions (or the negative of such expressions). Forward-looking statements are made based on management’s current expectations and beliefs concerning future events and, therefore, involve a number of assumptions, risks and uncertainties, including the risk factors described in Item 1A. “Risk Factors” of this Annual Report on Form 10-K. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ from those anticipated, estimated or expected.

Item 7A: Quantitative and Qualitative Disclosures about Market Risk.

The Company is subject to interest rate, commodity price and foreign currency market risks.

The Company’s exposure to market risk results primarily from changes in interest rates on its revolving line of credit which was $316.8 million at December 30, 2007. The Company currently has not entered into any derivative instruments to manage the exposure to this risk. The exposure to interest rate risk results from changes in LIBOR and the prime rate. The annualized effect of a 100 basis point increase in LIBOR at December 30, 2007, would result in an increase of interest expense by approximately $3.2 million.

Additionally, commodity prices of foods such as cheese can vary throughout the year due to changes in demand and supply. The Company currently has not entered into any hedging arrangements to reduce the volatility of the commodity prices from period to period. The estimated increase in the Company’s cheese costs from a hypothetical $0.10 adverse change in the average cheese block price per pound would have been approximately $0.9 million for the 2007 fiscal year.

Foreign currency risk with respect to changes in the value of the Canadian dollar is immaterial to the Company.

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Item 8. Financial Statements and Supplementary Data

CEC ENTERTAINMENT, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of independent registered public accounting firm	30
Consolidated financial statements:
Consolidated balance sheets at December 30, 2007 and December 31, 2006	31
Consolidated statements of earnings for years ended December 30, 2007, December 31, 2006 and January 1, 2006	32
Consolidated statements of shareholders’ equity and comprehensive income for years ended December 30, 2007, December 31, 2006 and January 1, 2006	33
Consolidated statements of cash flows for years ended December 30, 2007, December 31, 2006 and January 1, 2006	34
Notes to consolidated financial statements	35

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

CEC Entertainment, Inc.

Irving, Texas

We have audited the accompanying consolidated balance sheets of CEC Entertainment, Inc. and subsidiaries (the “Company”) as of December 30, 2007 and December 31, 2006, and the related consolidated statements of earnings, shareholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended December 30, 2007. We also have audited the Company’s internal control over financial reporting as of December 30, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CEC Entertainment, Inc and subsidiaries as of December 30, 2007 and December 31, 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 30, 2007, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 30, 2007, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

/s/ Deloitte & Touche LLP

Dallas, Texas

February 28, 2008

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CEC ENTERTAINMENT, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	December 30,			December
	2007			2006
ASSETS
Current assets:
Cash and cash equivalents	$	18,373		$	18,308
Accounts receivable, net		18,176			17,556
Inventories		15,533			18,296
Prepaid expenses		11,352			8,210
Deferred tax asset		3,585			2,394
Total current assets		67,019			64,764
Property and equipment, net		668,390			637,560
Other assets		2,484			1,861
Total assets	$	737,893		$	704,185
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	756		$	693
Accounts payable		40,209			33,430
Accrued liabilities		37,940			40,680
Total current liabilities		78,905			74,803
Long-term debt, less current portion		329,119			181,088
Deferred rent		73,995			68,449
Deferred tax liability		24,760			12,056
Accrued insurance		8,435			8,583
Other liabilities		4,686			—
Total liabilities		519,900			344,979
Commitments and contingencies (Note 6)
Shareholders' equity:
Common stock, $0.10 par value; authorized 100,000,000 shares; 58,874,737 and 56,619,300 shares issued, respectively		5,887			5,662
Capital in excess of par value		374,376			325,212
Retained earnings		584,726			531,435
Accumulated other comprehensive income		7,011			2,368
Less treasury shares of 32,258,224 and 24,359,450, respectively, at cost		(754,007	)		(505,471	)
Total shareholders’ equity		217,993			359,206
Total liabilities and shareholders’ equity	$	737,893		$	704,185

See notes to consolidated financial statements.

31

CEC ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

(in thousands, except per share data)

	Fiscal Year
	2007		2006		2005
REVENUES
Company store sales	$	781,665	$	769,241	$	722,873
Franchise fees and royalties		3,657		3,312		3,296
Total revenues		785,322		772,553		726,169
OPERATING COSTS AND EXPENSES
Company store operating costs:
Cost of sales		126,413		121,808		115,930
Labor expenses		214,147		210,010		202,780
Depreciation and amortization		70,701		64,292		59,849
Rent expense		63,734		60,333		57,022
Other operating expenses		113,789		106,025		98,094
Total Company store operating costs		588,784		562,468		533,675
Advertising expense		30,651		32,253		29,294
General and administrative		51,705		53,037		45,527
Asset impairment		9,638		3,910		360
Total operating costs and expenses		680,778		651,668		608,856
Operating income		104,544		120,885		117,313
Interest expense, net		13,170		9,508		4,532
Income before income taxes		91,374		111,377		112,781
Income taxes		35,453		43,120		43,110
Net income	$	55,921	$	68,257	$	69,671
Earnings per share:
Basic	$	1.81	$	2.09	$	1.99
Diluted	$	1.76	$	2.04	$	1.93
Weighted average shares outstanding:
Basic		30,922		32,587		35,091
Diluted		31,694		33,465		36,188

See notes to consolidated financial statements.

32

CEC ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME

(in thousands)

	Fiscal Year - Amounts									Fiscal Year - Shares
	2007			2006			2005			2007	2006		2005
Common stock and capital in excess of par value:
Balance, beginning of year	$	330,874		$	320,051		$	296,555		56,619	56,116		55,557
Stock options exercised		45,257			7,989			11,224		2,050	349		547
Tax benefit from exercise of stock options		(845	)		373			3,854		—	—		—
Stock issued under 401(k) plan		476			456			456		12	13		12
Stock-based compensation costs		4,509			5,801			7,962		—	—
Restricted stock issued, net of forfeitures		—			—			—		194	241		—
Restricted stock returned for taxes		(8	)		—			—		—	—		—
Treasury stock reserved – 401(k) plan		—			(3,796	)		—		—	(100	)	—
Balance, end of year		380,263			330,874			320,051		58,875	56,619		56,116
Retained earnings:
Balance, beginning of year		531,435			463,178			393,507
Cumulative effect adjustment of adopting FIN 48 (see Note 1)		(2,630	)		—			—
Net income		55,921			68,257			69,671
Balance, end of year		584,726			531,435			463,178
Accumulated other comprehensive income (loss):
Balance, beginning of year		2,368			2,446			1,476
Foreign currency translation		4,643			(78	)		970
Balance, end of year		7,011			2,368			2,446
Treasury shares:
Balance, beginning of year		(505,471	)		(442,492	)		(325,560	)	24,359	22,500		19,211
Treasury stock acquired		(248,536	)		(66,775	)		(116,932	)	7,899	1,959		3,289
Treasury stock reserved – 401(k) plan		—			3,796			—		—	(100	)	—
Balance, end of year		(754,007	)		(505,471	)		(442,492	)	32,258	24,359		22,500
Total shareholders’ equity	$	217,993		$	359,206		$	343,183
Comprehensive income:
Net income	$	55,921		$	68,257		$	69,671
Other comprehensive income (loss):
Foreign currency translation, net of tax		4,643			(78	)		970
Comprehensive income	$	60,564		$	68,179		$	70,641

See notes to consolidated financial statements.

33

CEC ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Fiscal Year
	2007			2006			2005
Operating activities:
Net income	$	55,921		$	68,257		$	69,671
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		71,919			65,392			61,310
Deferred income taxes		15,079			(8,085	)		(6,518	)
Stock-based compensation expense		4,384			5,601			7,962
Contributions from landlords		2,720			4,600			5,458
Deferred lease rentals		2,826			1,972			2,992
Deferred debt financing costs		130			—			—
Loss on asset disposals and impairment		14,465			10,254			2,389
Changes in assets and liabilities:
Accounts receivable		(620	)		(666	)		(2,614	)
Inventories		2,763			(4,637	)		(1,488	)
Prepaid expenses		(3,142	)		(328	)		(438	)
Accounts payable		4,264			(558	)		6,360
Accrued liabilities		(7,967	)		7,800			(10,086	)
Cash provided by operating activities		162,742			149,602			134,998
Investing activities:
Purchases of property and equipment		(109,066	)		(115,810	)		(91,637	)
Proceeds from sale of property and equipment		—			66			533
Change in other assets		419			228			(143	)
Cash used in investing activities		(108,647	)		(115,516	)		(91,247	)
Financing activities:
Proceeds from line of credit		205,800			71,000			111,600
Payments on long-term debt and line of credit		(57,885	)		(40,522	)		(52,816	)
Payments of debt financing costs		(1,184	)		—			—
Exercise of stock options		45,257			7,989			11,224
Excess tax benefit from exercise of stock options		2,016			373			3,854
Treasury stock acquired		(248,544	)		(66,775	)		(116,932	)
Other		510			(27	)		(295	)
Cash used in financing activities		(54,030	)		(27,962	)		(43,365	)
Increase in cash and cash equivalents		65			6,124			386
Cash and cash equivalents, beginning of year		18,308			12,184			11,798
Cash and cash equivalents, end of year	$	18,373		$	18,308		$	12,184
Supplemental Cash Flow Information:
Interest paid	$	10,721		$	9,168		$	4,189
Income taxes paid, net		27,016			45,106			52,665
Non-cash investing and financing activities:
Accrued construction accounts payable	$	10,335		$	7,344		$	9,109
Investment in capital leases		—			1,735			973
Modification of capital leases		—			—			(445	)
Stock issued under 401(k) plan		476			456			456
Restricted stock awards issued, net of forfeitures		7,036			7,114			—
Treasury stock retired and reserved for 401(k) plan		—			3,796			—

See notes to consolidated financial statements.

34

CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of significant accounting policies:

Description of business: CEC Entertainment, Inc. and its subsidiaries (the “Company”) operate and franchise Chuck E. Cheese’s family entertainment-restaurant centers. As of December 30, 2007, 490 and 44 Chuck E. Cheese’s were operated by the Company and its franchisees, respectively.

Basis of presentation: The consolidated financial statements include the accounts of the Company and also include the accounts of the International Association of CEC Entertainment, Inc. (the “Association”); an entity in which the Company has variable interests and the Company is considered the primary beneficiary. The assets, liabilities and operating results of the Association are not material to the Company’s consolidated financial statements. All intercompany accounts and transactions have been eliminated. The Company has only one reportable segment.

Reclassification: Prior year amounts in the consolidated statement of earnings have been reclassified to conform to current year presentation. The reclassification had no impact on net income and the change in total revenues was immaterial.

Fiscal year: The Company’s fiscal year is 52 or 53 weeks and ends on the Sunday nearest December 31. References to 2007, 2006 and 2005 are for the fiscal years ended December 30, 2007, December 31, 2006, and January 1, 2006, respectively. Fiscal year 2007, 2006 and 2005 each consisted of 52 weeks.

Use of estimates and assumptions: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Foreign currency translation: The consolidated financial statements are presented in U.S. dollars. The assets and liabilities of the Company’s Canadian subsidiary are translated to U.S. dollars at year-end exchange rates, while revenues and expenses are translated at average exchange rates during the year. Adjustments that result from translating amounts are reported as a component of other comprehensive income.

Cash and cash equivalents: Cash and cash equivalents of the Company are comprised of demand deposits with banks and short-term cash investments with remaining maturities of three months or less from the date of purchase by the Company.

Inventories: Inventories of food, paper products, merchandise and supplies are stated at the lower of cost on a first-in, first-out basis or market.

Property and equipment: Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are charged to operations over the estimated useful lives of the assets by the straight-line method, generally ranging from four to 20 years for furniture, fixtures and equipment and 40 years for buildings. Leasehold improvements are amortized by the straight-line method over the lesser of the lease term, including renewal option periods provided for in the lease that are reasonably assured, or the estimated useful lives of the related assets. The Company uses a consistent lease period (generally, the initial non-cancelable lease term plus renewal option periods provided for in the lease that can be reasonably assured of being exercised) when estimating the depreciable lives of leasehold improvements, in determining straight-line rent expense and classification of its leases as either operating or capital. Total depreciation and amortization expense was approximately $71.9 million, $65.4 million and $61.3 million in 2007, 2006 and 2005, respectively.

The Company evaluates property and equipment held and used in the business for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The carrying amount of an asset is not recoverable if it exceeds the sum of undiscounted cash flows expected to result from the use and eventual disposition of the asset. The amount of any impairment is measured as the excess of the carrying amount over the estimated discounted future operating cash flows of the asset, which approximates its fair value.

35

CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of significant accounting policies (continued):

Deferred rent: The Company recognizes rent expense by the straight-line method over the lease term, including lease renewal option periods that can be reasonably assured at the inception of the lease. The lease term commences on the date when the Company takes possession and has the right to control use of the leased premises. Also, funds received from the lessor intended to reimburse the Company for the cost of leasehold improvements are recorded as a deferred credit resulting from a lease incentive and amortized over the lease term as a reduction to rent expense.

Fair value of financial instruments: The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value due to the short maturity of these instruments. The carrying amount of the Company’s long-term debt approximates fair value based on the interest rates charged on instruments with similar terms and risks.

Stock-based compensation: The Company recognizes stock-based compensation in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”) which revised SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) and superseded Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). SFAS 123(R) requires companies to expense the fair value of all stock-based awards to employees, including grants of employee stock options, in the financial statements over the period that service is provided in exchange for the award (“vesting period”). Compensation cost is recognized to the extent an award vests, therefore SFAS 123(R) also requires companies to estimate at the date of grant the number of stock-based awards that are expected to be forfeited and to subsequently adjust the estimated forfeitures to reflect actual forfeitures. SFAS 123(R) also changes the accounting for the tax effects of options, including the presentation of the tax effects on the consolidated statements of cash flows. The Company measures compensation cost related to stock options based on the grant date fair value of the award using the Black-Scholes option-pricing model. The Company measures the fair value of compensation cost related to restricted stock awards based on the closing market price of the Company’s common stock on the grant date.

The Company adopted SFAS 123(R) beginning in the first quarter of 2006 using the modified retrospective transition method, which required the Company to adjust its prior period financial statements to give effect to the fair-value-based method of accounting for stock option awards granted, modified, or settled in cash in fiscal years beginning after December 15, 1994, on a basis consistent with the pro forma disclosures required for those periods by SFAS 123. Under the modified retrospective transition method, compensation cost and related tax effects have been recognized in those financial statements as though they had been accounted for under SFAS 123(R). See Note 9 for the effects of the adoption of SFAS 123(R).

Prior to fiscal year 2006, the Company accounted for stock-based compensation under the intrinsic value method of APB 25 and related interpretations in accounting for stock options. Accordingly, in periods prior to 2006, compensation cost was recognized for stock options granted with an exercise price less than the market price of the Company’s common stock on the measurement date.

The Black-Scholes option-pricing model used to estimate the grant date fair value of stock options under SFAS 123(R) requires the input of subjective assumptions including estimating the length of time employees will retain their stock options before exercising them (“expected term”), the estimated volatility of the Company’s common stock price over the expected term (“volatility”), a dividend yield and risk-free interest rate. Changes in the subjective assumptions can materially affect the estimate of fair value of stock-based compensation.

The weighted average assumptions used in the Black-Scholes calculation for stock options granted during 2005 were as follows:

	2005
Dividend yield	0	%
Expected volatility	30.0	%
Risk-free interest rate	4.1	%
Expected term (in years)	3.2

36

CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of significant accounting policies (continued):

The estimated fair value of stock options granted during 2005 was $9.80 per share. There were no stock options granted during 2006 and 2007.

Prior to the adoption of SFAS 123(R), the Company presented all tax benefits resulting from the exercise of stock options as operating cash inflows in the consolidated statement of cash flows, in accordance with the provision of the Emerging Issues Task Force Issue No. 00-15, “Classification in the Statement of Cash Flows of the Income Tax Benefit Received by a Company upon Exercise of a Nonqualified Employee Stock Option.” SFAS 123(R) requires the benefits of tax deductions in excess of the compensation cost recognized for those options to be classified as financing cash inflows rather than operating cash inflows. This amount is shown as excess tax benefit from exercise of stock options on the consolidated statement of cash flows.

Revenue recognition: Food, beverage and merchandise revenues are recognized when sold. Game revenues are recognized as game-play tokens are purchased by customers and the Company recognizes a liability for the estimated amount of unused tokens which may be redeemed in the future. Revenues from franchised stores include initial and continuing fees and royalties. Initial franchise fees are recognized upon the opening of a franchise store, which is generally when the Company has fulfilled all its significant obligations to the franchisee. Continuing fees and royalties, which are a percentage of franchise store sales, are recognized in the period earned. Initial franchise fees included in revenues were $200 thousand, $60 thousand, and $85 thousand in 2007, 2006 and 2005, respectively.

Cost of sales: Cost of sales includes the cost of food, beverage, related supplies, prizes and merchandise sold during the period. These amounts exclude any allocation of other operating costs including depreciation and amortization expense.

Advertising costs: The Company utilizes an Advertising Fund to administer all of the Company’s national advertising programs that benefit both the Company and its franchisees. The Company and its franchisees are required to contribute a percentage of their gross sales to the fund. As the contributions to this fund are designated and segregated for advertising, the Company acts as an agent for the franchisees with regard to these contributions. The Company consolidates the Advertising Fund into its financial statements on a net basis, whereby contributions from franchisees, when received, are recorded as offsets to reported advertising expenses.

Production costs for commercials and coupons are expensed in the year in which the commercials are initially aired and the coupons are distributed. All other advertising costs are expensed as incurred.

Self-insurance accruals: The Company is self-insured for certain losses related to health, workers’ compensation and general liability, although it obtains third-party insurance coverage to limit its exposure to these losses. The Company estimates its accrued liabilities for self-insurance using historical experience and valuations provided by independent third-party actuaries.

Income taxes: The Company accounts for income taxes under the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. A valuation allowance is applied against net deferred tax assets, if based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

On January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”) which addresses how the benefit of tax positions taken or expected to be taken on a tax return should be recorded in the financial statements. Under FIN 48, the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by a taxing authority, based on the technical merits of the position. The amount recognized in the financial statements from an uncertain tax position is measured based on the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. To the extent a tax return position has not been reflected in income tax expense for financial reporting purposes, a liability (“unrecognized tax benefit”) is recorded. See Note 7 for further discussion of the Company’s adoption of FIN 48.

37

CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of significant accounting policies (continued):

Recent accounting pronouncements: In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This statement does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, which is the Company’s 2008 fiscal year. On February 12, 2008, the FASB issued FASB Staff Position (“FSP”) No. 157-2 (“FSP 157-2”) which defers the effective date of SFAS 157 until fiscal years and interim periods beginning after November 15, 2008, for nonfinancial assets and liabilities that are measured at fair value on a non-recurring basis. For the Company, the deferral provided by FSP 157-2 will apply to property and equipment measured at fair value in connection with its periodic assessments for impairment. Additionally, on February 14, 2008, the FASB issued FSP No. 157-1 which amends SFAS 157 to exclude from its scope fair value measurements for purposes of lease classification or measurement under Statement of Financial Accounting Standards No. 13, “Accounting for Leases.” In 2008, the Company will apply the provisions of SFAS 157 to its financial assets and liabilities. The Company’s partial adoption of this statement in 2008 has not had a material impact on its consolidated financial statements.

In February 2007, the FASB issued Statement of Financial of Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. If the fair value option is elected, unrealized gains and losses will be recognized in earnings at each subsequent reporting date. SFAS 159 is effective for fiscal years beginning after November 15, 2007, which is the Company’s 2008 fiscal year. The Company’s adoption of this statement in 2008 has not had a material impact on its consolidated financial statements; however any further impact of SFAS 159 will depend on the extent to which the Company elects to measure eligible items at fair value in the future.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“SFAS 141(R)”) and Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”). SFAS 141(R) establishes new guidance for how business combinations are accounted for in the acquirer’s financial statements. SFAS 160 establishes accounting and reporting standards for minority ownership interests in subsidiaries, which will be characterized as noncontrolling interests and classified as a component of equity. SFAS 141(R) and SFAS 160 are effective for fiscal years beginning on or after December 15, 2008, which will be the Company’s fiscal year beginning December 29, 2008. The Company is currently evaluating the impact the adoption of these statements will have on its consolidated financial statements.

38

CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Accounts receivable:

	2007		2006
	(in thousands)
Trade	$	6,858	$	6,215
Vendor rebates		6,740		5,750
Leasehold improvement incentives		1,917		1,435
Other		2,661		4,156
	$	18,176	$	17,556

3. Property and equipment:

	2007			2006
	(in thousands)
Land	$	45,255		$	44,963
Leasehold improvements		454,869			403,706
Buildings		93,222			88,582
Game, kitchen and other equipment		408,920			393,689
Property leased under capital leases (Note 6)		16,031			15,816
		1,018,297			946,756
Less accumulated depreciation and amortization		(369,725	)		(332,808	)
Net property and equipment in service		648,572			613,948
Construction in progress		12,814			14,325
Game and kitchen equipment held for future service		7,004			9,287
	$	668,390		$	637,560

4. Accrued liabilities and accrued insurance:

	2007		2006
	(in thousands)
Current:
Salaries and wages	$	10,004	$	14,836
Insurance		7,800		4,157
Taxes, other than income		6,606		8,228
Income taxes		5		5,977
Unearned revenues		6,437		4,138
Other accrued liabilities		7,088		3,344
	$	37,940	$	40,680
Long-term:
Insurance	$	8,435	$	8,583

Accrued insurance liabilities represent estimated claims incurred but unpaid under the Company’s self-insured retention programs for general liability, workers’ compensation, health benefits and certain other insured risks.

5. Long-term debt:

	2007			2006
	(in thousands)
Revolving bank loan	$	316,800		$	168,200
Obligations under capital leases (Note 6)		13,075			13,581
		329,875			181,781
Less current portion		(756	)		(693	)
	$	329,119		$	181,088

39

CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Long-term debt (continued):

In August 2007, the Company increased its $200.0 million revolving credit facility by $100.0 million in accordance with the terms of the credit facility agreement. Other than increasing total borrowing capacity to $300.0 million, the terms of the credit facility agreement, including maturity, interest rates and financial covenant ratios remained unchanged. In October 2007, the Company amended the revolving credit facility agreement to provide for total borrowings of up to $550.0 million for a term of five years. The amended credit facility replaced the Company’s previous $300.0 million borrowing arrangement. The amended credit facility, which matures in 2012, includes an accordion feature allowing the Company to request an additional $50 million in borrowings at any time. As amended, the credit facility bears interest at LIBOR plus an applicable margin of 0.625% to 1.25% determined based on the Company’s financial performance and debt levels, or alternatively, the higher of (a) the prime rate or (b) the Federal Funds rate plus 0.50%. As of December 30, 2007, borrowings under the credit facility incurred interest at LIBOR (5.088%) plus 0.875% or prime (7.25%). All borrowings are unsecured, but the Company has agreed not to pledge any of its existing assets to secure future indebtedness.

The weighted average interest rate incurred on outstanding borrowings was 6.3% and 5.6% in 2007 and 2006, respectively. The Company capitalized interest costs of $100 thousand, $141 thousand and $109 thousand in 2007, 2006 and 2005, respectively, related to the construction of new stores. A commitment fee of 0.1% to 0.3% depending on the Company’s financial performance and debt levels is payable on any unused credit line.

The credit facility agreement contains certain restrictions and conditions, as defined in the agreement, that require the Company to maintain financial covenant ratios, including a minimum fixed charge coverage ratio of 1.5 to 1.0 and a maximum leverage ratio of 3.0 to 1.0. At December 30, 2007, the Company was in compliance with these covenants.

As of December 30, 2007, there were $12.1 million of letters of credit outstanding under the credit facility.

6. Commitments and contingencies:

Leases

The Company leases certain store locations and related property and equipment under operating and capital leases. All leases require the Company to pay property taxes, insurance and maintenance of the leased assets. The leases generally have initial terms of 10 to 20 years with various renewal options.

Scheduled annual maturities of the obligations for capital and operating leases as of December 30, 2007, are as follows:

Years	Capital			Operating
	(in thousands)
2008	$	1,699		$	65,277
2009		1,699			64,348
2010		1,699			64,562
2011		1,699			64,959
2012		1,616			64,552
Thereafter		11,654			494,413
Minimum future lease payments		20,066		$	818,111
Less amounts representing interest (interest rates from 6.20% to 16.63%)		(6,991	)
Present value of future minimum lease payments		13,075
Less current portion		(756	)
Long-term capital lease obligation	$	12,319

40

CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Commitments and contingencies (continued):

The Company’s rent expense, including contingent rent based on a percentage of sales when applicable, is comprised of the following:

	2007		2006		2005
	(in thousands)
Minimum	$	73,743	$	69,453	$	65,140
Contingent		280		373		240
	$	74,023	$	69,826	$	65,380

Legal Proceedings

On June 19, 2006, a lawsuit was filed by a personal representative of the estates of Robert Bullock, II and Alysa Bullock against CEC Entertainment, Inc., Manley Toy Direct, LLC (“Manley Toy”), et. al. in the Circuit Court for the Fourth Judicial Circuit, Duval County, Florida, Case No. 2006 CA 004378 (“Bullock Litigation”). In his complaint, the Bullock Litigation’s plaintiff alleges that the May 8, 2006 mobile home fire which resulted in the deaths of his two children, Robert Bullock, II and Alysa Bullock, was caused by a defective disco light product that was purchased at a Chuck E. Cheese’s. The Bullock Litigation’s plaintiff is seeking an unspecified amount of damages. The Company tendered its defense of this matter to Manley Toy, from which the Company had purchased certain disco light products. Manley Toy accepted the Company’s tender and has indicated it will indemnify the Company in the event of any judgment or settlement that exceeds coverage afforded under Manley Toy’s insurance policies. The Company filed its answer to the complaint on September 7, 2006, and discovery has commenced. The Bullock Litigation’s ultimate outcome, and any ultimate effect on the Company, cannot be precisely determined at this time. However, the Company believes that it has meritorious defenses to this lawsuit and is asserting a vigorous defense against it. Having considered its available insurance coverage and indemnification from Manley Toy, the Company does not expect this matter to have a material impact on its financial position or results of operations.

On January 23, 2007, a purported class action lawsuit against the Company, entitled Blanco v. CEC Entertainment, Inc., et. al., Cause No. CV-07-0559 (“Blanco Litigation”), was filed in the United States District Court for the Central District of California. The Blanco Litigation was filed by an alleged customer of one of the Company’s Chuck E. Cheese’s stores purporting to represent all individuals in the United States who, on or after December 4, 2006, were knowingly and intentionally provided at the point of sale or transaction with an electronically-printed receipt by the Company that was in violation of U.S.C. Section 1681c(g) of the Fair and Accurate Credit Transactions Act (“FACTA”). The Blanco Litigation is not seeking actual damages, but is only seeking statutory damages for each willful violation under FACTA. On January 10, 2008, the Court denied class certification without prejudice and stayed the case pending the appellate outcome of the Soualian v. Int’l Coffee & Tea LLC case; which is presently pending before the Ninth Circuit. Thus, the Blanco Litigation’s ultimate outcome, and any ultimate effect on the Company, cannot be precisely determined at this time. However, the Company believes that it has meritorious defenses to this lawsuit and intends to vigorously defend against it, including the Blanco Litigation plaintiffs’ further efforts, if any, to certify a nationwide class action.

On November 19, 2007, a purported class action lawsuit against the Company, entitled Ana Chavez v. CEC Entertainment, Inc., et. al., Cause No. BC380996 (“Chavez Litigation”), was filed in the Central District Superior Court of California in Los Angeles County. The Company received service of process on December 21, 2007. The Chavez Litigation was filed by a former store employee purporting to represent other similarly situated employees and former employees of the Company in California from 2003 to the present. The lawsuit alleges violations of the state wage and hour laws involving unpaid vacation wages, meal and rest periods, wages due upon termination, waiting time penalties and seeks an unspecified amount in damages. On January 18, 2008, the Company removed the Chavez Litigation to Federal Court. The Company believes that it has meritorious defenses to this lawsuit and intends to vigorously defend against it, including the Chavez Litigation plaintiff’s efforts to certify a California class action. However, the Chavez Litigation’s ultimate outcome, and any ultimate effect on the Company cannot be determined at this time.

41

CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Commitments and contingencies (continued):

On January 9, 2008, a purported class action lawsuit against the Company, entitled Cynthia Perez et. al. v. CEC Entertainment, Inc., et. al., Cause No. BC3853527 (“Perez Litigation”), was filed in the Central District Superior Court of California in Los Angeles County. The Company was served with the complaint on January 30, 2008. The Perez Litigation was filed by former store employees purporting to represent other similarly situated employees and former employees of the Company in California from 2004 to the present. The lawsuit alleges violations of the state wage and hour laws involving unpaid overtime wages, meal and rest periods, itemized wage statements, waiting time penalties and seeks an unspecified amount in damages. The Company believes that it has meritorious defenses to this lawsuit and intends to vigorously defend against it, including the Perez Litigation plaintiff’s efforts to certify a California class action. However, the Perez Litigation’s ultimate outcome, and any ultimate effect on the Company cannot be determined at this time.

From time to time the Company is involved in litigation, most of which is incidental to its business. In the Company’s opinion, no litigation to which the Company currently is a party is likely to have a material adverse effect on the Company’s results of operations, financial condition or cash flows.

7. Income taxes:

The significant components of income tax expense are as follows:

	2007		2006			2005
	(in thousands)
Current expense:
Federal	$	13,325	$	44,086		$	42,897
State		1,192		4,597			2,995
Foreign		515		1,124			—
Tax benefit from exercise of stock options		5,342		1,398			5,231
Total current expense		20,374		51,205			51,123
Deferred expense (benefit):
Federal		12,144		(6,671	)		(6,867	)
State		2,725		(829	)		(845	)
Foreign		210		(585	)		(301	)
Total deferred expense (benefit)		15,079		(8,085	)		(8,013	)
	$	35,453	$	43,120		$	43,110

The income tax effects of temporary differences which give rise to deferred income tax assets and liabilities are as follows:

	2007		2006
	(in thousands)
Current deferred tax asset:
Accrued vacation	$	1,427	$	1,056
Unearned gift certificates		2,085		1,326
Other		73		12
	$	3,585	$	2,394

42

CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Income taxes: (continued):

	2007			2006
	(in thousands)
Non-current deferred tax asset (liability):
Deferred rent	$	20,707		$	26,021
Stock-based compensation		7,542			12,499
Unearned franchise fees		383			247
Depreciation		(67,375	)		(57,188	)
Foreign		(118	)		109
Insurance		6,015			4,551
Asset impairment		7,851			—
Other		235			1,705
	$	(24,760	)	$	(12,056	)

A reconciliation of the statutory rate to taxes provided is as follows:

	2007		2006		2005
Federal statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	3.2	%	3.5	%	2.0	%
Other	0.6	%	0.2	%	1.2	%
Effective tax rate	38.8	%	38.7	%	38.2	%

On January 1, 2007, the Company adopted the provisions of FIN 48 (see Note 1 “Income taxes”) and recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by a taxing authority, based on the technical merits of the position. The amount recognized in the financial statements from an uncertain tax position is measured based on the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. To the extent a tax return position has not been reflected in income tax expense for financial reporting purposes, a liability is recorded.

As a result of the implementation of FIN 48, the Company recognized a $2.6 million increase in its liability for uncertain tax positions, which was accounted for as an adjustment to the beginning balance of retained earnings. As of the date of the adoption, including the increase in the liability noted above, the Company had approximately $13.7 million of unrecognized tax benefits. Included in the balance at January 1, 2007, are $2.2 million of unrecognized tax benefits that, if recognized, would favorably affect the annual effective income tax rate. As of December 30, 2007, the Company had approximately $10.9 million of unrecognized tax benefits.

The Company recognizes interest related to uncertain tax positions in interest expense and related penalties are included general and administrative expenses. Interest and penalties expense related to uncertain tax positions were $687 thousand and $1.9 million, respectively in 2007. The total amount of interest and penalties accrued related to uncertain tax positions as of January 1, 2007 and December 30, 2007 was $2.1 million and $4.7 million, respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

Balance at January 1, 2007	$	13,742
Additions for tax positions related to the current year		827
Increases for tax positions of prior years		549
Decreases for tax positions of prior years		(3,892	)
Settlement with tax authorities		(190	)
Expiration of statute of limitations		(143	)
Balance at December 30, 2007	$	10,893

Included in the balance at December 30, 2007, are $2.8 million of unrecognized tax benefits that, if recognized, would decrease the Company’s provision for income taxes. The remaining balance at December 30, 2007 primarily represents amounts that are expected to be settled in cash.

The Company is subject to the U.S. federal income tax, and files income tax returns in multiple state jurisdictions and in Canada. The U.S. federal tax years 2003 through 2006 are open to audit, with 2003 through 2005 currently under examination. In general, the state tax years open to audit range from 2003 through 2006 and the Canadian tax years open to audit include 2002 through 2006. Within the next twelve months, we expect to settle or otherwise conclude all federal income tax examinations for the years 2003 through 2005, as well as certain ongoing state income tax audits. As such, it is possible the Company’s liability for uncertain tax positions would decrease by approximately $6.2 million through audit settlement.

43

CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Earnings per common share:

Basic earnings per share (“EPS”) is computed by dividing earnings applicable to common shares by the weighted average number of common shares outstanding. Diluted EPS is computed using the weighted average number of common shares and dilutive potential common shares outstanding during the period using the treasury stock method. Potential common shares consist of dilutive stock options and non-vested shares of restricted stock.

The following table sets forth the computation of EPS, basic and diluted (in thousands, except per share data):

	2007		2006		2005
Net income applicable to common shares	$	55,921	$	68,257	$	69,671
Basic:
Weighted average common shares outstanding		30,922		32,587		35,091
Earnings per common share	$	1.81	$	2.09	$	1.99
Diluted:
Weighted average common shares outstanding		30,922		32,587		35,091
Potential common shares for stock options and restricted stock		772		878		1,097
Weighted average shares outstanding		31,694		33,465		36,188
Earnings per common and potential common shares	$	1.76	$	2.04	$	1.93

Stock options to purchase 813,650, 863,851, and 946,680 common shares were not included in the diluted EPS computations in 2007, 2006 and 2005, respectively, because the exercise prices of these options were greater than the average market price of the common shares and, therefore, their effect would be antidilutive.

9. Stock-based compensation plans:

The Company has stock-based compensation plans that include non-statutory stock option plans and restricted stock plans for its employees and non-employee directors. In conjunction with shareholder approval of the restricted stock plans in fiscal year 2006, the Company discontinued issuing stock options to its employees and non-employee directors.

The fair value of all stock-based awards, less estimated forfeitures, has been recognized in the financial statements over the vesting period. The consolidated statement of earnings for fiscal years 2007, 2006 and 2005 reflect pre-tax stock-based compensation cost of $4.4 million, $5.6 million and $8.0 million, respectively, which is included in general and administrative expenses. The income tax benefit related to stock-based compensation cost was $1.7 million, $2.1 million and $3.1 million for fiscal years 2007, 2006 and 2005, respectively. Stock-based compensation cost of $125 thousand, $200 thousand, and $0 was capitalized as property and equipment in 2007, 2006 and 2005, respectively.

Stock Option Plans

The Company has adopted stock option plans under which 10,781,250 shares, as amended, may be granted to employees and 437,500 shares, as amended, may be granted to non-employee directors. Under the terms of the Company’s stock option plans, employees and non-employee directors were granted options to purchase the Company’s common stock at a price equal to the fair market value of the underlying shares on the date of grant. Options may not be exercised until the employee has been continuously employed at least one year, or the non-employee director has served on the Board of Directors for at least two years, after the date of grant. Stock options granted under the plans vest over periods of one to four years and expire from five to seven years from the date of grant. Options which expire or terminate may be re-granted under the plan. The Company issues new shares of its common stock when options are exercised. In 2006, the Company discontinued granting stock options.

44

CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Stock-based compensation plans (continued):

The following table summarizes 2007 stock option activity and related information for all plans:

	Option Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
						(in thousands)
Options outstanding, December 31, 2006	4,932,678		$	25.66
Granted	—			—
Exercised	(2,049,686	)	$	22.08
Forfeited	(103,312	)	$	32.81
Options outstanding, December 30, 2007	2,779,680		$	28.15	2.1	$	6,765
Options exercisable, December 30, 2007	2,305,318		$	26.53	2.0	$	6,765

Pursuant to a plan approved by the Board of Directors, the Company’s executive officers elected in December 2006 to modify the terms of certain outstanding stock options held by them totaling 1,903,450 shares in order to comply with the requirements of Internal Revenue Code 409A by setting a pre-determined fixed period in which such stock options would be exercised.

Cash proceeds from the exercise of stock options totaled $45.3 million, $8.0 million and $11.2 million in the years ended December 30, 2007, December 31, 2006 and January 1, 2006, respectively. Stock options exercised in fiscal years 2007, 2006 and 2005, had an aggregate intrinsic value (the amount by which the closing market price of the Company’s common stock on the date of exercise exceeded the exercise price multiplied by the number of shares) of $31.8 million, $3.7 million and $9.2 million, respectively. As of December 30, 2007, unrecognized pretax stock-based compensation cost related to stock options was $654 thousand which will be recognized over a weighted average remaining vesting period of 1.0 year.

Restricted Stock Plans

The Company has adopted an employee restricted stock plan under which 1,100,000 shares, as amended, are authorized to be granted before December 31, 2014. Shares awarded under the employee restricted stock plan provide for a vesting period of at least one year and no more than five years, and the full award may not vest in less than three years, subject to the terms of the employee restricted stock plan. The Company has also adopted a non-employee directors restricted stock plan under which 75,000 shares, as amended, are authorized to be granted before May 1, 2020. Shares awarded under the non-employee directors restricted stock plan provide for a vesting period of four years. Shares issued under a restricted stock award are nontransferable and subject to the forfeiture restrictions. Unvested shares which are forfeited or cancelled may be re-granted under the plan.

The following table summarizes 2007 restricted stock activity for all plans:

	Restricted Shares		Weighted Average Grant Date Fair Value
Restricted stock outstanding, December 31, 2006	240,877		$	32.18
Granted	220,826		$	38.57
Vested	(59,310	)	$	32.18
Forfeited	(26,599	)	$	36.03
Restricted stock outstanding, December 30, 2007	375,794		$	35.66

45

CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Stock-based compensation plans (continued):

In 2006, the Company granted 258,364 shares of restricted stock at a weighted average grant date fair value of $32.19 per share. The total fair value of shares vested during 2007 was $2.5 million. There were no shares vested in 2006 and 2005. On January 8, 2008, the Company granted an additional 25,296 shares under the non-employee directors restricted stock plan. As of December 30, 2007, unrecognized pretax stock-based compensation cost related to restricted stock was $9.6 million which will be recognized over a weighted average remaining vesting period of 2.8 years.

The following tables present the effects of the retrospective application of SFAS 123(R) on the consolidated balance sheet, statement of earnings, statement of comprehensive income and statement of cash flows as previously reported in the Company’s Annual Report on Form 10-K/A for the year ended January 1, 2006:

	Fiscal Year Ended January 1, 2006
	As Previously Reported			SFAS 123(R) Adjust			As Adjusted
	(in thousands, except per share data)
Balance Sheet:
Long-term deferred tax liability	$	29,352		$	(9,733	)	$	19,619
Capital in excess of par value		271,332			43,107			314,439
Retained earnings		496,552			(33,374	)		463,178
Total shareholders’ equity		333,450			9,733			343,183
Statement of Earnings:
General and administrative	$	37,893		$	7,634		$	45,527
Total operating costs and expenses		601,222			7,634			608,856
Income before income taxes		120,415			(7,634	)		112,781
Income taxes		45,714			(2,604	)		43,110
Net income		74,701			(5,030	)		69,671
Basic earnings per share		2.13			(0.14	)		1.99
Diluted earnings per share		2.06			(0.13	)		1.93
Statement of Comprehensive Income:
Comprehensive income		75,671			(5,030	)		70,641
Statement of Cash Flows:
Net income	$	74,701		$	(5,030	)	$	69,671
Deferred income tax expense		(4,767	)		(1,751	)		(6,518	)
Stock-based compensation expense		328			7,634			7,962
Excess tax benefit from stock-based compensation		4,707			(4,707	)		—
Cash provided by operating activities		138,852			(3,854	)		134,998
Excess tax benefit from stock-based compensation		—			3,854			3,854
Cash used in financing activities		(47,219	)		3,854			(43,365	)

10. Benefit plans:

The Company has adopted the CEC 401(k) Retirement and Savings Plan (“401(k) Plan”), to which it may at its discretion make an annual contribution out of its current or accumulated earnings. Only non-highly compensated employees as determined by the Internal Revenue Service are eligible to participate in the 401(k) Plan. Contributions by the Company are made in the form of its common stock. At December 30, 2007, the Company accrued $536 thousand for contributions for the 2007 plan year, which will be paid in common stock in fiscal 2008. The Company made contributions of approximately $476 thousand and $456 thousand in common stock for the 2006 and 2005 plan years. At December 30, 2007, 100,457 shares remained available for grant under the plan.

46

CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Benefit plans (continued):

In February 2006, the Company amended its incentive bonus plan to include the addition of a tenure-based element applicable to certain employees. The amendment also includes a change in one of the criteria used to determine the performance based element of the bonus plan, which is applicable to all employees of the Company eligible for a performance based bonus. Previously, the performance criteria were based upon comparable store sales and net income results for the applicable fiscal year of the bonus plan. The amendment to the bonus plan changes the net income component to an earnings per share component.

11. Quarterly results of operations (unaudited):

The following summarizes the unaudited quarterly results of operations in 2007 and 2006:

	Fiscal year ended December 30, 2007
	April 1		July 1		Sept. 30		Dec. 30
	(in thousands, except per share data)
Total revenues	$	232,859	$	179,865	$	197,481	$	175,117
Operating income		54,269		16,563		28,197		5,515
Income before income taxes		51,478		13,698		25,115		1,083
Net income		32,020		8,548		15,917		(564	)
Earnings per Share:
Basic	$	1.00	$	0.27	$	0.51	$	(0.02	)
Diluted		0.95		0.26		0.50		(0.02	)
	Fiscal year ended December 31, 2006
	April 2		July 2		Oct. 1		Dec. 31
	(in thousands, except per share data)
Total revenues	$	226,735	$	176,129	$	194,626	$	175,063
Operating income		48,868		18,905		30,726		22,386
Income before income taxes		47,077		16,576		28,050		19,674
Net income		28,853		10,159		17,192		12,053
Earnings per Share:
Basic	$	0.86	$	0.31	$	0.54	$	0.38
Diluted		0.84		0.30		0.53		0.36

Quarterly operating results are not necessarily representative of operations for a full year for various reasons, including seasonal variances in the Company’s business and changes in food costs. Quarterly earnings per share amounts may not sum to earnings per share for the year due to changes throughout the year in basic and diluted weighted average shares outstanding. Prior year quarterly amounts have been reclassified to conform to current year presentation. The reclassification had no impact on net income and the change in total revenues was immaterial.

Fourth Quarter Adjustment

During the fourth quarter of 2007, the Company recorded asset impairment charges of approximately $8.4 million to write down the carrying amount of the property and equipment related to five Company-owned stores.

47

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We performed an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this report of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective in ensuring that material information relating to the Company, including its consolidated subsidiaries, required to be disclosed by the Company in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, management recognized that any control and procedures, no matter how well designed and operated, can provide only a reasonable assurance of achieving the desired control objectives.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

During the year ended December 30, 2007, our management completed the corrective action to remediate a material weakness discussed in our 2005 Form 10-K/A and our 2006 Form 10-K. Our management tested the operational effectiveness of the controls put into place or strengthened to eliminate the material weakness. As a result of these measures, we have concluded that this material weakness has been remediated.

Our management, including the Company’s Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 30, 2007 based on the criteria established in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our management’s assessment, we have concluded that, as of December 30, 2007, the Company’s internal control over financial reporting was effective based on those criteria.

Deloitte & Touche LLP, an independent registered public accounting firm that audited our financial statements included in this Annual Report on Form 10-K, has issued an attestation report on the Company’s internal control over financial reporting as of December 30, 2007, which is included in Item 8 under the caption “Report of Independent Registered Public Accounting Firm.”

48

Changes in Internal Control over Financial Reporting

During the quarterly period ended December 30, 2007, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information

None.

49

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this Item regarding the directors and executive officers of the Company is incorporated by reference from and will be included in the Company’s definitive Proxy Statement to be filed pursuant to Regulation 14A in connection with the Company’s 2008 annual meeting of stockholders.

The Company has adopted a Code of Ethics for the Chief Executive Officer and Senior Financial Officers (the “Code of Ethics”) that applies to the principal executive officer, principal financial officer and principal accounting officer. Changes to and waivers granted with respect to the Code of Ethics related to the above named officers required to be disclosed pursuant to applicable rules and regulations will also be posted on the Company’s website at www.chuckecheese.com.

Item 11. Executive Compensation

The information required by this Item regarding the directors and executive officers of the Company is incorporated by reference from and will be included in the Company’s definitive Proxy Statement to be filed pursuant to Regulation 14A in connection with the Company’s 2008 annual meeting of stockholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item is incorporated by reference from and will be included in the Company’s definitive Proxy Statement to be filed pursuant to Regulation 14A in connection with Company’s 2008 annual meeting of stockholders.

Item 13. Certain Relationships and Related Transactions, and Directors Independence

The information required by this Item is incorporated by reference from and will be included in the Company’s definitive Proxy Statement to be filed pursuant to Regulation 14A in connection with the Company’s 2008 annual meeting of stockholders.

Item 14. Principal Accountant Fees and Services

The information required by this Item is incorporated by reference from and will be included in the Company’s definitive Proxy Statement to be filed pursuant to Regulation 14A in connection with the Company’s 2008 annual meeting of stockholders.

50

PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a) Documents filed as a part of this report:

(1) Financial Statements:

The financial statements included in Item 8. “Financial Statements and Supplementary Data” are filed as a part of this Annual Report on Form 10-K. See “Index to Consolidated Financial Statements” on page 29.

(2) Financial Statement Schedules:

There are no financial statement schedules filed as a part of this Annual Report on Form 10-K, since the circumstances requiring inclusion of such schedules are not present.

(3) Exhibits:

The exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index beginning on page 52 of this Annual Report on Form 10-K.

51

EXHIBIT INDEX

Exhibit Number	Description
3.1*	Amended and Restated Articles of Incorporation of the Company, dated April 23, 1999.
3.2*	Amended Bylaws of the Company, dated April 17, 2001.
4.1	Specimen form of certificate representing $.10 par value Common Stock (filed as Exhibit 4(a) to the Company’s Annual Report on Form 10-K for the year ended December 28, 1990, and incorporated herein by reference).
10.1* §	2005 Employment Agreement, dated March 29, 2005, between the Company and Richard M. Frank.
10.2* §	2005 Employment Agreement, dated March 29, 2005, between the Company and Michael H. Magusiak.
10.3	Amended and Restated Credit Agreement, in the stated amount of $200,000,000, dated July 18, 2005, between CEC Entertainment Concepts, L.P., Company, Bank of America, N.A., JP Morgan Chase Bank, N.A., Suntrust Bank, and the other Lenders (filed as Exhibit 10(a)(1) to the Company’s Form 8-K (No. 001-13687), and incorporated herein by reference).
10.4 §	1997 Non-Statutory Stock Option Plan (filed as Exhibit 4.1 to the Company’s Form S-8 (No. 333-41039), and incorporated herein by reference).
10.5 §	Specimen form of Contract under the 1997 Non-Statutory Stock Option Plan of the Company, as amended to date (filed as Exhibit 10(o)(2) to the Company’s Annual Report on Form 10-K for the year ended January 2, 1998, and incorporated herein by reference).
10.6 §	Non-Employee Directors Stock Option Plan (filed as Exhibit B to the Company’s Proxy Statement for Annual Meeting of Stockholders to be held on June 8, 1995, and incorporated herein by reference).
10.7 §	Specimen form of Contract under the Non-Employee Directors Stock Option Plan of the Company, as amended to date (filed as Exhibit 10(s)(2) to the Company’s Annual Report on Form 10-K for the year ended December 27, 1996, and incorporated herein by reference).
10.8 §	2004 Restricted Stock Plan (filed as Exhibit A to the Company’s Form S-8 (No. 333-119232), and incorporated herein by reference).
10.9 §	Specimen form of Contract under the 2004 Restricted Stock Plan of the Company, as amended to date (filed as Exhibit 10(f)(2) to the Company’s Annual Report on Form 10-K/A for the year ended January 1, 2006, and incorporated herein by reference).
10.10 §	2004 Restricted Stock Plan, as amended by the Board of Directors of the Company on April 17, 2007 (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended July 1, 2007, and incorporated herein by reference).
10.11 §	Non-Employee Directors Restricted Stock Plan (filed as Exhibit A to the Company’s Form S-8 (No.333-130142), and incorporated herein by reference).

52

Exhibit Number	Description
10.12 §	Specimen form of Contract under the Non-Employee Directors Restricted Stock Plan of the Company, as amended to date (filed as Exhibit 10(g)(2) to the Company’s Annual Report on Form 10-K/A for the year ended January 1, 2006, and incorporated herein by reference).
10.13 §	Non-Employee Directors Restricted Stock Plan, as amended by the Board of Directors of the Company on April 17, 2007 (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the period ended July 1, 2007, and incorporated herein by reference).
10.14	Rights Agreement, dated as on November 19, 1997, by and between the Company and the Rights Agent (filed as Exhibit A to Exhibit 1 of the Company’s Registration Statement on Form 8-A (No. 001-13687) and incorporated herein by reference).
10.15 §	Agreement Regarding Private Placement of Shares Upon Exercise of Stock Option – J. Roger Cardinale (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2007, and incorporated herein by reference).
10.16 §	Agreement Regarding Private Placement of Shares Upon Exercise of Stock Option – Richard M. Frank (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2007, and incorporated herein by reference).
10.17 §	Agreement Regarding Private Placement of Shares Upon Exercise of Stock Option – Michael H. Magusiak (filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2007, and incorporated herein by reference).
10.18 §	Agreement Regarding Private Placement of Shares Upon Exercise of Stock Option – Tim T. Morris (filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2007, and incorporated herein by reference).
10.19 §	Agreement Regarding Private Placement of Shares Upon Exercise of Stock Option – Cynthia Pharr Lee (filed as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2007, and incorporated herein by reference).
10.20 §	Agreement Regarding Private Placement of Shares Upon Exercise of Stock Option – Walter Tyree (filed as Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2007, and incorporated herein by reference).
10.21 §	Private Placement Agreement and Restricted Stock Agreement – Tim T. Morris (filed as Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2007, and incorporated herein by reference).
10.22 §	Private Placement Agreement and Restricted Stock Agreement – Walter Tyree (filed as Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2007, and incorporated herein by reference).
10.23 §	Private Placement Agreement and Restricted Stock Agreement – Cynthia Pharr Lee (filed as Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2007, and incorporated herein by reference).
10.24 §	Private Placement Agreement and Restricted Stock Agreement – Larry McDowell (filed as Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2007, and incorporated herein by reference).
10.25 §	Private Placement Agreement and Restricted Stock Agreement – Louis Neeb (filed as Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2007, and incorporated herein by reference).

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Exhibit Number	Description
10.26 §	Private Placement Agreement and Restricted Stock Agreement – Raymond Woolridge (filed as Exhibit 10.12 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2007, and incorporated herein by reference).
10.27	First Amendment to the Amended and Restated Credit Agreement, dated January 2, 2006, as amended, entered into with Bank of America, N.A., as administrative agent, JPMorgan Chase Bank, N,A,, as syndication agent, SunTrust Bank, as documentation agent, and the lenders (filed as Exhibit 10.1 to the Company’s Form 8-K filed on August 23, 2007, and incorporated herein by reference)
10.28	Second Amended and Restated Credit Agreement, dated October 19, 2007, among CEC Entertainment Concepts, L.P., a subsidiary of CEC Entertainment, Inc., as the Borrower, CEC Entertainment, Inc. as a Guarantor, Bank of America, N.A., as Administrative Agent, Swing Line Lender, and L/C Issuer, J.P. Morgan Chase Bank, N.A. as Syndication Agent, Wachovia Bank, N.A. and Suntrust Bank as Co-Documentation Agents, and Banc of America Securities LLC and J.P. Morgan Securities, Inc. as Co-Lead Arrangers and Co-Book Managers and certain other lenders (filed as Exhibit 10.1 to the Company’s Form 8-K filed on October 23, 2007, and incorporated herein by reference).
10.29* §	Amendment No. 1 to the Richard M. Frank 2005 Employment Agreement, dated December 17, 2007.
10.30* §	Amendment No. 1 to the Michael H. Magusiak 2005 Employment Agreement, dated December 17, 2007.
10.31*	Specimen form of contract of the CEC Entertainment, Inc. Franchise Agreement.
10.32*	Specimen form of contract of the Amendment to the CEC Entertainment, Inc. Franchise Agreement for the State of California.
10.33*	Specimen form of contract of the Amendment to the CEC Entertainment, Inc. Franchise Agreement for the State of Minnesota.
10.34*	Specimen form of contract of the Amendment to the CEC Entertainment, Inc. Franchise Agreement for the State of North Dakota.
10.35*	Specimen form of contract of the Amendment to the CEC Entertainment, Inc. Franchise Agreement for the State of New York.
10.36*	Specimen form of contract of the Amendment to the CEC Entertainment, Inc. Franchise Agreement for the State of Washington.
10.37*	Specimen form of contract of the CEC Entertainment, Inc. Development Agreement.
10.38*	Specimen form of contract of the Amendment to the CEC Entertainment, Inc. Development Agreement for the State of California.
10.39*	Specimen form of contract of the Amendment to the CEC Entertainment, Inc. Development Agreement for the State of Minnesota.
10.40*	Specimen form of contract of the Amendment to the CEC Entertainment, Inc. Development Agreement for the State of North Dakota.
10.41*	Specimen form of contract of the Amendment to the CEC Entertainment, Inc. Development Agreement for the State of New York.
10.42*	Specimen form of contract of the Amendment to the CEC Entertainment, Inc. Development Agreement for the State of Washington.

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Exhibit Number	Description
21.1*	Subsidiaries of the Company.
23.1*	Consent of Independent Registered Public Accounting Firm.
31.1*	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).
31.2*	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).
32.1*	Certification of Chief Executive Officer pursuant to 18 U.S.C.Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Chief Financial Officer pursuant to 18 U.S.C.Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed herewith.

§ Management contract or compensatory plan, contract or arrangement.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: February 28, 2008	CEC Entertainment, Inc.
	By:	/s/ Richard M. Frank
		Richard M. Frank
		Chairman of the Board and
		Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Richard M. Frank	Chairman of the Board,	February 28, 2008
Richard M. Frank	Chief Executive Officer, and Director (Principal Executive Officer)
/s/ Christopher D. Morris	Executive Vice President,	February 28, 2008
Christopher D. Morris	Chief Financial Officer and Treasurer (Principal Financial Officer)
/s/ Darin E. Harper	Vice President, Controller	February 28, 2008
Darin E. Harper	(Principal Accounting Officer)
/s/ Michael H. Magusiak	President and Director	February 28, 2008
Michael H. Magusiak
/s/ Richard T. Huston	Director	February 28, 2008
Richard T. Huston
/s/ Larry T. McDowell	Director	February 28, 2008
Larry T. McDowell
/s/ Tim T. Morris	Director	February 28, 2008
Tim T. Morris
/s/ Louis P. Neeb	Director	February 28, 2008
Louis P. Neeb
/s/ Cynthia I. Pharr Lee	Director	February 28, 2008
Cynthia I. Pharr Lee
/s/ Walter Tyree	Director	February 28, 2008
Walter Tyree
/s/ Raymond E. Wooldridge	Director	February 28, 2008
Raymond E. Wooldridge

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EX-3.1

Exhibit 3.1

AMENDED AND RESTATED ARTICLES OF INCORPORATION

OF

CEC ENTERTAINMENT, INC.

The undersigned, CEC Entertainment, Inc., a Kansas corporation originally incorporated on April 30, 1980 as ShowBiz Pizza Place, Inc., for the purpose of amending and restating its Articles of Incorporation in accordance with the Kansas General Corporation Code, does hereby make and execute these Amended and Restated Articles of Incorporation of CEC Entertainment, Inc., and does hereby certify (i) that at a meeting of the Board of Directors of said corporation on April 20, 1999, resolutions were duly adopted setting forth proposed amendments to the Restated Articles of Incorporation of said corporation, declaring their advisability, and further declaring that said amendments be submitted for approval at the annual meeting of stockholders to be held in 1999, with the recommendation by the Board of Directors that the stockholders approve said amendments, and (ii) the annual meeting of the stockholders of said corporation was duly called and held on June 24, 1999, upon notice in accordance with Section 17-6512 of the Kansas General Corporation Code, at which meeting the necessary number of shares as required by statute were voted in favor of said amendments, and (iii) that said amendments were duly adopted in accordance with the provisions of Sections 17-6602 and 17-6605 of the Kansas General Corporation Code.

FIRST. The name of the corporation is:

CEC Entertainment, Inc.

SECOND. The address of its registered office in the State of Kansas is 534 South Kansas Avenue, Suite 1108, Topeka, Shawnee County, Kansas 66603. The name of its registered agent at such address is Corporation Service Company.

THIRD. The nature of the business or objects or purposes to be conducted, transacted, promoted or carried on by the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Code of the State of Kansas.

In addition to the powers and privileges conferred upon the corporation by law and those incidental thereto, the corporation shall possess and may exercise all the powers and privileges which are necessary or convenient to the conduct, promotion or attainment of the business, objects or purposes of the corporation.

FOURTH. The total number of shares of stock that the corporation shall have authority to issue is One Hundred Million Five Hundred Forty-Nine Thousand Five Hundred Seventy (100,549,570) shares, which shall be divided into three (3) classes as follows: (i) Forty-Nine Thousand Five Hundred Seventy (49,570) shares of Class A Preferred Stock, of the par value of Sixty Dollars ($60.00) each (hereinafter “Preferred A Shares”); (ii) Five Hundred Thousand (500,000) shares of Class B Preferred Stock, of the par value of One Hundred Dollars ($100.00) each

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(hereinafter “Preferred B Shares”); and One Hundred Million (100,000,000) shares of Common Stock, of the par value of Ten Cents ($0.10) each (hereinafter “Common Shares”). The designations, powers, preferences, and rights of each class, and the qualifications, limitations, or restrictions thereof, shall be as set forth in this ARTICLE FOURTH.

Section 4.1. Dividends.

4.1.1. Dividend Rate on Preferred A Shares. The holders of Preferred A Shares shall be entitled to receive, when, as, and if declared by the Board of Directors of the corporation to the extent and out of funds legally available for the payment of dividends, cash dividends at the rate of (a) Ninety Cents ($0.90) per share per quarter for each of the eight full fiscal quarters of the corporation following the Preferred Dividend Commencement Date (as defined in subsection 4.1.2 hereof), and (b) One Dollar and Twenty Cents ($1.20) per share per quarter for each full fiscal quarter thereafter.

4.1.2. Preferred Dividend Commencement Date. The Preferred Dividend Commencement Date shall be the first day of the fifth full fiscal quarter of the corporation beginning after the first issuance of Preferred A Shares (which date for reference purposes is May 21, 1985).

4.1.3. Accrual and Cumulation of Preferred Dividends. Dividends on the Preferred A Shares shall (a) accrue at the rates set forth in subsection 4.1.1 hereof, whether or not earned or declared; (b) be payable before any dividends (other than a dividend payable solely in Common Shares or Preferred B Shares) on Common Shares or Preferred B Shares are paid, declared, or set aside for, payment; and (c) be cumulative, so that if dividends accrued under this Section on the outstanding Preferred A Shares have not been paid or set aside for payment, for any fiscal quarter or quarters, the amount of the deficiency shall first be declared and fully paid or set aside for payment, but without interest, before any distribution, by dividend or otherwise (other than a distribution solely in Common Shares or Preferred B Shares) is declared, paid, or set aside for payment on the Common Shares or Preferred B Shares. Unless otherwise declared by the Board of Directors, no dividends shall accrue or cumulate on the Preferred A Shares before the Preferred Dividend Commencement Date.

4.1.4. Restriction on Dividends on Other Stock. The corporation shall not declare, pay, or set aside for payment any dividend or other distribution with respect to the Common Shares or Preferred B Shares (other than a distribution solely in Common Shares or Preferred B Shares) (a) until after the first dividend required to be paid on the Preferred A Shares pursuant to subsection 4.1.1 hereof has been declared and paid or set aside for payment; and (b) unless an amount equal to all dividends on the Preferred A Shares required to be paid under this Section, including an unpaid cumulated dividends, has been declared and paid or set aside for payment.

4.1.5. Definition of “Set Aside for Payment”. For the purpose of this ARTICLE FOURTH, a dividend or other distribution to the holders of the Preferred A Shares shall be deemed to have been “set aside for payment” if and only if funds sufficient for the payment in full of such

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dividend or distribution have been deposited with a bank or trust company in the States of Texas, New York, or California, as a trust fund, with irrevocable instructions and authority to the bank or trust company to pay said amounts to the holders of the Preferred A Shares on the date for payment thereof and to pay to the corporation all interest and other income earned with respect to such amounts so deposited.

4.1.6. Record Date: Payment Date. With respect to each fiscal quarter of the corporation for which the holders of the Preferred A Shares are entitled to receive a dividend and for which the Board of Directors of the corporation has declared a dividend on the Preferred A Shares (‘Dividend Quarter”), such dividend shall be payable to the holders of record of Preferred A Shares on the last day of the Dividend Quarter and shall be paid no later than 90 days after the last day of the Dividend Quarter (the “Preferred Dividend Payment Date”).

4.1.7. Dividends on Common Shares. Subject to all the provisions hereof and of any resolution or resolutions (the “Preferred B Resolutions”) of the Board of Directors of this corporation providing for the issuance of any series of Preferred B Shares, and further subject to the prior rights and privileges of the holders of Preferred A Shares and Preferred B Shares, the holders of Common Shares shall be entitled to receive dividends when, as, and if declared by the Board of Directors of the corporation, to the extent and out of funds legally available for the payment of dividends.

Section 4.2. Liquidation Preference. In the event of the voluntary or involuntary liquidation, dissolution, or winding up of the corporation, the holders of Preferred A Shares shall be entitled to be paid out of the net assets of the corporation an amount equal to the sum of Sixty Dollars ($60.00) per share, plus all unpaid dividends cumulated in respect of the outstanding Preferred A Shares, before any distribution or payment is made to the holders of Preferred B Shares or Common Shares. In the event that the net assets of the corporation are insufficient to pay the full amount then due to the holders of Preferred A Shares, the entire net assets of the corporation shall be distributed among the holders of Preferred A Shares in direct proportion to the number of Preferred A Shares held by each. The consolidation or merger of the corporation into or with any other corporation or corporations, in the manner provided by law, shall not be deemed to be a liquidation, dissolution, or winding up of the affairs of the corporation. After the payment to the holders of Preferred A Shares of all amounts to which they are entitled, as herein above provided, the holders of the shares of each series of the Preferred B Shares then outstanding shall be entitled to receive out of the remaining net assets of the corporation, but, only in accordance with the preferences, if any, provided for such series, before any distribution or payment shall be made to the holders of the Common Shares, the amount per share fixed by the Preferred B Resolutions to be received by the holders of shares of each such series on such voluntary or involuntary liquidation, dissolution, or winding-up, as the case may be. If such payment shall have been made in full to the holders of all outstanding Preferred B Shares of all series, or duly provided for, the remaining net assets of the corporation, if any, shall be distributed to the holders of the Common Shares in direct proportion to the number of Common Shares held by each. However, if upon any such liquidation, dissolution, or winding-up, the net assets of the corporation available for distribution among the holders of any one or more series of the Preferred B Shares, that (a) are entitled to a preference over

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the holders of the Common Shares upon such liquidation, dissolution, or winding-up, and (b) rank equally in connection therewith, shall be insufficient to make payment in full of the preferential amount to which the holders of such shares shall be entitled, then such assets shall be distributed among the holders of each such series of the Preferred B Shares ratably according to the respective amounts to which they would be entitled with respect to the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

Section 4.3. Redemption of Preferred A Shares.

4.3.1. Optional Redemption. The corporation may, at any time or from time to time at its sole option, redeem all or part of the outstanding Preferred A Shares. The redemption price of a Preferred A Share under this subsection is Sixty Dollars ($60.00) plus the amount of all unpaid dividends cumulated with respect to such share under subsection 4.1.3 hereof.

4.3.2. Mandatory Purchase. The corporation shall redeem, at the price specified in subsection 4.3.1 above, or purchase in the open market, such number of Preferred A Shares at such time or times, if any, as may be necessary to reduce the number of. Preferred A Shares outstanding on the last day of each of the corporation’s fiscal years set forth below to not more than the number of shares set forth opposite such year, as follows:

Year	Maximum Number of Shares Outstanding
1990	483,333
1991	466,666
1992	450,006
1993	433,333
1994	416,666
1995	400,000
1996	383,333
1997	366,666
1998	350,000
1999	333,333
2000	316,666
2001	300,000
2002	283,333
2003	266,666
2004	250,000
2005	-0-

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4.3.3. Mandatory Purchase Upon Payment of Guaranteed Debt.

4.3.3.1. Definitions.

(a) For purposes hereof, the term “BHC Affiliate” shall mean and refer to (i) Brock Hotel Corporation, a Delaware corporation (“BHC”), (ii) any corporation, partnership, or other entity in which BHC has an interest, (iii) any individual or any corporation, partnership, or other entity owning at least ten percent (10%) of the issued and outstanding voting stock of BHC or (iv) any other entity controlling, controlled by, or under common control with BHC.

(b) For purposes hereof, the term “Approved Loan” shall mean and refer to a loan, capitalized or other lease, or other financing arrangement with respect to which (i) the proceeds are used to prepay Guaranteed Obligations (as hereinafter defined), (ii) the interest rate does not exceed the blended interest rates of the Guaranteed Obligations that are prepaid with such proceeds, and (iii) the amortization of which is no less favorable to the corporation than the aggregate schedule of payments or mandatory prepayments (other than by reason of a default on a Guaranteed Obligation) required pursuant to the Guaranteed Obligations so prepaid.

(c) For purposes hereof, the term “Equity Holder” shall mean and refer to any party having an equity interest in the corporation.

4.3.3.2. Mandatory Purchase.

(a) In the event that the corporation prepays (as opposed to any regularly scheduled payment or mandatory prepayment, other than by reason of’ a default on a Guaranteed Obligation) or refinances for any reason (other than out of the proceeds of (i) any capital contributions or Approved Loans made to the corporation by a BHC Affiliate or by any Equity Holder, or (ii) any loans made to the corporation that are guaranteed by BHC or any Equity Holder), at any time prior to January 1, 1988, any debt, liability or obligation of the corporation that is guaranteed by BHC or any Equity Holder (such debts, liabilities and obligations collectively, the “Guaranteed Obligations”), so that immediately following such prepayment or refinancing there remains outstanding Guaranteed Obligations in an aggregate amount of less than Fifty Million Dollars ($50,000,000), the corporation shall repurchase, either through redemption or through purchase on the open market, that number of Preferred A Shares with an aggregate par value equal to the product of (a) the amount of Guaranteed Obligations reduced by such prepayment or refinancing (but only in

5

the amount such prepaid or refinanced Guaranteed Obligations reduce the total Guaranteed Obligations below $50,000,000, or thereafter continue to reduce the Guaranteed Obligations) multiplied by (b) thirty-five percent (35%).

(b) In addition, if, prior to January 1, 1988, any event occurs which, either under applicable law or under the provisions of any agreement governing any Guaranteed Obligation (whether or not such provision is enforceable as a matter of law), would, either immediately, or with the passage of time or giving of notice (or both), accelerate the time that payment on such Guaranteed Obligation is due and payable, or otherwise result in such Guaranteed Obligation being deemed to have matured, in whole or in part, before its regularly scheduled due date, and if, at any time after such event occurs, and prior to the reinstatement, if any, of the regular payment schedule on such Guaranteed Obligation by the agreement of the creditor thereon, any payment or distribution is made out of assets of the corporation on account of such Guaranteed Obligation (whether before or after January 1, 1988), so that, immediately following such payment or distribution, there remains Outstanding Guaranteed Obligations in an aggregate amount of less than Fifty Million Dollars ($50,000,000), the corporation shall repurchase, either through redemption or through purchases on the open market, that number of Preferred A Shares with an aggregate par value equal to the product of (a) the amount of the Guaranteed Obligations so reduced (but only in the amount such payment or distribution reduces the total Guaranteed Obligations below $50,000,000, or thereafter continues to reduce the Guaranteed Obligations) multiplied by (b) thirty-five percent (35%).

(c) Furthermore, in the event that prior to January l, 1988 the corporation pays, or assets of the corporation are used to repay, BHC or any Equity Holder (other than out of positive cash flow generated by the corporation from operations in accordance with past practices, which past practices shall not be deemed to include the sale of real estate or the sale of any entire restaurant as a unit), on account of funds advanced to the corporation by BHC or such Equity Holder to repay any Guaranteed Obligations, and such repayment to BHC or such Equity Holder occurs at a time when the remaining outstanding Guaranteed Obligations are in an aggregate amount of less than $50,000,000, then the corporation shall repurchase, either through redemption or purchases on the open market, that number of Preferred A Shares with an aggregate par value equal to the product

6

of (a) the amount of such repayment to BHC or such Equity Holder (but not to exceed the amount by which the Guaranteed Obligations total less than $50,000,000) multiplied by (b) thirty five percent (35%). For purposes of this paragraph (c): (1) any funds advanced by BHC or such Equity Holder to the corporation from and after the date on which Preferred A Shares are first issued (the “Beginning Date”) to fund negative cash flow (other than funds specifically advanced and earmarked for the upgrading of existing restaurants or the construction of new restaurants) shall be deemed to have been advanced to repay Guaranteed Obligations repaid by the corporation since the Beginning Date up to the amount of the Guaranteed Obligations paid by the corporation after the Beginning Date; (2) an amount equal to the net proceeds of any sales of assets made after the Beginning Date that are not consistent with the corporation’s past practices (which past practices shall not be deemed to include the sale of real estate or the sale of any entire restaurant as a unit) shall be deemed to have been advanced by BHC or an Equity Holder to the corporation after the Beginning Date to repay Guaranteed obligations, and repaid by the corporation to BHC or such Equity Holder after the Beginning Date; (3) any repayments made to BHC or an Equity Holder on account of advances made by BHC or such Equity Holder to the corporation shall be deemed to have been applied first to repay advances made by BHC or such Equity Holder to the corporation to repay Guaranteed Obligations; and (4) any repayments of Approved Loans made to any BHC Affiliate other than BHC shall be deemed to have been repaid to BHC on account of funds advanced by BHC to repay Guaranteed Obligations.

(d) The corporation’s obligation to redeem or repurchase Preferred A Shares in accordance with any of the foregoing subparagraphs (a), (b), and (c) of this subsection 4.3.3.2 shall not be affected by any prior purchase or redemption of Preferred A Shares by the corporation or any BHC Affiliate other than a redemption or purchase of Preferred A Shares made within twenty (20) days prior to the time such obligation arises and made for the specific purpose of satisfying such obligation, as evidenced by a statement to such effect included in any written confirmations regarding such redemption or purchase forwarded to a selling broker by the corporation, any purchasing BHC Affiliate, or their purchasing broker.

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4.3.4. Procedure-for Redemption.

4.3.4.1. Date and Place of Redemption. The Board of Directors of the corporation may, by resolution, fix the date and place of redemption (which place may be within or without the State of Kansas).

4.3.4.2. Notice. The corporation shall notify each holder of Preferred A Shares to be redeemed of the amount of his shares to be redeemed and the date and place of redemption by United States Mail, first-class postage prepaid, addressed to each such stockholder at his last known post office address as shown on the stock record books of the corporation, mailed no later than twenty (20) days before the date of redemption.

4.3.4.3. Effectiveness of Redemption. If the notice required by subsection 4.3.4.2 above has been duly given and, on or before the date fixed for redemption, the funds necessary to effect such redemption have been set aside for payment to the holders of the Preferred A Shares to be redeemed, then, whether or not a certificate evidencing shares to be redeemed has been surrendered, the shares evidenced thereby shall no longer be outstanding, and the right to receive dividends thereon, the right to vote the same, and all other rights with respect to such shares shall cease and terminate on the date so fixed for redemption, except only the right of the holder of such Preferred A Shares to receive the redemption price therefor, without interest, upon surrender of the certificate or certificates evidencing the same, duly endorsed for transfer.

4.3.4.4. Selection of Shares for Redemption. If at any time less than all of the outstanding Preferred A Shares are to be redeemed, the shares to be redeemed shall be selected by lot or in such other manner as the Board of Directors of the corporation may deem fair and appropriate.

4.3.4.5. Board of Directors’ Authority. Subject to the limitations and provisions hereof, the Board of Directors shall have the full power and authority to prescribe the manner in which, and the terms and conditions upon which, Preferred A Shares shall be redeemed.

4.3.5. Cancellation. All Preferred A Shares redeemed, purchased, or otherwise acquired by the corporation in any manner shall be cancelled and shall not be reissued.

8

Section 4.4. Voting Rights.

4.4.1. Generally. The holders of the Common Shares have one (1) vote for each Common Share so held. The holders of the Preferred A Shares have one (1) vote for each Preferred A Share so held, and shall vote along with the holders of Common Shares and not as a separate class (except as hereafter provided or as otherwise provided by law), upon each and any matter submitted to a vote of the stockholders of the corporation. Subject to Section 4.10 hereof, the holders of the Preferred B Shares shall have such voting rights as are provided in the Preferred B Resolutions.

4.4.2. Upon Default. Upon the occurrence and during the continuance of any Event of Default (as defined at Section 4.5 below), the holders of the Preferred A Shares, voting separately as a class, shall be entitled to elect the smallest number of directors that then shall constitute a majority of the directors of all of the then authorized number of directors of the corporation. The holders of the Common Shares and the holders of the Preferred B Shares (to the extent provided by the Preferred B Resolutions) shall elect the remaining directors. In such event, only holders of Preferred A Shares may vote for directors to be elected by holders of the Preferred A Shares and only holders of Common Shares and the holders of the Preferred B Shares (to the extent provided by the Preferred B Resolutions) may vote for directors to be elected by holders of the Common Shares and the holders of the Preferred B Shares (to the extent provided by the Preferred B Resolutions).

4.4.3. Approval for Certain Transactions.

4.4.3.1. Certain Transactions. Unless the corporation has first obtained the approval of the holders of two-thirds (2/3) of the outstanding Preferred A Shares, the corporation shall not:

(a) amend these Articles of Incorporation in a manner that would materially adversely affect the holders of the Preferred A Shares; or

(b) increase the authorized number of Preferred A Shares; or

(c) merge or consolidate with any other corporation; or

(d) sell, convey, or otherwise, dispose of all or substantially all of the property or business of the corporation; or

(e) amend Sections 4.1 and 4.2 above if such amendment would materially adversely affect the holders of the Preferred A Shares.

9

4.4.3.2. Junior Preferred Stock. Unless the corporation has first obtained the approval of the holders of two-thirds (2/3) of the outstanding Preferred A Shares, the corporation shall not, whether in the Preferred B Resolutions or otherwise:

(a) create any class of preferred stock having preferences over or being on a par with the Preferred A Shares as to dividends, redemption, or liquidation; or

(b) create any class of preferred stock that are subject to redemption while any of the Preferred A Shares are outstanding; or

(c) create any class of preferred stock upon which dividends are to be paid at any time in an amount that, when calculated as a percentage of the par value of such preferred stock, is in excess of the dividends payable at such time pursuant to subsection 4.1.1 hereof on the Preferred A Shares, when calculated as a percentage of the par value of the Preferred A Shares, or

(d) create any class of preferred stock upon which dividends shall by payable prior to the Preferred Dividend Commencement Date or upon which dividends shall be payable if dividends accrued under subsection 4.1.3 on the outstanding Preferred A Shares have not been paid or set aside for payment for any fiscal quarter or quarters; or

(e) create any class of preferred stock that is convertible into Common Shares at a price below the greater of (i) Three Dollars and Fifty Cents ($3.50) per Common Share or (ii) an amount that is one hundred fifty percent (150%) of the average of the mean between the bid and asked prices of the Common Shares during the twenty (20) trading days prior to the issuance of such junior preferred stock.

Section 4.5. Default.

4.5.1. Events of Default. The occurrence of any of the following events shall be deemed to be an “Event of Default” for purposes of this ARTICLE FOURTH:

(a) any failure to redeem or purchase Preferred A Shares as required by subsections 4.3.2 and 4.3.3 hereof in the manner and amount and at the time and place specified in Section 4.3 hereof, if such shares are not otherwise purchased in the manner and amount and at the time and place specified in Section 4.3 hereof by a BHC Affiliate; and

(b) the failure of the corporation, whether or not declared and whether or not funds are legally available, for the payment thereof, on or before any Preferred Dividend Payment Date, to pay the lesser of: (i) the dividends cumulated in respect of the Preferred A Shares at the end of the fiscal quarterly accounting period ended next preceding such Preferred Dividend Payment Date; or (ii) twenty-five percent (25%) of the Available Cash Flow (as hereinafter defined) of the corporation during the four (4) consecutive fiscal quarterly

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accounting periods ending with the next preceding fiscal quarterly accounting period prior to such Preferred Dividend Payment Date. The term “Available Cash Flow,” as used herein with respect to any given period of four (4) fiscal quarterly accounting periods shall mean and refer to an amount equal to: (A) the after-tax net income of the corporation during such period, plus (B) the depreciation, amortization and other similar non-cash charges deducted by the corporation during such period in determining its after tax net income, minus (C) mandatory (as opposed to voluntary) payments during such period of the principal portion (as opposed to interest) of rental payments under leases capitalized on the books of the corporation for financial reporting purposes minus (D) all dividends paid by the corporation on Preferred A Shares during such period, minus (E) all principal and interest payments, if any, made by the corporation to Pizza Time Theatre, Inc., or its successors and assigns, with respect to indebtedness with an original term in excess of six (6) months, and minus (F) the sum of Seven Million Five Hundred Thousand Dollars ($7,500,000.00).

4.5.2. Effect of Failure to Redeem or Purchase. The sole effect of the occurrence and continuance of any such Event of Default (as hereinafter defined) shall be:

(a) the adjustment of voting rights of the holders of Preferred A Shares as provided in subsection 4.4.2 hereof; and

(b) the continuance of all dividend, voting and other rights of the holders of Preferred A Shares not so redeemed as herein required, including, without limitation, the right to receive dividends pursuant to Section 4.1 hereof and to be redeemed pursuant to Section 4.3 hereof, to the extent that the corporation has funds legally available for such purposes.

4.5.3. Cure. An Event of Default shall be deemed to continue until such time as (a) the number. of Preferred A Shares then held by holders other than the corporation or a BHC Affiliate does not exceed the maximum number of Preferred A Shares then permitted to be outstanding pursuant to subsections 4.3.2 and 4.3.3 hereof; and (b) the corporation shall have declared, and paid or set aside for payment, such aggregate amount as would have been theretofore required to have been declared and paid on all past Dividend Payment Dates to prevent an Event of Default from having occurred with respect to any Preferred A Shares then outstanding.

4.5.4. Certain Shares Purchased by a BHC Affiliate.

4.5.4.1. Redemption Restriction. In the event any of the Preferred A Shares required to be redeemed or purchased pursuant to Section 4.3 hereof are purchased by a BHC Affiliate other than the corporation, as permitted in paragraph (a) of subsection 4.5.1 or in subsection 4.5.3 hereof, then such Preferred A Shares shall not be later redeemed or purchased pursuant to subsection 4.3 hereof until all other Preferred A Shares have been redeemed or purchased from all holders other than a BHC Affiliate.

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4.5.4.2. Resale Restriction. In the event any Preferred A Shares required to be redeemed or purchased pursuant to Section 4.3 hereof are purchased by a BHC Affiliate other than the corporation, as permitted in paragraph (a) of subsection 4.5.1 or in subsection 4.5.3 hereof, then such Preferred A Shares shall not be sold by such purchaser so long as any Preferred A Shares are held by any holder that is not a BHC Affiliate. A legend setting forth such restriction shall be placed on each certificate representing the Preferred A Shares subject to the restriction imposed by this subsection 4.5.4.2.

Section 4.6. Election of New Directors Upon Default.

4.6.1. Number of Directors. Upon the occurrence of any Event of Default and the election held pursuant to subsection 4.6.4 hereof, the number of the corporation’s directors shall be five (5).

4.6.2. New Election.

4.6.2.1. Notice. Within ten (10) days after receipt of a written request or requests for a shareholder’s meeting from the holder or holders of five percent (5%) or more of the Preferred A Shares after the occurrence of an Event of Default, the Secretary of the corporation shall notice and call a meeting of the shareholders of the corporation for the purpose of electing new directors.

4.6.2.2. Time and Place. Such meeting shall occur at the principal office of the corporation or such other location as the Board of Directors in good faith determines to be convenient to the majority of the shareholders. The meeting shall occur within fifty (50) days after the last day the Secretary is required to notice and call the meeting. The meeting may be a special meeting or an annual meeting.

4.6.2.3. Other Matters. The shareholders may consider other matters as they are permitted to consider by these Articles, the bylaws of the corporation, or by law, provided that nomination and election of new directors by the holders of the Preferred A Shares shall be the first item of business.

4.6.2.4. Quorum. Holders of one-third (1/3) of the Preferred A Shares shall constitute a quorum for the election of directors to be elected by the holders of the Preferred A Shares.

4.6.3. Resignations of Directors During Continuance of an Event of Default. All members of the Board of Directors shall be deemed to have resigned on the date of the meeting held pursuant to subsection 4.6.2.2 hereof.

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4.6.4. Election of Directors During Continuance of an Event of Default. At the meeting held pursuant to subsection 4.6.2.2 hereof, the holders of Preferred A Shares, Preferred B Shares, and Common Shares shall be entitled to vote for the election of directors of the corporation as provided in subsection 4.4.2 hereof.

4.6.5. Vacancies. During the continuance of an Event of Default, vacancies on the Board of Directors created other than by the operation of subsection 4.6.3 may be filled only by action of directors who were elected by holders of shares of stock of the same class as those who elected the director whose successor is to be chosen. All other vacancies shall be filed as provided in the Bylaws of the corporation.

4.6.6. Termination of Event of Default. The terms of the directors elected or appointed by or on behalf of the holders of Preferred A Shares shall expire, and the number of the corporation’s directors shall revert to the number that existed immediately prior to the Event of Default that resulted in the election of directors by classes, automatically at such time as there is no Event of Default continuing under this ARTICLE FOURTH.

Section 4.7. No Conversion Rights. The Preferred A Shares shall not be convertible into Common Shares.

Section 4.8. All Shares Nonassessable. All shares of stock of the corporation of any class shall be nonassessable.

Section 4.9. No Preemptive Rights. No holder of any shares of the corporation shall be entitled as such, as a matter of right, to purchase or subscribe for any shares of -stock of the corporation of any class, whether now or hereafter authorized or whether issued for cash, property bonds, notes, debentures, other securities, or stock convertible into shares of stock of the corporation or carrying or evidencing any right to purchase shares of stock of any class.

Section 4.10. No Nonvoting Equity Securities. The corporation shall not authorize or issue any class or series of non-voting equity securities.

Section 4.11. Preferred B Shares.

4.11.1. Issuance. Preferred B Shares may be issued in one or more series at such time or times as the Board of Directors may determine. All shares of any one series shall be of equal rank and identical in all respects. Preferred B Shares may be issued for such consideration or considerations as the Board of Directors may determine, provided that the value of such consideration or considerations shall equal or exceed, in the good faith business judgment of the Board of Directors, the greater of (i) the aggregate par value of the Preferred B Shares to be issued or (ii) the fair market value of the Preferred B Shares to be issued, if an active trading market has developed for the series of Preferred B Shares being so issued.

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4.11.2. Authorization. Subject to the restrictions set forth in subsection 4.4.3.2 hereof, authority is hereby expressly granted to the Board of Directors to fix from time to time, by resolution or resolutions providing for the issue of any series of Preferred B Shares, the powers, designations, preferences, and relative, participating, optional, or other rights, if any, and the qualifications, limitations, or restrictions thereof, if any, of such series, including, without limiting the generality of the foregoing, the following:

(a) The distinctive designation and number of shares comprising such series, which number may (except where otherwise provided by the Board of Directors in creating such series) be increased or decreased (but not below the number of shares then outstanding) from time to time by action of the Board of Directors;

(b) The dividend rate or rates on the shares of such series and the preferences, if any, over any other series of Preferred B Shares (or of any other series of Preferred B Shares over such series) with respect to dividends, the terms and conditions upon which and the periods with respect to which dividends shall be payable, whether and upon what conditions such dividends shall be cumulative and, if cumulative, the date or dates from which dividends shall cumulate;

(c) Whether or not the shares of such series shall be redeemable, the limitations and restrictions with respect to such redemptions, the time or times when, the price or prices at which, and the manner in which such shares shall be redeemable, including the manner of selecting shares of such series for redemption if less than all shares of such series are to be redeemed;

(d) The rights to which the holders of shares of such series shall be entitled, and the preferences if any, over any other series of Preferred B Shares (or of any other series of Preferred B Shares over such series), upon the voluntary or involuntary liquidation, dissolution, or winding-up of the corporation, which rights may vary depending on whether such liquidation, dissolution, or winding-up is voluntary or involuntary, and, if voluntary, may vary at different dates;

(e) Whether or not the shares of such series shall be subject to the operation of a purchase, retirement, or sinking fund, and, if so, whether and upon what conditions such purchase, retirement, or sinking fund shall be cumulative or noncumulative, the extent to which and the manner in which such fund shall be applied to the purchase or redemption of the shares of such series for retirement or to other corporate purposes and the terms and provisions relative to the operation thereof;

(f) Whether or not the shares of such series shall be convertible into or exchangeable for shares of stock of any other class or classes, or of any other series of the same class and, if so convertible or exchangeable, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of such conversion or exchange;

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(g) The voting powers, full and/or limited, if any, of the shares of such series; and whether or not and under what conditions the shares of such series (alone or together with the shares of one or more other series of Preferred B Shares having similar provisions) shall be entitled to vote separately as a single class for the election of one or more directors of the corporation in case of dividend arrearages or other specified events, or upon other matters;

(h) Whether or not the issuance of any additional shares of such series, or of any shares of any other series, shall be subject to restrictions as to issuance, or as to the powers, preferences, or rights of any such other series; and

(i) Any other preferences, privileges, and powers, and relative, participating, optional, or other special rights, and qualifications, limitations, or restrictions of such series, as the Board of Directors may deem advisable and as shall not be inconsistent with the provisions of these Articles of Incorporation or law.

4.11.3. Dividends. After the requirements with respect to preferential dividends on the Preferred A Shares (fixed pursuant to Section 4.1 hereof) shall have been met:

4.11.3.1. Fixing of Dividends. The shares of each series of Preferred B Shares shall entitle the holders thereof to receive, when, as, and if declared by the Board of Directors out of funds legally available for dividends, cash dividends at the rate, under the conditions, for the periods, and on the dates fixed by the resolution or resolutions of the Board of Directors pursuant to authority granted in this Section 4., for each series, and no more, before any dividends on the Common Shares (other than a distribution solely in Common Shares) shall be paid, declared, or set apart for payment.

4.11.3.2. Restrictions on Dividends on Common and other Junior Stock. Unless dividends on all outstanding shares of each series of the Preferred B Shares shall have been fully paid or declared and set aside for payment, for all past quarterly dividend periods, and unless all required sinking fund payments, if any, shall have been made or provided for, no dividend (except a dividend payable in Common Shares and/or shares of any other class of stock ranking junior to the Preferred B Shares) shall be paid upon or declared. or set apart for the Common Shares or any other class of stock ranking junior to the Preferred B Shares.

4.11.4. Reissuance of Preferred B Shares. Preferred B Shares redeemed, converted, exchanged, purchased, retired, or surrendered to the corporation, or which have been issued and reacquired in any manner, shall have the status of authorized and unissued Preferred B Shares and may be reissued by the Board of Directors as shares of the same or any other series of Preferred B Shares.

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4.12. Share Combination. Each ten (10) shares of previously authorized Common Stock, par value $.10 per share, of the Corporation (“Old Common Stock”), shall be hereby combined into one (1) share of Common Stock, par value $.10 per share of the Corporation (“New Common Stock”). Each previously issued certificate which represented shares of Old Common Stock shall hereafter represent the number of shares of New Common Stock into which the shares of Old Common Stock represented by such certificate shall be combined; provided, however, that each person holding of record a stock certificate or certificate which represented shares of Old Common Stock, shall receive, upon surrender of such certificate or certificate, a new certificate or certificates evidencing and representing the number of shares of New Common Stock to which such person is entitled and provided further that the Corporation shall not issue fractional shares of New Common Stock with respect to this combination. In lieu of fractional shares, the Corporation shall pay stockholders cash for such fractional shares, on the basis of the fair value of such fractional shares as of the date of effectiveness of this Section. The Board of Directors (or the Executive Committee thereof) shall determine in good faith the fair value for such fractional shares, and such determination shall be conclusive evidence thereof.

FIFTH. The number of directors of the corporation shall be as provided in the Bylaws of the corporation.

Commencing with the annual meeting of stockholders in 1988, in lieu of electing the whole number of directors annually, the directors shall be divided into three (3) classes, Class I, Class II and Class III, with three (3) directors in Class I and two in each of Classes II and III. At the annual meeting of stockholders of 1988, directors of Class I shall be elected to hold office for a term expiring at the next succeeding annual meeting of stockholders; directors of Class II shall be elected to hold office for a term expiring at the second succeeding annual meeting of stockholders; and directors of Class III shall be elected to hold office for a term expiring at the third succeeding annual meeting of stockholders. At each annual meeting of stockholders subsequent to the annual meeting of stockholders in 1988, the successors to the class of directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting. Each director shall hold office for the term for which he was elected and until his successor is elected and qualified or until his earlier resignation or removal. Any increase or decrease in the authorized number of directors shall be apportioned by the Board of Directors among the classes so as to make all classes as nearly equal in number as possible. No decrease in the authorized number of directors shall shorten the term of any incumbent director. A director who is chosen in the manner provided in the Bylaws to fill a vacancy in the Board of Directors or to fill a newly-created directorship resulting from an increase in the authorized number of directors shall hold office until the next election of the class for which such director shall have been chosen and until his successor is elected and qualified or until his earlier resignation or removal. Directors of the corporation may be removed only for cause.

Upon the occurrence of any Event of Default (as defined in the Amended Articles of Incorporation of the corporation) and the election held pursuant to Subsection 4.6.4. of the Amended Articles of Incorporation of the corporation, the effectiveness of the provisions of the immediately

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preceding paragraph shall be suspended, and the five (5) directors elected in accordance with Section 4.6 of the Amended Articles of Incorporation shall serve until the next annual meeting of stockholders and until their respective successors are elected and qualified or until their successors are elected and qualified or until their earlier registration or removal. Upon the discontinuance of an Event of Default, the suspension of the effectiveness of the provisions of the immediately preceding paragraph shall automatically cease; the directors whose terms shall not have expired by reason of the discontinuance of such Event of Default shall be designated as Class III directors; the remaining directors, subject to applicable Kansas law, may appoint directors in accordance with the provisions of Section 14 of the Bylaws or may call a special meeting of stockholders to elect directors to fill the vacancies created by the expiration of the terms of directors elected or approved by or on behalf of the holders of the Class A Preferred Stock of this corporation and to fill any newly created directorships resulting from an increase in the number of directors due to a cessation in such suspension; and the terms of each class of directors shall be determined by the provisions of the immediately preceding paragraph as though such directors had been elected at the 1988 annual meeting of stockholders.

SIXTH. The corporation is to have perpetual existence.

SEVENTH. The private property of the stockholders shall not be subject to the payment of corporate debts to any extent whatsoever.

EIGHTH. Elections of directors need not be by ballot unless the Bylaws of the corporation so provide.

NINTH. The provisions of the Bylaws of this corporation contained in Section 13 of 14 thereof may be amended, altered, changed or repealed from time to time by directors constituting at least two-thirds ( ²/3) of the authorized number of directors of the corporation; provided, however, that the stockholders at an annual meeting, or special meeting, may also amend, alter, change or repeal such provisions by the affirmative vote of the holders of two-thirds ( ²/3) of the issued and outstanding shares of all classes of stock of the corporation entitled to vote thereon, voting as one class. All provisions of the Bylaws, other than those referred to above in this paragraph, may be amended or repealed and new Bylaws not inconsistent or in conflict with those provisions referred to above in this paragraph may be added from time to time by a majority of the Board of Directors then in office; provided, however, that the stockholders at an annual meeting, or special meeting, may also from time to time amend all provisions of the Bylaws, other than those referred to above in this paragraph, and add new Bylaws not inconsistent or in conflict with those provisions referred to above in this paragraph by the affirmative vote of the holders of a majority of all classes of stock of the corporation entitled to vote thereon, voting as one class. Any amendment to the Bylaws adopted by the stockholders as aforesaid may thereafter be further amended by the directors as aforesaid unless the stockholders shall have provided otherwise in such amendment.

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TENTH. The corporation may agree to the terms and conditions upon which any director, officer, employee or agent accepts his office or position and in its Bylaws, by contract or in any other manner may agree to indemnify and protect any director, officer, employer or agent of the corporation, or any person who serves at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, to the extent permitted by the laws of the State of Kansas.

ELEVENTH. Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them or between this corporation and its stockholders or any class of them, any court of competent jurisdiction within the State of Kansas, on the application in a summary way of this corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this corporation under the provisions of Section 104 of the General Corporation Code of Kansas or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of Section 98 of the General Corporation Code of Kansas, may order a meeting of the creditors or class of creditors, or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization, if sanctioned by the court to which the said application has been made, shall be binding on all the creditors or class of creditors, or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation.

TWELFTH. Except as may be otherwise provided by statute, the corporation shall be entitled to treat the registered holder of any shares of the corporation as the owner of such shares and of all rights derived from such shares for all purposes, and the corporation shall not be obligated to recognize any equitable or other claim to or interest in such shares or rights on the part of any other person, including, but without limiting the generality of the term “person,” a purchaser, pledgee, assignee or transferee of such shares or rights, unless and until such person becomes the registered holder of such shares. The foregoing shall apply whether or not the corporation shall have either actual or constructive notice of the interest of such person.

THIRTEENTH. Meetings of stockholders may be held within or without the State of Kansas, as the Bylaws may provide. The books of the corporation may be kept (subject to any provision contained in the statutes of Kansas) outside the State of Kansas at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the corporation.

FOURTEENTH. The corporation reserves the right to amend, alter, change or repeal any provisions contained in these Amended Articles of Incorporation, and all rights conferred upon stockholders herein are granted subject to this reservation. The provisions contained in the Articles FIFTH, NINTH and FOURTEENTH of these Amended Articles of Incorporation may be amended, altered, changed or repealed from time to time only upon (1) the approval of directors constituting at least two-thirds ( ²/3) of the authorized number of directors of the corporation, and (2) the affirmative vote of the holders of two-thirds ( ²/3) of the issued and outstanding shares of all classes

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of stock of the corporation entitled to vote thereon, voting as one class at any annual or special meeting of the stockholders. All provisions of these Amended Articles of Incorporation, other than those referred to above in this Article, may be amended, altered, changed or replaced in the manner now or hereafter prescribed by statute.

FIFTEENTH. No director shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that this Article shall not eliminate or limit the liability of a director (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under the provisions of K.S.A. 17-6424 and amendments thereto or (iv) for any transaction from which the director derived an improper personal benefit.

IN WITNESS WHEREOF, these Amended and Restated Articles of Incorporation of CEC Entertainment, Inc. have been executed on behalf of the corporation by its Chief Executive Officer and attested by its Secretary on this 23rd day of July, 1999.

CEC ENTERTAINMENT, INC.
By:
	Richard M. Frank
	Chief Executive Officer

[CORPORATE SEAL]

ATTEST:

Marshall R. Fisco, Jr., Secretary

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STATE OF TEXAS	§
	§
COUNTY OF DALLAS	§

BEFORE ME, the undersigned authority, on this day personally appeared Richard M. Frank, known to me to be the person and officer whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of CEC Entertainment, Inc., a corporation, and that he executed the same as the act of such corporation.

Given under my hand and seal of office this 23rd day of July, 1999.

Notary Public in and for

the State of Texas

My commission expires:

[Seal]

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EX-3.2

Exhibit 3.2

Amended April 17, 2001

BYLAWS

OF

CEC ENTERTAINMENT, INC.

Offices

1. Registered Office and Registered Agent. The location of the registered office and the name of the registered agent of the corporation in the State of Kansas shall be such as shall be determined from time to time by the Board of Directors and on file in the appropriate public offices of the State of Kansas pursuant to applicable provisions of law.

2. Corporate Offices. The corporation may have such other corporate offices and places of business anywhere within or without the State of Kansas as the Board of Directors may from time to time designate or the business of the corporation may require.

Seal

3. Corporate Seal. The corporate seal shall have inscribed thereon the name of the corporation and the words “Corporate Seal, Kansas.” The corporate seal may be used by causing it or a facsimile thereon to be impressed or affixed or otherwise reproduced in any manner.

Stockholders’ Meeting

4. Place of Meetings. All meetings of the stockholders shall be held at the offices of the corporation in the City of Irving, State of Texas or at such other place either within or without the State of Kansas as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof.

5. Annual Meeting. An annual meeting of the stockholders of the corporation shall be held on the last Tuesday in April of each year, if not a legal holiday, and if a legal holiday, then on the next secular day following, at 10:00 a.m., or at such other date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which the stockholders shall elect directors by a plurality vote to serve until the next annual meeting of the stockholders and until their successors are elected and qualified, or until their earlier resignation or removal, and shall transact such other business as may properly be brought before the meeting. At the annual meeting, the stockholders may transact such other business as may be desired, whether or not the same was specified in the notice of the meeting, unless the consideration of such other business without its having been specified in the notice of the meeting as one of the purposes thereof is prohibited by law.

6. Special Meetings. Special meetings of the stockholders may be held for any purpose or purposes, unless otherwise prescribed by statute or by the Articles of Incorporation, and may be called by the Chairman of the Board, by the President, by the Secretary, by the Board of Directors, or by the holders of, or by any officer or stockholder upon the written request of the holders of, not less than ten percent (10%) of the outstanding stock entitled to vote at such meeting, and shall be called by any officer directed to do so by the Board of Directors or requested to do so in writing by a majority of the Board of Directors. Any such written request shall state the purpose or purposes of the proposed meeting.

The “call” and the “notice” of any such meeting shall be deemed to be synonymous.

7. Voting. At all meetings of stockholders, every stockholder having the right to vote shall be entitled to vote in person, or by proxy appointed by such stockholder and being granted not more than three years prior to said meeting, unless said stockholder shall provide for a longer period. Unless otherwise provided by the Articles of Incorporation and except in the case of election of directors, each stockholder shall have one vote for each share of stock entitled to vote at such meeting registered in his name on the books of the corporation. Except as otherwise provided by the Articles of Incorporation, at all elections of directors each stockholder shall be entitled to as many votes as shall equal the number of votes to which his shares of stock are entitled, multiplied by the number of directors to be elected by the holders of shares of the same class as such stockholder, and such stockholder may cumulate his votes and cast all of such votes for a single director or may distribute them among the number to be voted for by holders of such class of stock, or any two or more of them as he may see fit. At all meetings of stockholders, the voting may be otherwise than by ballot, including the election of directors, except that, unless otherwise provided by the Articles of Incorporation, any qualified voter may demand a vote by ballot on any other matter, in which event such vote shall be taken by ballot.

8. Quorum. The holders of a majority of the outstanding stock entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of any business, except as otherwise provided by law, by the Articles of Incorporation, or by these Bylaws. Every decision of a majority in amount of stock of such quorum shall be valid as a corporate act, except in those specific instances in which a larger vote is required by law or by the Articles of Incorporation or by these Bylaws.

If the holders of not less than twenty-five percent (25%) of the outstanding stock entitled to vote at any meeting are present in person or by proxy at a meeting at which a quorum shall not be present, the holders of a majority of the stock present in person or by proxy at such meeting shall have power successively to adjourn the meeting from time to time to a specified time and place, without notice to anyone other than announcement at the meeting, until a quorum shall be present in person or by proxy. At such adjourned meeting at which a quorum shall be present in person or by proxy, any business may be transacted which might have been transacted at the original meeting which was adjourned. If the adjournment is for more than thirty (30) days, or if after adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

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9. Stock Ledger. The original or duplicate stock ledger shall be the only evidence as to who are the stockholders entitled to examine the list required under Section 10 of these Bylaws or the books of the corporation, or to vote in person or by proxy at any meeting of the stockholders.

10. Stockholders’ Lists. The Secretary or Assistant Secretary, who shall have charge of the stock ledger, shall, if required in writing by any stockholder at least twenty (20) days prior to any meeting of stockholders or if ordered to do so by the Board of Directors, prepare and make, at least ten days before such meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

11. Notice. Written or printed notice of each meeting of the stockholders, whether annual or special, stating the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes thereof, shall be given to each stockholder of record of the corporation entitled to vote at such meeting, either personally or by first class mail, not less than ten (10) days or not more than fifty (50) days prior to the meeting.

12. Consent of Stockholders in Lieu of Meeting. To the extent, if any, and in the manner permitted by statute and unless otherwise provided in the Articles of Incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if consent in writing, setting forth the action so taken, shall be signed by all the holders of outstanding stock entitled to vote thereon.

Board of Directors

13.(a) Management. The management of all the affairs, property and business of the corporation shall be vested in a Board of Directors.

Subject to the other terms and conditions contained herein and/or in the Restated Articles of Incorporation of the Corporation, the Board of Directors shall consist of eight (8) persons. Commencing with the annual meeting of stockholders in 1988, in lieu of electing the whole number of directors annually, the directors have been divided into three (3) classes, Class I, Class II and Class III, with three (3) directors in Class I and two in each of Classes II and III. At the annual meeting of stockholders in 1988, directors of Class I were elected to hold office for a term expiring

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at the next succeeding annual meeting of stockholders; directors of Class II were elected to hold office for a term expiring at the second succeeding annual meeting of stockholders; and directors of Class III were elected to hold office for a term expiring at the third succeeding annual meeting of stockholders. At each annual meeting of stockholders subsequent to the annual meeting of stockholders in 1988, the successors to the class of directors whose term shall then expire have been elected to hold office for a term expiring at the third succeeding annual meeting. Commencing on the date hereof and continuing thereafter but subject to the other terms and conditions contained herein and/or in the Articles of Incorporation, there shall be three Directors in each such Class. The current member of the Board of Directors may elect Directors to fill the two newly created directorships. Each director shall hold office for the term for which he was elected and until his successor is elected and qualified or until his earlier resignation or removal. Any further increase or decrease in the authorized number of directors shall be apportioned by the Board of Directors among the classes so as to make all classes as nearly equal in number as possible. No decrease in the authorized number of directors shall shorten the term of any incumbent director. A director who is chosen in the manner provided in the Bylaws to fill a vacancy in the Board of Directors or to fill a newly-created directorship resulting from an increase in the authorized number of directors shall hold office until the next election of the class for which such director shall have been chosen and until his successor is elected and qualified or until his earlier resignation or removal.

Upon the occurrence of any Event of Default (as defined in the Restated Articles of Incorporation of the corporation) and the election held pursuant to Subsection 4.6.4. of the Restated Articles of Incorporation of the Corporation, the effectiveness of the provisions of the immediately preceding paragraph shall be suspended, and the five (5) directors elected in accordance with Section 4.6 of the Restated Articles of Incorporation shall serve until the next annual meeting of stockholders and until their respective successors are elected and qualified or until their earlier resignation or removal. Upon the discontinuance of an Event of Default, the suspension of the effectiveness of the provisions of the immediately preceding paragraph shall automatically cease; the directors whose terms shall not have expired by reason of the discontinuance of such Event of Default shall be designated as Class III directors; the remaining directors, subject to applicable Kansas law, may appoint directors in accordance with the provisions of Section 14 of these Bylaws or may call a special meeting of stockholders to elect directors to fill the vacancies created by the expiration of the terms of directors elected or approved by or on behalf of the holders of the Class A Preferred Stock of this corporation and to fill any newly created directorships resulting from an increase in the number of directors due to a cessation in such suspension; and the terms of each class of directors shall be determined by the provisions of the immediately preceding paragraph as though such directors had been elected at the 1988 annual meeting of stockholders or had been elected to fill newly created directorships on the Board of Directors.

Unless required by the Restated Articles of Incorporation, directors need not be stockholders. In addition to the powers and authority by these Bylaws and the Restated Articles of Incorporation expressly conferred upon it, the Board of Directors may exercise all such powers of the corporation, and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders.

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(b) Executive Committee. There shall be, and there hereby is, an Executive Committee of the Board of Directors of the corporation, to be selected by the Board of Directors and to consist of four (4) directors of the corporation, which Committee shall have and may exercise all of the powers and authority of the Board of Directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it; provided, however, that such Committee shall not have the power or authority of the Board of Directors with respect to amending the Articles of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation’s property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, amending the Bylaws of the corporation, the declaration of dividends or the issuance of stock. Notwithstanding the foregoing, the Executive Committee shall be dissolved during, and shall not be reconvened until the end of, the period commencing upon the election of directors of this corporation pursuant to Section 4.6 of ARTICLE FOURTH of the Articles of Incorporation of this corporation and ending at such time as there is no Event of Default then continuing.

The Executive Committee shall meet from time to time on call of the Chairman of the Executive Committee or a majority of the members of the Committee. Notice of each such meeting stating the place, day and hour thereof shall be served personally on each member of the Executive Committee or shall be mailed, telephoned, telecopied or telegraphed to his or her address on the books of the corporation no fewer than forty-eight (48) hours before the meeting. No such notice need state the business proposed to be transacted at the meeting and no notice of the time or place of any meeting of the Executive Committee need be given to any member thereof who either attends in person or who, in writing, executed and filed with the records of the meeting either before or after the holding thereof, waives such notice. No notice need be given of any adjourned meeting of the Executive Committee. Meetings of the Executive Committee may be held at such place or places as the Executive Committee or its Chairman shall determine or as may be specified or fixed in the respective notices or waivers thereof and may be held by means of a telephone conference call or similar communications equipment as set forth in the Bylaws. A majority of the members of the Committee shall constitute a quorum for the transaction of any business. A vote of a majority of the Committee present at a meeting shall be the act of the Committee. The Executive Committee may fix its own rules of procedure. It shall keep a record of its proceedings (which shall at all times be available to the Board of Directors) and shall report the actions taken by it to the Board of Directors at the regular meeting thereof held next following the meeting of the Executive Committee at which such actions were taken. Actions may be taken by the Committee without a meeting if all of the members of the Committee consent thereto in writing and the writing or writings are filed with the records of the proceedings of the Committee. The Chairman of the Executive Committee shall preside at its meetings. In his absence or inability to act, any other member of the Committee designated by a majority of the members of the Committee present at any meeting shall preside. The Committee shall appoint its own Secretary who may be the Secretary or Assistant Secretary of the corporation.

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14. Vacancies and Newly Created Directorships. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by two-thirds (2/3) of the directors then in office, though less than a quorum, or by a sole remaining director, unless it is otherwise provided in the Restated Articles of Incorporation or Bylaws, and the directors so chosen shall hold office for the terms specified in the Restated Articles of Incorporation, and until their successors are duly elected and qualified or until their earlier resignation or removal. If there are no directors in office, then an election of directors may be held in the manner provided by statute.

15. Meetings of the Newly Elected Board - Notice. The first meeting of the members of each newly elected Board of Directors shall be held (i) at such time and place either within or without the State of Kansas as shall be suggested or provided by resolution of the stockholders at the meeting at which such newly elected Board was elected, and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present, or (ii) if not so suggested or provided for by resolution of the stockholders or if a quorum shall not be present, at such time and place as shall be consented to in writing by a majority of the newly elected directors, provided that written or printed notice of such meeting shall be given to each of the other directors in the same manner as provided in Section 18 of these Bylaws with respect to the giving of notice for special meetings of the Board except that it shall not be necessary to state the purpose of the meeting in such notice; or (iii) regardless of whether or not the time and place of such meeting shall be suggested or provided for by resolution of the stockholders, at such time and place as shall be consented to in writing by all of the newly elected directors.

Every director of the corporation, upon his election, shall qualify by accepting the office of director, and his attendance at, or his written approval of the minutes of, any meeting of the Board subsequent to his election shall constitute his acceptance of such office; or he may execute such acceptance by a separate writing, which shall be placed in the minute book.

16. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such times and places either within or without the State of Kansas as shall from time to time be fixed by resolution adopted by the full Board of Directors. Any business may be transacted at a regular meeting.

17. Special Meetings. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board, the President, any Vice President or the Secretary, or by any two (2) or more of the directors. The place may be within or without the State of Kansas as designated in the notice.

18. Notice of Special Meetings. Written or printed notice of each special meeting of the Board, stating the place, day and hour of the meeting and the purpose or purposes thereof, shall be mailed to each director addressed to him at his residence or usual place of business at least three (3) days before the day on which the meeting is to be held, or shall be sent to him by telefax, telegram, or delivered personally, at least two (2) days before the day on which the meeting is to be held. The notice may be given by any officer having authority to call the meeting. “Notice” and

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“call” with respect to such meetings shall be deemed to be synonymous. Any meeting of the Board of Directors shall be a legal meeting without any notice thereof having been given if all directors shall be present thereat.

19. Meetings by Conference Telephone or Similar Communications Equipment. Unless otherwise restricted by the Articles of Incorporation or these Bylaws, members of the Board of Directors of the corporation, or any committee designated by such Board, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in a meeting pursuant hereto shall constitute presence in person at such meeting.

20. Quorum. Unless otherwise required by law, the Articles of Incorporation or these Bylaws, a majority of the total number of directors shall be necessary at all meetings to constitute a quorum for the transaction of business, and except as may be otherwise provided by law, the Articles of Incorporation or these Bylaws, the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors.

If at least two (2) directors or one-third (1/3) of the whole Board of Directors, whichever is greater, is present at any meeting at which a quorum is not present, a majority of the directors present at such meeting shall have power successively to adjourn the meeting from time to time to a subsequent date, without notice to any director other than announcement at the meeting. At such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the original meeting which was adjourned.

21. Standing or Temporary Committees. The Board of Directors may, by resolution or resolutions passed by a majority of the whole Board, designate one (1) or more committees, each committee to consist of one (1) or more directors of the corporation. The Board may designate one (1) or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in said resolution or resolutions or in these Bylaws, shall have and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority of the Board of Directors with respect to amending the Articles of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation’s property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the Bylaws of the corporation; and, unless said resolution or resolutions, the Articles of Incorporation, or these Bylaws expressly so provide, no such committee shall have power or authority to declare a dividend or to authorize the issuance of stock.

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Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. All committees so appointed shall, unless otherwise provided by the Board of Directors, keep regular minutes of the transactions of their meetings and shall cause them to be recorded in books kept for that purpose in the office of the corporation and shall report the same to the Board of Directors at its next meeting. The Secretary or an Assistant Secretary of the corporation may act as Secretary of the committee if the committee so requests.

22. Compensation. Unless otherwise restricted by the Articles of Incorporation, the Board of Directors may, by resolution, fix a sum to be paid to directors for serving as directors of the corporation and may, by resolution, fix a sum which shall be allowed and paid for attendance at each meeting of the Board of Directors and in each case may provide for reimbursement of expenses incurred by directors in attending each meeting; provided that nothing herein contained shall be construed to preclude any director from serving this corporation in any other capacity and receiving his regular compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.

23. Resignations. Any director may resign at any time by giving a written notice to the corporation. Such resignation shall take effect at the time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

24. Indemnification and Liability of Directors and Officers. Each person who is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another entity (including the heirs, executors, administrators or estate of such person) shall be indemnified by the corporation as of right to the full extent permitted or authorized by the laws of the State of Kansas, as now in effect and as hereafter amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than permitted prior thereto) against any liability, judgment, fine, amount paid in settlement, cost and expense (including attorneys’ fees) asserted or threatened against and incurred by such person in his capacity as or arising out of his status as a director or officer of the corporation or, if serving at the request of the corporation, as a director, officer, employee or agent of another entity. The indemnification provided by this bylaw provision shall not be exclusive of any other rights to which those indemnified may be entitled under any other bylaw or under any agreement, vote of stockholders or disinterested directors or otherwise, and shall not limit in any way any right which the corporation may have to make different or further indemnification with respect to the same or different persons or classes of persons. The corporation shall advance to any person entitled to indemnification hereunder such expenses and costs as such person may incur in connection with any matter, event, claim or cause of action for which indemnification is, or may be, available hereunder provided that such person agrees to return to the corporation any such funds so advanced in the event that such person is not entitled to such indemnification hereunder.

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No person shall be liable to the corporation for any loss, damage, liability or expense suffered by it on account of any action taken or omitted to be taken by him as a director or officer of the corporation or of any other entity which he serves as a director, officer, employee or agent at the request of the corporation, if such person (i) exercised the same degree of care and skill as a prudent man would have exercised under the circumstances in the conduct of his own affairs, or (ii) took or omitted to take such action in reliance upon advice of counsel for the corporation, or for such other entity, or upon statements made or information furnished by directors, officers, employees or agents of the corporation or for such other entity which he had no reasonable grounds to disbelieve.

25. Action Without a Meeting. Unless otherwise restricted by the Articles of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or any committee thereof, may be taken without a meeting if written consent thereto is signed by all members of the Board of Directors, or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee.

Officers

26.(a) Officers - Who Shall Constitute. The officers of the corporation shall be a Chairman of the Board of Directors, a President, one (1) or more Vice Presidents, a Secretary and a Treasurer, each of whom shall be elected by the Board of Directors at their first meeting after the annual meeting of the stockholders. The Board of Directors may also designate additional Assistant Secretaries and Assistant Treasurers. In the discretion of the Board of Directors, the Chairman of the Board of Directors shall at all times be, and other officers may be (but need not be) members of the Board of Directors. Any two (2) or more offices may be held by the same person.

An officer shall be deemed qualified when he enters upon the duties of the office to which he has been elected or appointed and furnishes any bond required by the Board; provided, however, the Board may also require of such person his written acceptance and promise faithfully to discharge the duties of such office.

(b) Term of Office. Each officer of the corporation shall hold his office at the pleasure of the Board of Directors or for such other period as the Board may specify at the time of his election or appointment, or until his death, resignation or removal by the Board, whichever occurs first. In any event, each officer of the corporation who is not reelected or reappointed at the annual meeting of the Board of Directors next succeeding his election or appointment and at which any officer of the corporation is elected or appointed shall be deemed to have been removed by the Board, unless the Board provides otherwise at the time of his election or appointment.

(c) Other Officers and Agents. The Board from time to time may also appoint such other officers and agents for the corporation as it shall deem necessary or advisable, each of whom shall serve at the pleasure of the Board or for such period as the Board may specify, and shall exercise such powers, have such titles and perform such duties as shall be determined from time to time by the Board or by an officer empowered by the Board to make such determinations.

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27. The Chairman of the Board. If a Chairman of the Board be elected or appointed, he shall preside at all meetings of the stockholders and directors at which he may be present and shall have such other duties, powers and authority as may be prescribed elsewhere in these Bylaws. The Board of Directors may delegate such other authority and assign such additional duties to the Chairman of the Board, other than those conferred by law exclusively upon the President, as it may determine from time to time, and, to the extent permissible by law, the Board may designate the Chairman of the Board as the chief executive officer of the corporation, with all of the powers otherwise conferred upon the President of the corporation under Paragraph 28 of these Bylaws, or it may, from time to time, divide the responsibilities, duties and authority for the general control and management of the corporation’s business and affairs between the Chairman of the Board and the President.

28. The President. Unless the Board otherwise provides, the President shall be the chief executive officer of the corporation with such general executive powers and duties of supervision and management as are usually vested in the office of the chief executive officer of the corporation, and he shall carry into effect all directions and resolutions of the Board. The President, in the absence of the Chairman of the Board or if there be no Chairman of the Board, shall preside at all meetings of the stockholders and directors.

The President may execute all bonds, notes, debentures, mortgages, and other instruments for and in the name of the corporation, and may cause the corporate seal to be affixed thereto.

Unless the Board otherwise provides, the President, or any person designated in writing by him, shall have full power and authority on behalf of this corporation (i) to attend and to vote or take action at any meeting of the holders of securities of corporations in which this corporation may hold securities, and at such meetings shall possess and may exercise any and all rights and powers incident to being a holder of such securities and which as such holder thereof this corporation may have possessed and exercised if present, and (ii) to execute and deliver waivers of notice and proxies for and in the name of the corporation with respect to any such securities held by this corporation.

He shall, unless the Board otherwise provides, be ex officio a member of all standing committees.

He shall have such other or further duties and authority as may be prescribed elsewhere in these Bylaws or from time to time by the Board of Directors.

If a Chairman of the Board be elected or appointed and designated as the chief executive officer of the corporation, as provided in paragraph 27 of the Bylaws, the President shall perform such duties as may be specifically delegated to him by the Board of Directors or conferred by law exclusively upon him and in the absence, disability or inability to act as the Chairman of the Board, the President shall perform the duties and exercise the powers of the Chairman of the Board.

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29. Vice President. In the absence of the President or in the event of his disability, inability or refusal to act, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the Board, or in the absence of any designation, then in the order of their election) shall perform the duties and exercise the powers of the President, and shall perform such other duties as the Board of Directors may from time to time prescribe.

30. Secretary and Assistant Secretaries. The Secretary may attend all sessions of the Board and all meetings of the stockholders, and shall record or cause to be recorded all votes taken and the minutes of all proceedings in a minute book of the corporation to be kept for that purpose. He shall perform like duties for the Executive Committee and other standing committees when requested by the Board or any such committee to do so.

It shall be the principal responsibility of the Secretary to give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors, but this shall not lessen the authority of others to give such notice as is authorized elsewhere in these Bylaws.

The Secretary shall see that all corporate books, records, lists and information, or duplicates, required to be maintained in the State of Kansas, or elsewhere, are so maintained.

The Secretary shall keep in safe custody the seal of the corporation, and shall have the authority to affix the seal to any instrument requiring it, and when so affixed, he shall attest the seal by his signature. The Board of Directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature.

The Secretary shall have the general duties, responsibilities, and authorities of a secretary of a corporation and shall perform such other duties and have such other responsibilities and authorities as may be prescribed elsewhere in these Bylaws or from time to time by the Board of Directors or the chief executive officer of the corporation, under whose direct supervision he shall be.

In the absence of the Secretary or in the event of his disability, inability or refusal to act, the Assistant Secretary (or in the event there be more than one Assistant Secretary, the Assistant Secretaries in the order designated by the Board, or in the absence of any designation, then in the order of their election) may perform the duties and exercise the powers of the Secretary, and shall perform such other duties as the Board of Directors may from time to time prescribe.

31. The Treasurer and Assistant Treasurers. The Treasurer shall have responsibility for the safekeeping of the funds and securities of the corporation, shall keep or cause to be kept full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall keep, or cause to be kept, all other books of account and accounting records of the corporation. He shall deposit or cause to be deposited all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors or by any officer of the corporation to whom such authority has been granted by the Board of Directors.

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He shall disburse, or permit to be disbursed, the funds of the corporation as may be ordered, or authorized generally, by the Board, and shall render to the chief executive officer of the corporation and the directors whenever they may require it, an accounting of all his transactions as Treasurer and of those under his jurisdiction, and of the financial condition of the corporation.

He shall perform such other duties and shall have such other responsibility and authority as may be prescribed elsewhere in these Bylaws or from time to time by the Board of Directors.

He shall have the general duties, powers and responsibility of a Treasurer of a corporation and shall, unless otherwise provided by the Board, be the chief financial and accounting officer of the corporation.

If required by the Board, he shall give the corporation a bond in a sum and with one (1) or more sureties satisfactory to the Board, for the faithful performance of the duties of his office, and for the restoration to the corporation, in the case of his death, resignation, retirement or removal from office, of all corporate books, papers, vouchers, money and other property of whatever kind in his possession or under his control which belong to the corporation.

In the absence of the Treasurer or in the event of his disability, inability or refusal to act, the Assistant Treasurer (or in the event there be more than one Assistant Treasurer, the Assistant Treasurers in the order designated by the Board, or in the absence of any designation, then in the order of their election) may perform the duties and exercise the powers of the Treasurer, and shall perform such other duties and have such other authority as the Board of Directors may prescribe from time to time.

32. Duties of Officers May be Delegated. If any officer of the corporation be absent or unable to act, or for any other reason that the Board may deem sufficient, the Board may delegate for the time being, some or all of the functions, duties, powers and responsibilities of such officer to any other officer, or to any other agent or employee of the corporation or other responsible person, provided a majority of the whole Board concurs therein.

33. Removal. Any officer or agent elected or appointed by the Board of Directors, and any employee, may be removed or discharged by the Board whenever in its judgment the best interests of the corporation would be served thereby, but such removal or discharge shall be without prejudice to the contract rights, if any, of the person so removed or discharged.

34. Salaries and Compensation. Salaries and compensation of all elected officers of the corporation shall be fixed, increased or decreased by the Board of Directors, but this power, except as to the salary or compensation of the Chairman of the Board and the President, may, unless prohibited by law, be delegated by the Board to the Chairman of the Board or the President, or may be delegated to a committee. Salaries and compensation of all other appointed officers, agents and employees of the corporation may be fixed, increased or decreased by the Board of Directors, but until action is taken with respect thereto by the Board of Directors, the same may be fixed, increased

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or decreased by the Chairman of the Board, the President or such other officer or officers as may be designated by the Board of Directors to do so.

35. Delegation of Authority to Hire, Discharge and Designate Duties. The Board from time to time may delegate to the Chairman of the Board, the President or other officer or executive employee of the corporation, authority to hire, discharge and fix and modify the duties, salary or other compensation of employees of the corporation under their jurisdiction, and the Board may delegate to such officer or executive employee similar authority with respect to obtaining and retaining for the corporation the services of attorneys, accountants and other experts.

Shares of Stock

36. Certificates for Shares of Stock. Certificates for shares of stock shall be issued in numerical order, and each stockholder shall be entitled to a certificate signed by the chairman of the Board of Directors, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, certifying to the number of shares owned by him. To the extent permitted by statute, any or all the signatures on such certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the corporation with the same effect as if such officer, transfer agent or registrar who signed such certificate, or whose facsimile signature shall have been used thereon, had not ceased to be such officer, transfer agent or registrar of the corporation.

37. Transfer of Stock. Transfers of stock shall be made only upon the transfer books of the corporation, kept at the office of the corporation or respective transfer agents designated to transfer the several classes of stock, and before a new certificate is issued the old certificate shall be surrendered for cancellation. Until and unless the Board appoints some other person, firm or corporation as its transfer agent or transfer clerk (and upon the revocation of any such appointment, thereafter until a new appointment is similarly made), the Secretary of the corporation shall be the transfer agent or transfer clerk of the corporation without the necessity of any formal action of the Board, and the Secretary, or any person designated by him, shall perform all of the duties thereof.

38. Registered Stockholders. Registered stockholders only shall be entitled to be treated by the corporation as the holders and owners in fact of the shares standing in their respective names, and the corporation shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as expressly provided by the laws of the State of Kansas.

39. Lost Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation, alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate or certificates to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen

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or destroyed certificate or certificates, or his legal representative, to give the corporation and its transfer agents and registrars, if any, a bond in such sum as it may direct to indemnify it against any claim that may be made against it with respect to the certificate or certificates alleged to have been lost, stolen or destroyed or the issuance of such new certificate or certificates.

40. Regulations. The Board of Directors shall have power and authority to make all such rules and regulations as it may deem expedient concerning the issue, transfer, conversion and registration of certificates for shares of the capital stock of the corporation, not inconsistent with the laws of the State of Kansas, the Articles of Incorporation of the corporation or these Bylaws.

41. Fixing Record Date. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or (if permitted by statute) to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall be not more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

Dividends and Finance

42. Dividends. Dividends upon the outstanding shares of the corporation, subject to the provisions of the Articles of Incorporation and of any applicable law and of these Bylaws, may be declared by the Board of Directors at any meeting. Subject to such provisions, dividends may be paid in cash, in property, or in shares of stock of the corporation.

43. Creation of Reserves. The directors may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose or may abolish any such reserve in the manner in which it was created.

44. Moneys. The moneys of the corporation shall be deposited in the name of the corporation in such bank, banks, trust company, or trust companies as the Board of Directors shall designate, and shall be drawn out only by check, signed by the persons designated by resolution adopted by the Board of Directors, except that the Board of Directors may delegate said powers in the manner hereinafter provided in this Bylaw Section 44. The Board of Directors by resolution may authorize an officer or officers of the corporation to designate any bank, banks, trust company, or trust companies in which moneys of the corporation may be deposited, and to designate the persons who may sign checks drawn on any particular account or accounts of the corporation, whether created by direct designation of the Board of Directors or by an authorized officer or officers as aforesaid.

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45. Fiscal Year. The Board of Directors shall have the power to fix and from time to time change the fiscal year of the corporation. In the absence of an action by the Board of Directors, the fiscal year of the corporation shall end each year on the date on which the corporation treated as the close of its first fiscal year, until such time, if any, as the fiscal year shall be changed by the Board of Directors.

46. Directors’ Annual Statement. The Board of Directors may present at each annual meeting of the stockholders, and when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation.

Books and Records

47. Books, Accounts and Records. The books, accounts and records of the corporation, except as may be otherwise required by the laws of the State of Kansas, may be kept outside of the State of Kansas, at such place or places as the Board of Directors may from time to time determine. The Board of Directors shall determine whether, to what extent, and the conditions upon which the books, accounts and records of the corporation, or any of them, shall be open to the inspection of the stockholders, and no stockholder shall have any right to inspect any books, accounts or records of the corporation, except as conferred by law, vote of the stockholders, or resolution of the directors.

Notices

48. Provisions. Whenever the provisions of the Statutes of the State of Kansas, the Articles of Incorporation or these Bylaws require notice to be given to any director, officer or stockholder, they shall not be construed to require actual personal notice. Notice by first class mail may be given in writing by depositing the same in a post office or letter box, in a postpaid sealed wrapper, addressed to such director, officer or stockholder at his or her address as the same appears in the books of the corporation, and the time when the same shall be mailed shall be deemed to be the time of the giving of such notice. If notice be given by telegraph, such notice shall be deemed to be given when the same is delivered to the telegraph company.

49. Waiver. Whenever any notice is required to be given under the provisions of the statutes of the State of Kansas, or of the Articles of Incorporation or of these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice unless so required by the Articles of Incorporation or these Bylaws.

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Miscellaneous

50. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or limited to specific instances.

51. Amendments. These Bylaws may be altered, amended or repealed or new Bylaws adopted, in the manner provided in the Articles of Incorporation.

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EX-10.1

Exhibit 10.1

RICHARD M. FRANK

2005 EMPLOYMENT AGREEMENT

This Richard M. Frank 2005 Employment Agreement (the “Agreement”) is executed as of the 29^th day of March, 2005, by and between RICHARD M. FRANK (“Employee”) and CEC ENTERTAINMENT, INC., a Kansas corporation (“Company”).

RECITALS:

WHEREAS, the Employee and the Company have heretofore entered into an agreement whereby Employee is employed by the Company as Chief Executive Officer pursuant to certain terms and conditions; and

WHEREAS, the Board of Directors of the Company (the “Board of Directors”) has offered Employee continued employment in consideration for the compensation and the other benefits hereinafter set forth, and Employee is willing to continue in the employ of the Company on these terms;

NOW, THEREFORE, in consideration of the mutual promises hereinafter contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is agreed:

1. Current Employment Agreement. The Company and Employee heretofore entered into an employment agreement dated November 13, 2000, (the “Current Employment Agreement”). The term of the Current Employment Agreement expires on the last day of the fiscal year of the Company ending on or about December 31, 2005. Company and Employee hereby agree and affirm that the Current Employment Agreement is and shall be in full force and effect through the last day of the fiscal year of the Company ending on or about December 31, 2005.

2. Term. Following the expiration of the Current Employment Agreement, the Company employs Employee and Employee accepts employment from the Company upon the terms and conditions specified in this Agreement. Subject to the provisions regarding termination set forth in Sections 15 and 16 hereof, the term of this Agreement shall begin as of the first day of the fiscal year of the Company beginning on or about January 1, 2006 (the “Effective Date”) and shall terminate on the last day of the fiscal year of the Company ending on or about December 31, 2010 (the “Term”).

3. Basic Salary. For services rendered by Employee under this Agreement, the Company shall pay Employee the “Basic Salary,” provided for in this Section 3, as follows:

(a) During the Term of Employee’s employment under this Agreement, the Employee shall receive as Basic Salary the amount of One Million Two Hundred Thousand Dollars ($1,200,000.00) per year. The Basic Salary may be increased in such amounts and on such dates as the Compensation Committee of the Board of Directors (the “Compensation Committee”) may determine from time to time.

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(b) The Basic Salary provided for in this Section 3 shall be in addition to any other compensation and/or benefits provided to Employee (i) pursuant to this Agreement or (ii) otherwise at the discretion of the Compensation Committee, including, but not limited to, the annual bonus opportunity available to home office employees and officers of the Company at a level commensurate with his position as Chief Executive Officer.

4. Stock Options. Employee has received from the Company on March 4, 2005 options (the “Stock Options”) to purchase one hundred fifty thousand (150,000) shares of the Company’s Common Stock, par value $ .10 per share (Common Stock) pursuant to the Company’s 1997 Non-Statutory Stock Option Plan. Of the Stock Options granted as described in this Section 4, twenty-five percent (25%) shall vest on March 4, 2006, fifty percent (50%) shall vest on March 4, 2007, seventy-five percent (75%) shall vest on March 4, 2008 and one hundred percent (100%) shall vest on March 4, 2009. During the Term of this Agreement, Employee shall be entitled to receive additional options to purchase shares of Common Stock in such amounts and at such prices as may be determined by the Compensation Committee, and he shall also be entitled to receive Common Stock pursuant to restricted stock awards according to the Company’s 2004 Restricted Stock Plan in such amounts and under such terms as may be determined by the Compensation Committee.

5. Severance Pay. If the Company terminates the employment of Employee at any time (other than pursuant to Section 16 hereof), or if a “Change of Control” occurs with respect to the Company and Employee voluntarily terminates his employment with the Company within one year after such Change of Control, the Company shall be required to pay Employee severance pay in the amount of Three Million Dollars ($3,000,000.00). Such severance pay shall be payable to Employee by the Company in cash on or before the tenth (10^th) day after the Termination Date, as defined in Section 15.

For purposes of this Section 5, a “Change of Control” shall be deemed to have occurred with respect to the Company if: (a) any person or group of persons acting in concert, in which person or group of persons the Employee is not an investor, partner, officer, director or member, shall acquire, directly or indirectly, the power to vote, or direct the voting of, more than thirty-three percent (33%) of the then outstanding voting securities of the Company; or (b) during any consecutive eighteen (18) month period a majority of the Company’s Board of Directors is elected or appointed and consists of persons who are not directors of the Company as of the Effective Date, and whose election or appointment as directors of the Company was actively opposed by Employee, as evidenced by Employee’s vote (in his capacity or capacities, if any, as a director and/or stockholder of the Company) against their election or appointment and by written notice of his opposition to their election or appointment given by Employee to the then current directors of the Company not more than five (5) business day following their respective election or appointment.

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6. Additional Payments.

(a) In the event that any payment or benefit (within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”)) to the Employee or for his benefit paid or payable or distributed or distributable (at any time or from time to time) pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, his employment with the Company or a change in ownership or effective control of the Company or of a substantial portion of its assets ( a “Payment” or “Payments”), would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, being hereinafter collectively referred to as the “Excise Tax”), then the Employee will be entitled to receive an additional payment or payments, as the case may be (referred to individually or collectively as a “Gross-Up Payment”), in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes and the Excise Tax, other than interest and penalties imposed by reason of the Employee’s failure to file timely a tax return or pay taxes shown due on his return), including any Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

(b) An initial determination as to whether a Gross-Up Payment is required pursuant to this Agreement and the amount of such Gross-Up Payment shall be made at the Company’s expense by an accounting firm selected by the Company, and reasonably acceptable to the Employee, which is designated as one of the largest national accounting firms in the United States (the “Accounting Firm”). The Accounting Firm shall provide its determination (the “Determination”), together with detailed supporting calculations and documentation to the Company and the Employee within ten (10) days of the Termination Date, as defined in Section 15, or such other time as requested by the Company or by the Employee (provided the Employee reasonably believes that any of the Payments may be subject to the Excise Tax) and if the Accounting Firm determines that no Excise Tax is payable by the Employee with respect to a Payment or Payments, it shall furnish the Employee with an opinion reasonably acceptable to the Employee that he has substantial authority not to report any Excise Tax on his federal tax return with respect to any such Payment or Payments. Within ten (10) days of the delivery of the Determination to the Employee, the Employee shall have the right to dispute the Determination. The Gross-Up Payment, if any, as determined pursuant to this Section 6(b) shall be paid by the Company to the Employee within five (5) days of the receipt of the Determination. The existence of the dispute shall not in any way affect the Employee’s right to receive the Gross-Up Payment in accordance with the Determination. Upon the final resolution of a dispute, the Company shall promptly pay to the Employee any additional amount required by such resolution. If there is no dispute, the Determination shall be binding, final and conclusive upon the Company and the Employee.

(c) The Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Employee knows of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be

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paid. The Employee shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Employee shall:

(i) give the Company any information reasonably requested by the Company relating to such claim,

(ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company.

(iii) cooperate with the Company in good faith in order to effectively contest such claim, and

(iv) permit the Company to participate in any proceedings relating to such claim, provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation of the foregoing provision of this Section 6(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Employee to pay the tax claimed and sue for a refund, or contest the claim in any permissible manner, and the Employee agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Employee, on an interest-free basis and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Employee with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

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(d) If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 6(c), the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company’s complying with the requirements of Section 6(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 6(c), a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

7. Expenses. Subject to the rules and procedures the Company may specify from time to time, the Company shall reimburse Employee for all reasonable expenses incurred by Employee on behalf of the Company.

8. Automobile. Employer shall pay to Employee the sum of One Thousand Three Hundred Dollars ($1,300.00) per month (subject to adjustment from time to time in direct proportion to generally applicable adjustments by the Company to its automobile allowances) to reimburse Employee for the use of Employee’s automobile in the performance of his duties under this Agreement, and the Company shall further pay directly or by reimbursement to Employee (as the Company and Employee may from time to time agree) the premiums upon a policy of collision and liability insurance covering such automobile. All other cost and expenses incurred in the operation and maintenance of Employee’s automobile, including but not limited to the cost of all fuel, oil, maintenance and repairs, shall be paid solely by Employee.

9. Duties of Employee. In accepting continued employment by the Company, Employee agrees to undertake and assume the responsibility, subject to the general direction and control of the Board of Directors, of performing for and on behalf of the Company the duties of Chief Executive Officer of the Company, including formulation of the policies and administration of the Company’s affairs, and such other duties as are normally associated with and inherent in such capacity. Employee shall have authority to hire the staff necessary to accomplish the Company’s goals. In addition, if requested, Employee shall serve as Chairman of the Board of Directors, without additional compensation, and, if requested, serve as an employee, officer and/or director of any affiliates of the Company without additional compensation, although such affiliates may assume some or all of the payments due to Employee hereunder.

10. Exclusive Service. Employee shall devote substantially his full time and attention to rendering services to the Company and in furtherance of the Company’s best interests, provided that Employee may make and manage his personal passive investments. During the Term of this Agreement, other than as an employee, officer and/or director of an affiliate of the Company, Employee shall not be employed by any other person or engage in any other business or occupation; provided that Employee may engage in the business of making and managing his personal passive investments.

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11. Medical and Disability Insurance. The Company shall provide Employee and his family with insurance coverage and/or cost reimbursement benefits which provide for 100% of the health, medical, hospitalization, prescription drug and dental costs and expenses incurred by or on behalf of Employee and his Family, whether through existing insurance and/or reimbursement plans covering the Company’s employees or through special plans relating specifically to Employee, or a combination thereof. For purposes of this Agreement, the Employee’s “Family” shall include his spouse, as well as his children and step children until such time that his children and step children are no longer eligible for coverage under the health insurance plans covering the Company’s employees or until they become covered under a policy or plan provided by their employer which provides substantially similar coverage and benefits. The Company shall also take the necessary action to (a) include Employee under a Company sponsored disability plan for executives, (b) acquire a specific disability insurance policy for Employee and/or (c) assist Employee in acquiring or paying for a disability plan or insurance policy, which action results in Employee having coverage providing total disability income benefits of at least 50% of Employee’s Basic Salary which benefits will be payable if Employee became disabled until he attains age 65. If only a portion of the disability income benefits described above can be provided by insurance policies or plans, the company shall have the obligation to provide the remaining portion.

12. Continuation of Medical Benefit Coverage. Upon the termination of Employee’s employment for any reason, including a termination due to the expiration of the Term of this Agreement, the Company shall provide Employee and his Family the health, medical, hospitalization, prescription drug and dental insurance coverage and/or cost reimbursement benefits set forth in Section 11 hereof, for a period not to exceed the earlier of (a) five (5) years or (b) the date on which the Employee and his Family become covered under a policy or plan paid for by a new employer of Employee providing substantially similar coverage and benefits. In the event Employee’s employment terminates and this Section 12 becomes effective, and thereafter Employee dies while the benefits provided herein are still in effect, such benefits shall continue for Employee’s Family until five (5) years have passed following his termination of employment. The benefits set forth under this Section 12 shall be provided in addition to any other payments, benefits or compensation, if any, to which Employee, his estate of his designated beneficiary is entitled due to his termination of employment as set forth in this Agreement.

13. Life Insurance. The Company shall maintain and pay the premiums on one or more life insurance policies on Employee’s life, which may include insurance on Employee’s life under any group term life insurance plan maintained form time to time by the Company for its employees. The aggregate face amount(s) of such policy or policies shall be at least Five Hundred Thousand Dollars ($500,000.00).

Any policy of insurance or certificate of insurance under a group term policy maintained by the Company to provide the death benefits described pursuant to this Section 13 shall be owned by the Company, and the Employee (or his assignee) shall have the sole right to designate the beneficiary or beneficiaries of the proceeds payable thereunder upon the death of the Employee.

14. Vacation and Days Off. Employee may take reasonable vacations and days off agreeable to the Company and Employee; provided, however, that Employee shall be entitled to at least five (5) weeks of paid vacation per year, which Employee may use at any time during each year, and to the extent not used, during a subsequent year.

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15. Termination After Notice. Either Employee or the Company may terminate the employment of Employee at any time during the Term of this Agreement upon at least ninety (90) days’ prior written notice. In the event of such termination, the Company shall pay to Employee the severance pay provided for under Section 5 hereof, if applicable, together with all other compensation that would otherwise have been payable to Employee, as provided in Section 17 hereof, and for the purposes of said Section 17, the “Termination Date” shall be the effective date of termination set forth in the ninety (90) days prior written notice referred to in the preceding sentence.

16. Termination Upon Death or Disability.

(a) Upon the termination of the Employee’s employment due to the death of Employee, the Company shall pay to the estate of Employee certain compensation that would otherwise have been payable to Employee, as provided in Section 17 hereof, and for the purposes of said section, the “Termination Date” shall be the date of Employee’s death. Employee shall not be entitled to the severance payment described in Section 5 if his employment is terminated by death; provided, however, if the ninety (90) days prior written notice of termination had been given by either the Company or Employee, as described in section 15, but Employee dies prior to the effective date of termination set forth in said notice and Employee would have been entitled to the severance payment in Section 5 had he survived, then his estate shall be paid such severance payment. If Employee dies during the Term of this Agreement and all of the Stock Options listed in Section 4, as well as any other stock options issued to Employee by the Company that are not listed in Section 4 (such other stock options being defined as “Stock Options” for purposes of this Section 16(a)), are not vested at the time of his death, then all such Stock Options that have been outstanding for at least one year shall become immediately vested at Employee’s death and shall be exercisable by the representative of his estate pursuant to the terms of his respective Stock Option agreements or certificates. Furthermore, if Employee dies during the Term of this Agreement, any restricted stock awards granted to Employee pursuant to the Company’s 2004 Restricted Stock Plan that are not vested shall become immediately vested at Employee’s death if they were granted at least one year prior to Employee’s death.

(b) (i) During any period of disability, illness or incapacity during the Term of this Agreement, which renders Employee temporarily unable to perform the services required under this Agreement, Employee shall continue to receive the compensation payable under this Agreement. Employee’s employment under this Agreement may be terminated as provided below upon Employee’s permanent disability (as defined below).

(i) Employee shall be deemed to have suffered “permanent disability” if Employee is unable by reason of any medically determined physical or mental impairment to perform the duties required of him under this Agreement for a period of one hundred eighty (180) consecutive days in any twelve-month period. Periods of disability arising from unrelated causes shall not be combined. Upon a determination of permanent disability, the Board of Directors may terminate Employee’s employment upon thirty (30) days’ prior

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written notice. In the event of such termination, the Company shall pay to Employee certain compensation that would otherwise have been payable to Employee, as provided in Section 17, and for the purposes of said Section, the “Termination Date” shall be the effective date of termination following the Company’s notice under the preceding sentence, but Employee shall not be entitled to the severance payment described in Section 5 in such event of termination.

17. Payments Due Upon Termination of Employee’s Employment. In the event of termination of Employee’s employment under this Agreement pursuant to Sections 15 or 16 hereof, the Company shall pay Employee or his estate, as the case may be, the following payments or other items of compensation, for which purpose the “Termination Date” shall be the Termination Date specified in Sections 15 or 16 hereof, whichever is applicable:

(a) Basic Salary that would otherwise have payable to Employee under Section 3(a) hereof through the Termination Date;

(b) all payments, if any, payable pursuant to Section 5 hereof.

18. Waiver of Breach. The waiver by the Company of a breach of any of the provisions of this Agreement by Employee shall not be construed as a waiver of any subsequent breach of Employee.

19. Binding Effect: Assignment. The rights and obligations of the Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Company, whether by reason of merger, consolidation, acquisition or other business combination, or otherwise. This Agreement is a personal employment contract that may not be sold, assigned, transferred or pledged as collateral by the Employee.

20. Invalid Provisions. It is understood and agreed that in the event any paragraph, provision or clause of this Agreement or any combination thereof is found to be unenforceable at law, in equity, or under any presently existing or hereafter enacted legislation, regulation or order of the United States, any state of subdivision thereof or any municipality, those findings shall not in any way affect the other paragraphs, provisions or clauses in this Agreement, which shall continue in full force and effect.

21. Performance. This Agreement shall be performed in Dallas, County, Texas.

22. Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of Texas.

23. Entire Agreement. This Agreement contains the entire agreement of the parties and supersedes all prior agreements and understandings, oral or written, with respect to the subject matter hereof, except to the extent that provisions of the Current Employment Agreement are expressly stated herein to be effective. This Agreement may be changed only by an agreement in writing signed by the party against whom any waiver, change, amendment, modification or discharge is sought.

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24. Headings. The headings contained in the Agreement are for reference purposed only and shall not affect the meaning or interpretation of this Agreement.

25. Notice. Any notice required or permitted to be given under this Agreement to the Company shall be sufficient if in writing and if sent by certified or registered mail, first class, return receipt requested, to the registered office of the Company. Any notice required or permitted to be given under this Agreement to Employee shall be sufficient if in writing and if sent by certified or registered mail, first class, return receipt requested to Employee at his last known address. Employee shall be solely responsible for notifying the Company of his address on the date of this Agreement and all subsequent changes of address.

26. Gender. When the context in which words are used in this Agreement indicate that such is the intent, words in the singular number shall include the plural and vice versa and words in the masculine gender shall include the feminine and neuter genders and vice versa.

In WITNESS WHEREOF, the parties have executed this Agreement, effective as of the date and year first above written.

COMPANY:
CEC ENTERTAINMENT, INC.
By:	/s/ Michael H. Magusiak
	Michael H. Magusiak
	President
EMPLOYEE:
/s/ RMF
Richard M. Frank

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EX-10.2

Exhibit 10.2

MICHAEL H. MAGUSIAK

2005 EMPLOYMENT AGREEMENT

This Michael H. Magusiak 2005 Employment Agreement (the “Agreement”) is executed as of the 29^th day of March, 2005, by and between MICHAEL H. MAGUSIAK (“Employee”) and CEC ENTERTAINMENT, INC., a Kansas corporation (“Company”).

RECITALS:

WHEREAS, the Employee and the Company have heretofore entered into an agreement whereby Employee is employed by the Company as President pursuant to certain terms and conditions; and

WHEREAS, the Board of Directors of the Company (the “Board of Directors”) has offered Employee continued employment in consideration for the compensation and the other benefits hereinafter set forth, and Employee is willing to continue in the employ of the Company on these terms;

NOW, THEREFORE, in consideration of the mutual promises hereinafter contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is agreed:

1. Current Employment Agreement. The Company and Employee heretofore entered into an employment agreement dated May 8, 2001, (the “Current Employment Agreement”). The term of the Current Employment Agreement expires on the last day of the fiscal year of the Company ending on or about December 31, 2005. Company and Employee hereby agree and affirm that the Current Employment Agreement is and shall be in full force and effect through the last day of the fiscal year of the Company ending on or about December 31, 2005.

2. Term. Following the expiration of the Current Employment Agreement, the Company employs Employee and Employee accepts employment from the Company upon the terms and conditions specified in this Agreement. Subject to the provisions regarding termination set forth in Sections 15 and 16 hereof, the term of this Agreement shall begin as of the first day of the fiscal year of the Company beginning on or about January 1, 2006 (the “Effective Date”) and shall terminate on the last day of the fiscal year of the Company ending on or about December 31, 2010 (the “Term”).

3. Basic Salary. For services rendered by Employee under this Agreement, the Company shall pay Employee the “Basic Salary,” provided for in this Section 3, as follows:

(a) During the Term of Employee’s employment under this Agreement, the Employee shall receive as Basic Salary the amount of Five Hundred Fifty Thousand Dollars ($550,000.00) per year. The Basic Salary may be increased in such amounts and on such dates as the Compensation Committee of the Board of Directors (the “Compensation Committee”) may determine from time to time.

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(b) The Basic Salary provided for in this Section 3 shall be in addition to any other compensation and/or benefits provided to Employee (i) pursuant to this Agreement or (ii) otherwise at the discretion of the Compensation Committee, including, but not limited to, the annual bonus opportunity available to home office employees and officers of the Company at a level commensurate with his position as President.

4. Stock Options. Employee has received from the Company on March 4, 2005 options (the “Stock Options”) to purchase one hundred twenty-five thousand (125,000) shares of the Company’s Common Stock, par value $ .10 per share (Common Stock) pursuant to the Company’s 1997 Non-Statutory Stock Option Plan. Of the Stock Options granted as described in this Section 4, twenty-five percent (25%) shall vest on March 4, 2006, fifty percent (50%) shall vest on March 4, 2007, seventy-five percent (75%) shall vest on March 4, 2008 and one hundred percent (100%) shall vest on March 4, 2009. During the Term of this Agreement, Employee shall be entitled to receive additional options to purchase shares of Common Stock in such amounts and at such prices as may be determined by the Compensation Committee, and he shall also be entitled to receive Common Stock pursuant to restricted stock awards according to the Company’s 2004 Restricted Stock Plan in such amounts and under such terms as may be determined by the Compensation Committee.

5. Severance Pay. If the Company terminates the employment of Employee at any time (other than pursuant to Section 16 hereof), or if a “Change of Control” occurs with respect to the Company and Employee voluntarily terminates his employment with the Company within one year after such Change of Control, the Company shall be required to pay Employee severance pay in an amount equal to the product of (a) Employee’s then Basic Salary, multiplied by (b) the number two (2). Such severance pay shall be payable to Employee by the Company in cash on or before the tenth (10^th) day after the Termination Date, as defined in Section 15.

For purposes of this Section 5, a “Change of Control” shall be deemed to have occurred with respect to the Company if: (a) any person or group of persons acting in concert, in which person or group of persons the Employee is not an investor, partner, officer, director or member, shall acquire, directly or indirectly, the power to vote, or direct the voting of, more than thirty-three percent (33%) of the then outstanding voting securities of the Company; or (b) during any consecutive eighteen (18) month period a majority of the Company’s Board of Directors is elected or appointed and consists of persons who are not directors of the Company as of the Effective Date, and whose election or appointment as directors of the Company was actively opposed by Employee, as evidenced by Employee’s vote (in his capacity or capacities, if any, as a director and/or stockholder of the Company) against their election or appointment and by written notice of his opposition to their election or appointment given by Employee to the then current directors of the Company not more than five (5) business day following their respective election or appointment.

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6. Additional Payments.

(a) In the event that any payment or benefit (within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”)) to the Employee or for his benefit paid or payable or distributed or distributable (at any time or from time to time) pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, his employment with the Company or a change in ownership or effective control of the Company or of a substantial portion of its assets ( a “Payment” or “Payments”), would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, being hereinafter collectively referred to as the “Excise Tax”), then the Employee will be entitled to receive an additional payment or payments, as the case may be (referred to individually or collectively as a “Gross-Up Payment”), in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes and the Excise Tax, other than interest and penalties imposed by reason of the Employee’s failure to file timely a tax return or pay taxes shown due on his return), including any Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

(b) An initial determination as to whether a Gross-Up Payment is required pursuant to this Agreement and the amount of such Gross-Up Payment shall be made at the Company’s expense by an accounting firm selected by the Company, and reasonably acceptable to the Employee, which is designated as one of the largest national accounting firms in the United States (the “Accounting Firm”). The Accounting Firm shall provide its determination (the “Determination”), together with detailed supporting calculations and documentation to the Company and the Employee within ten (10) days of the Termination Date, as defined in Section 15, or such other time as requested by the Company or by the Employee (provided the Employee reasonably believes that any of the Payments may be subject to the Excise Tax) and if the Accounting Firm determines that no Excise Tax is payable by the Employee with respect to a Payment or Payments, it shall furnish the Employee with an opinion reasonably acceptable to the Employee that he has substantial authority not to report any Excise Tax on his federal tax return with respect to any such Payment or Payments. Within ten (10) days of the delivery of the Determination to the Employee, the Employee shall have the right to dispute the Determination. The Gross-Up Payment, if any, as determined pursuant to this Section 6(b) shall be paid by the Company to the Employee within five (5) days of the receipt of the Determination. The existence of the dispute shall not in any way affect the Employee’s right to receive the Gross-Up Payment in accordance with the Determination. Upon the final resolution of a dispute, the Company shall promptly pay to the Employee any additional amount required by such resolution. If there is no dispute, the Determination shall be binding, final and conclusive upon the Company and the Employee.

(c) The Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Employee knows of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be

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paid. The Employee shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Employee shall:

(i) give the Company any information reasonably requested by the Company relating to such claim,

(ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company.

(iii) cooperate with the Company in good faith in order to effectively contest such claim, and

(iv) permit the Company to participate in any proceedings relating to such claim, provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation of the foregoing provision of this Section 6(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Employee to pay the tax claimed and sue for a refund, or contest the claim in any permissible manner, and the Employee agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Employee, on an interest-free basis and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Employee with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

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(d) If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 6(c), the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company’s complying with the requirements of Section 6(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 6(c), a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

7. Expenses. Subject to the rules and procedures the Company may specify from time to time, the Company shall reimburse Employee for all reasonable expenses incurred by Employee on behalf of the Company.

8. Automobile. Employer shall pay to Employee the sum of One Thousand Dollars ($1,000.00) per month (subject to adjustment from time to time in direct proportion to generally applicable adjustments by the Company to its automobile allowances) to reimburse Employee for the use of Employee’s automobile in the performance of his duties under this Agreement, and the Company shall further pay directly or by reimbursement to Employee (as the Company and Employee may from time to time agree) the premiums upon a policy of collision and liability insurance covering such automobile. All other cost and expenses incurred in the operation and maintenance of Employee’s automobile, including but not limited to the cost of all fuel, oil, maintenance and repairs, shall be paid solely by Employee.

9. Duties of Employee. In accepting continued employment by the Company, Employee agrees to undertake and assume the responsibility, subject to the general direction and control of the Board of Directors and the Chief Executive Officer, of performing for and on behalf of the Company the duties of President of the Company, including formulation of the policies and administration of the Company’s affairs, and such other duties as are agreed to by the Company and the Employee. In addition, if requested, Employee shall serve as as an employee, officer and/or director of any affiliates of the Company without additional compensation, although such affiliates may assume some or all of the payments due to Employee hereunder.

10. Exclusive Service. Employee shall devote substantially his full time and attention to rendering services to the Company and in furtherance of the Company’s best interests, provided that Employee may make and manage his personal passive investments. During the Term of this Agreement, other than as an employee, officer and/or director of an affiliate of the Company, Employee shall not be employed by any other person or engage in any other business or occupation; provided that Employee may engage in the business of making and managing his personal passive investments.

11. Medical and Disability Insurance. The Company shall provide Employee and his family with insurance coverage and/or cost reimbursement benefits which provide for 100% of the health, medical, hospitalization, prescription drug and dental costs and expenses incurred by or on

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behalf of Employee and his Family, whether through existing insurance and/or reimbursement plans covering the Company’s employees or through special plans relating specifically to Employee, or a combination thereof. For purposes of this Agreement, the Employee’s “Family” shall include his spouse, as well as his children until such time that his children are no longer eligible for coverage under the health insurance plans covering the Company’s employees or until they become covered under a policy or plan provided by their employer which provides substantially similar coverage and benefits. The Company shall also take the necessary action to (a) include Employee under a Company sponsored disability plan for executives, (b) acquire a specific disability insurance policy for Employee and/or (c) assist Employee in acquiring or paying for a disability plan or insurance policy, which action results in Employee having coverage providing total disability income benefits of at least 50% of Employee’s Basic Salary which benefits will be payable if Employee became disabled until he attains age 65. If only a portion of the disability income benefits described above can be provided by insurance policies or plans, the company shall have the obligation to provide the remaining portion.

12. Continuation of Medical Benefit Coverage. Upon the termination of Employee’s employment for any reason, including a termination due to the expiration of the Term of this Agreement, the Company shall provide Employee and his Family the health, medical, hospitalization, prescription drug and dental insurance coverage and/or cost reimbursement benefits set forth in Section 11 hereof, for a period not to exceed the earlier of (a) five (5) years or (b) the date on which the Employee and his Family become covered under a policy or plan paid for by a new employer of Employee providing substantially similar coverage and benefits. In the event Employee’s employment terminates and this Section 12 becomes effective, and thereafter Employee dies while the benefits provided herein are still in effect, such benefits shall continue for Employee’s Family until five (5) years have passed following his termination of employment. The benefits set forth under this Section 12 shall be provided in addition to any other payments, benefits or compensation, if any, to which Employee, his estate of his designated beneficiary is entitled due to his termination of employment as set forth in this Agreement.

13. Life Insurance. The Company shall maintain and pay the premiums on one or more life insurance policies on Employee’s life, which may include insurance on Employee’s life under any group term life insurance plan maintained form time to time by the Company for its employees. The aggregate face amount(s) of such policy or policies shall be at least Five Hundred Thousand Dollars ($500,000.00).

Any policy of insurance or certificate of insurance under a group term policy maintained by the Company to provide the death benefits described pursuant to this Section 13 shall be owned by the Company, and the Employee (or his assignee) shall have the sole right to designate the beneficiary or beneficiaries of the proceeds payable thereunder upon the death of the Employee.

14. Vacation and Days Off. Employee may take reasonable vacations and days off agreeable to the Company and Employee; provided, however, that Employee shall be entitled to at least five (5) weeks of paid vacation per year, which Employee may use at any time during each year, and to the extent not used, during a subsequent year.

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15. Termination After Notice. Either Employee or the Company may terminate the employment of Employee at any time during the Term of this Agreement upon at least ninety (90) days’ prior written notice. In the event of such termination, the Company shall pay to Employee the severance pay provided for under Section 5 hereof, if applicable, together with all other compensation that would otherwise have been payable to Employee, as provided in Section 17 hereof, and for the purposes of said Section 17, the “Termination Date” shall be the effective date of termination set forth in the ninety (90) days prior written notice referred to in the preceding sentence.

16. Termination Upon Death or Disability.

(a) Upon the termination of the Employee’s employment due to the death of Employee, the Company shall pay to the estate of Employee certain compensation that would otherwise have been payable to Employee, as provided in Section 17 hereof, and for the purposes of said section, the “Termination Date” shall be the date of Employee’s death. Employee shall not be entitled to the severance payment described in Section 5 if his employment is terminated by death; provided, however, if the ninety (90) days prior written notice of termination had been given by either the Company or Employee, as described in section 15, but Employee dies prior to the effective date of termination set forth in said notice and Employee would have been entitled to the severance payment in Section 5 had he survived, then his estate shall be paid such severance payment. If Employee dies during the Term of this Agreement and all of the Stock Options listed in Section 4, as well as any other stock options issued to Employee by the Company that are not listed in Section 4 (such other stock options being defined as “Stock Options” for purposes of this Section 16(a)), are not vested at the time of his death, then all such Stock Options that have been outstanding for at least one year shall become immediately vested at Employee’s death and shall be exercisable by the representative of his estate pursuant to the terms of his respective Stock Option agreements or certificates. Furthermore, if Employee dies during the Term of this Agreement, any restricted stock awards granted to Employee pursuant to the Company’s 2004 Restricted Stock Plan that are not vested shall become immediately vested at Employee’s death if they were granted at least one year prior to Employee’s death.

(b) (i) During any period of disability, illness or incapacity during the Term of this Agreement, which renders Employee temporarily unable to perform the services required under this Agreement, Employee shall continue to receive the compensation payable under this Agreement. Employee’s employment under this Agreement may be terminated as provided below upon Employee’s permanent disability (as defined below).

(i) Employee shall be deemed to have suffered “permanent disability” if Employee is unable by reason of any medically determined physical or mental impairment to perform the duties required of him under this Agreement for a period of one hundred eighty (180) consecutive days in any twelve-month period. Periods of disability arising from unrelated causes shall not be combined. Upon a determination of permanent disability, the Board of Directors may terminate Employee’s employment upon thirty (30) days’ prior written notice. In the event of such termination, the Company shall pay to Employee certain compensation that would otherwise have been payable to Employee, as provided in Section 17, and for the purposes of said Section, the “Termination Date” shall be the effective date of

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termination following the Company’s notice under the preceding sentence, but Employee shall not be entitled to the severance payment described in Section 5 in such event of termination.

17. Payments Due Upon Termination of Employee’s Employment. In the event of termination of Employee’s employment under this Agreement pursuant to Sections 15 or 16 hereof, the Company shall pay Employee or his estate, as the case may be, the following payments or other items of compensation, for which purpose the “Termination Date” shall be the Termination Date specified in Sections 15 or 16 hereof, whichever is applicable:

(a) Basic Salary that would otherwise have payable to Employee under Section 3(a) hereof through the Termination Date;

(b) all payments, if any, payable pursuant to Section 5 hereof.

18. Waiver of Breach. The waiver by the Company of a breach of any of the provisions of this Agreement by Employee shall not be construed as a waiver of any subsequent breach of Employee.

19. Binding Effect: Assignment. The rights and obligations of the Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Company, whether by reason of merger, consolidation, acquisition or other business combination, or otherwise. This Agreement is a personal employment contract that may not be sold, assigned, transferred or pledged as collateral by the Employee.

20. Invalid Provisions. It is understood and agreed that in the event any paragraph, provision or clause of this Agreement or any combination thereof is found to be unenforceable at law, in equity, or under any presently existing or hereafter enacted legislation, regulation or order of the United States, any state of subdivision thereof or any municipality, those findings shall not in any way affect the other paragraphs, provisions or clauses in this Agreement, which shall continue in full force and effect.

21. Performance. This Agreement shall be performed in Dallas, County, Texas.

22. Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of Texas.

23. Entire Agreement. This Agreement contains the entire agreement of the parties and supersedes all prior agreements and understandings, oral or written, with respect to the subject matter hereof, except to the extent that provisions of the Current Employment Agreement are expressly stated herein to be effective. This Agreement may be changed only by an agreement in writing signed by the party against whom any waiver, change, amendment, modification or discharge is sought.

24. Headings. The headings contained in the Agreement are for reference purposed only and shall not affect the meaning or interpretation of this Agreement.

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25. Notice. Any notice required or permitted to be given under this Agreement to the Company shall be sufficient if in writing and if sent by certified or registered mail, first class, return receipt requested, to the registered office of the Company. Any notice required or permitted to be given under this Agreement to Employee shall be sufficient if in writing and if sent by certified or registered mail, first class, return receipt requested to Employee at his last known address. Employee shall be solely responsible for notifying the Company of his address on the date of this Agreement and all subsequent changes of address.

26. Gender. When the context in which words are used in this Agreement indicate that such is the intent, words in the singular number shall include the plural and vice versa and words in the masculine gender shall include the feminine and neuter genders and vice versa.

In WITNESS WHEREOF, the parties have executed this Agreement, effective as of the date and year first above written.

COMPANY:
CEC ENTERTAINMENT, INC.
By:	/s/ Richard M. Frank
	Richard M. Frank
	Chief Executive Officer
EMPLOYEE:
/s/ MHM
Michael H. Magusiak

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EX-10.29

Exhibit 10.29

AMENDMENT NO. 1

TO THE

RICHARD M. FRANK

2005 EMPLOYMENT AGREEMENT

THIS AMENDMENT NO. 1 TO THE RICHARD M. FRANK 2005 EMPLOYMENT AGREEMENT (the “Amendment”) is executed as of the 17th day of December, 2007, by and between RICHARD M. FRANK (“Employee”) and CEC ENTERTAINMENT, INC., a Kansas corporation (the “Company”).

RECITALS

The Company and the Employee entered into the Richard M. Frank 2005 Employment Agreement dated as of March 29, 2005 (the “Employment Agreement”); and

The Company and Employee have determined that it is in the best interests of the parties to amend the Employment Agreement to reflect the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, which are applicable to the Employment Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and Employee hereby agree that, effective as of December 17th, the Employment Agreement shall be amended as follows:

1. Section 3(a) is amended by adding the following as the second sentence of said section:

Payment of the Basic Salary shall be made at periodic times, no less frequently than monthly, in accordance with the Company’s normal payroll practices.

2. Section 5 is amended by striking the last sentence of the first paragraph of said section and substituting the following:

Such severance pay shall be payable to Employee by the Company in cash on the date which is six (6) months following the date of Employee’s “separation from service,” as defined in Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder (or, if earlier, the date of death of Employee).

3. Section 6(b) is amended by adding the following at the end of said section:

Notwithstanding the foregoing provisions of this paragraph (b), in no event shall the Gross-Up Payment or any additional amount be paid to Employee later than the end of the calendar year next following the calendar year in which Employee remits the related taxes.

4. Section 6(d) is amended by adding the following at the end of said section:

Notwithstanding the foregoing provisions of this paragraph (d) and the foregoing paragraph (c), (i) any payment made to or on behalf of Employee which relates to taxes imposed on Employee shall be made not later than the end of the calendar year next following the calendar year in which such taxes are remitted by or on behalf of Employee, and (ii) any payment made to or on behalf of Employee which relates to reimbursement of expenses incurred due to a tax audit or litigation addressing the existence or amount of a tax liability shall be made by the end of the calendar year following the calendar year in which the taxes that are the subject of the audit or litigation are remitted to the taxing authority, or where as a result of such audit or litigation no taxes are remitted, the end of the calendar year following the calendar year in which the audit is completed or there is a final and non-appealable settlement or other resolution of the litigation.

5. Section 7 is amended by striking said section and substituting in lieu thereof the following:

7. Expenses. Subject to the rules and procedures the Company may specify from time to time, the Company shall reimburse Employee for all reasonable business expenses incurred by Employee on behalf of the Company during the Term of this Agreement and as identified in the Company’s rules and procedures regarding reimbursement of business expenses, which are incorporated herein by reference. The amount of expenses eligible for reimbursement during a calendar year shall not affect the expenses eligible for reimbursement in any other calendar year. Reimbursement of eligible expenses shall be made on or before the last day of the calendar year following the calendar year in which the expenses were incurred.

6. Section 8 is amended by adding the following immediately before the last sentence of said section:

Payment or reimbursement of such insurance premiums during the Term of this Agreement shall be made on or before the last day of the calendar year following the calendar year in which the premiums are due, and such payment or reimbursement during a calendar year shall not affect the premiums eligible for payment or reimbursement in any other calendar year.

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7. Section 11 is amended by adding the following immediately after the first sentence of said section:

To the extent provision of such insurance coverage or cost reimbursement benefits during the Term of this Agreement are taxable to Employee, the provision of such in-kind benefits during a calendar year shall not affect the in-kind benefits to be provided in any other calendar year, unless the insurance coverage or cost reimbursement benefits provide for a limit on the amount of expenses that may be reimbursed under such arrangement over some or all of the period in which such arrangement remains in effect. To the extent the Company directly provides to Employee any cost reimbursement benefits, payment of such benefits shall be made on or before the last day of the calendar year following the calendar year in which such costs are incurred.

8. Section 11 is amended further by adding the following immediately before the last sentence of said section:

To the extent the Company provides such disability insurance coverage during the Term of this Agreement, the provision of such in-kind benefits during a calendar year shall not affect the in-kind benefits to be provided, in any other calendar year. To the extent the Company reimburses Employee or pays on Employee’s behalf for such disability insurance coverage, payment or reimbursement of such insurance premiums shall be made on or before the last day of the calendar year following the calendar year in which the premiums are due, and such payment or reimbursement during a calendar year shall not affect the premiums eligible for payment or reimbursement in any other calendar year.

9. Section 11 is amended further by adding the following immediately after the last sentence of said section:

To the extent the Company directly provides any disability income benefits which can only be provided in part by insurance policies or plans, the payment of said benefits shall be made monthly only upon a disability as defined in said insurance policies or plans, provided that the definition of disability applied under such disability insurance policies or plans otherwise complies with the requirements of Section 1.409A-3(i)(4) of the Final Regulations under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).

10. Section 12 is amended by adding the following at the end of said section:

To the extent provision of such insurance coverage or cost reimbursement benefits are taxable to Employee and/or his Family and the provision of such benefits extend beyond the applicable period of time during which Employee would be entitled (or would, but for this Agreement, be entitled) to

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continuation coverage under the Company’s group health plan pursuant to Section 4980B of the Code ( the “COBRA period”), (i) the provision of such in-kind benefits during a calendar year shall not affect the in-kind benefits to be provided in any other calendar year, unless the insurance coverage or cost reimbursement benefits provide for a limit on the amount of expenses that may be reimbursed under such arrangement over some or all of the period in which such arrangement remains in effect, and (ii) to the extent the Company directly provides to Employee any cost reimbursement benefits, payment of such benefits shall be made on or before the last day of the calendar year following the calendar year in which such costs are incurred.

11. Section 13 is amended by adding the following at the end of the first paragraph of said section:

To the extent provision of such insurance coverage during the Term of this Agreement is taxable to Employee, the provision of such in-kind benefits during a calendar year shall not affect the in-kind benefits to be provided in any other calendar year.

12. Section 15 is amended by adding the following at the end of the last sentence of said section:

,but in no event shall said effective date of termination be later than one hundred twenty (120) days following the giving of such written notice.

In all other respects, the Employment Agreement shall remain in effect and is confirmed and ratified.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the 17th day of December, 2007.

COMPANY:
CEC ENTERTAINMENT, INC.
By:	/s/ Michael H. Magusiak
	Michael H. Magusiak
	President
EMPLOYEE:
By:	/s/ Richard M. Frank
	Richard M. Frank

4

EX-10.30

Exhibit 10.30

AMENDMENT NO. 1

TO THE

MICHAEL H. MAGUSIAK

2005 EMPLOYMENT AGREEMENT

THIS AMENDMENT NO. 1 TO THE MICHAEL H. MAGUSIAK 2005 EMPLOYMENT AGREEMENT (the “Amendment”) is executed as of the 17th day of December, 2007, by and between MICHAEL H. MAGUSIAK (“Employee”) and CEC ENTERTAINMENT, INC., a Kansas corporation (the “Company”).

RECITALS

The Company and the Employee entered into the Michael H. Magusiak 2005 Employment Agreement dated as of March 29, 2005 (the “Employment Agreement”); and

The Company and Employee have determined that it is in the best interests of the parties to amend the Employment Agreement to reflect the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, which are applicable to the Employment Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and Employee hereby agree that, effective as of December 17, 2007, the Employment Agreement shall be amended as follows:

1. Section 3(a) is amended by adding the following as the second sentence of said section:

Payment of the Basic Salary shall be made at periodic times, no less frequently than monthly, in accordance with the Company’s normal payroll practices.

2. Section 5 is amended by striking the last sentence of the first paragraph of said section and substituting the following:

Such severance pay shall be payable to Employee by the Company in cash on the date which is six (6) months following the date of Employee’s “separation from service,” as defined in Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder (or, if earlier, the date of death of Employee).

3. Section 6(b) is amended by adding the following at the end of said section:

Notwithstanding the foregoing provisions of this paragraph (b), in no event shall the Gross-Up Payment or any additional amount be paid to Employee later than the end of the calendar year next following the calendar year in which Employee remits the related taxes.

4. Section 6(d) is amended by adding the following at the end of said section:

Notwithstanding the foregoing provisions of this paragraph (d) and the foregoing paragraph (c), (i) any payment made to or on behalf of Employee which relates to taxes imposed on Employee shall be made not later than the end of the calendar year next following the calendar year in which such taxes are remitted by or on behalf of Employee, and (ii) any payment made to or on behalf of Employee which relates to reimbursement of expenses incurred due to a tax audit or litigation addressing the existence or amount of a tax liability shall be made by the end of the calendar year following the calendar year in which the taxes that are the subject of the audit or litigation are remitted to the taxing authority, or where as a result of such audit or litigation no taxes are remitted, the end of the calendar year following the calendar year in which the audit is completed or there is a final and non-appealable settlement or other resolution of the litigation.

5. Section 7 is amended by striking said section and substituting in lieu thereof the following:

7. Expenses. Subject to the rules and procedures the Company may specify from time to time, the Company shall reimburse Employee for all reasonable business expenses incurred by Employee on behalf of the Company during the Term of this Agreement and as identified in the Company’s rules and procedures regarding reimbursement of business expenses, which are incorporated herein by reference. The amount of expenses eligible for reimbursement during a calendar year shall not affect the expenses eligible for reimbursement in any other calendar year. Reimbursement of eligible expenses shall be made on or before the last day of the calendar year following the calendar year in which the expenses were incurred.

6. Section 8 is amended by adding the following immediately before the last sentence of said section:

Payment or reimbursement of such insurance premiums during the Term of this Agreement shall be made on or before the last day of the calendar year following the calendar year in which the premiums are due, and such payment or reimbursement during a calendar year shall not affect the premiums eligible for payment or reimbursement in any other calendar year.

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7. Section 11 is amended by adding the following immediately after the first sentence of said section:

To the extent provision of such insurance coverage or cost reimbursement benefits during the Term of this Agreement are taxable to Employee, the provision of such in-kind benefits during a calendar year shall not affect the in-kind benefits to be provided in any other calendar year, unless the insurance coverage or cost reimbursement benefits provide for a limit on the amount of expenses that may be reimbursed under such arrangement over some or all of the period in which such arrangement remains in effect. To the extent the Company directly provides to Employee any cost reimbursement benefits, payment of such benefits shall be made on or before the last day of the calendar year following the calendar year in which such costs are incurred.

8. Section 11 is amended further by adding the following immediately before the last sentence of said section:

To the extent the Company provides such disability insurance coverage during the Term of this Agreement, the provision of such in-kind benefits during a calendar year shall not affect the in-kind benefits to be provided, in any other calendar year. To the extent the Company reimburses Employee or pays on Employee’s behalf for such disability insurance coverage, payment or reimbursement of such insurance premiums shall be made on or before the last day of the calendar year following the calendar year in which the premiums are due, and such payment or reimbursement during a calendar year shall not affect the premiums eligible for payment or reimbursement in any other calendar year.

9. Section 11 is amended further by adding the following immediately after the last sentence of said section:

To the extent the Company directly provides any disability income benefits which can only be provided in part by insurance policies or plans, the payment of said benefits shall be made monthly only upon a disability as defined in said insurance policies or plans, provided that the definition of disability applied under such disability insurance policies or plans otherwise complies with the requirements of Section 1.409A-3(i)(4) of the Final Regulations under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).

10. Section 12 is amended by adding the following at the end of said section:

To the extent provision of such insurance coverage or cost reimbursement benefits are taxable to Employee and/or his Family and the provision of such benefits extend beyond the applicable period of time during which Employee would be entitled (or would, but for this Agreement, be entitled) to

3

continuation coverage under the Company’s group health plan pursuant to Section 4980B of the Code ( the “COBRA period”), (i) the provision of such in-kind benefits during a calendar year shall not affect the in-kind benefits to be provided in any other calendar year, unless the insurance coverage or cost reimbursement benefits provide for a limit on the amount of expenses that may be reimbursed under such arrangement over some or all of the period in which such arrangement remains in effect, and (ii) to the extent the Company directly provides to Employee any cost reimbursement benefits, payment of such benefits shall be made on or before the last day of the calendar year following the calendar year in which such costs are incurred.

11. Section 13 is amended by adding the following at the end of the first paragraph of said section:

To the extent provision of such insurance coverage during the Term of this Agreement is taxable to Employee, the provision of such in-kind benefits during a calendar year shall not affect the in-kind benefits to be provided in any other calendar year.

12. Section 15 is amended by adding the following at the end of the last sentence of said section:

,but in no event shall said effective date of termination be later than one hundred twenty (120) days following the giving of such written notice.

In all other respects, the Employment Agreement shall remain in effect and is confirmed and ratified.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the 17th day of December, 2007.

COMPANY:
CEC ENTERTAINMENT, INC.
By:	/s/ Richard M. Frank
	Richard M. Frank
	Chief Executive Officer
EMPLOYEE:
/s/ Michael H. Magusiak
Michael H. Magusiak

4

EX-10.31

Exhibit 10.31

CEC ENTERTAINMENT, INC.

FRANCHISE AGREEMENT

[CITY, STATE]

4441 West Airport Freeway

Irving, TX 75062

CEC Entertainment, Inc.

[City, State] Franchise

TABLE OF CONTENTS

RECITALS			1
1.	DEFINITIONS		1
2.	GRANT OF RIGHTS		5
	2.1	Grant	5
	2.2	Exclusivity	6
	2.3	Limitation of Rights	6
3.	FEES AND CONTRIBUTIONS		7
	3.1	Franchise Fee.	7
	3.2	Royalty Fees	7
	3.3	System Fund.	7
	3.4	Payments and Taxes	7
	3.5	Overdue Payments	8
	3.6	Franchisor’s Lien	8
	3.7	Contribution Increases	8
4.	SITE SELECTION		8
	4.1	Criteria for Site Approval	8
	4.2	Approval by Franchisor	9
	4.3	Costs of On-Site Evaluation	9
	4.4	Executed Lease or Purchase Agreement	9
	4.5	Extensions	9
	4.6	Relocation	9
5.	CONSTRUCTION AND REFURBISHMENT		10
	5.1	Pre-Construction/Refurbishment Approval Criteria	10
	5.2	Pre-Construction/Refurbishment Approval	11
	5.3	Commencement of Construction/Refurbishment and Extensions	11
	5.4	Construction/Refurbishment	11
	5.5	Opening Assistance	11
	5.6	Inspection	12
	5.7	Continuing Statements	12
	5.8	Installation of Animated Entertainment	12
	5.9	Approval for Opening	12
6.	TRAINING		13
	6.1	Minimum Training	13
	6.2	Location and Expenses	13
	6.3	Additional Training	13

	CEC Entertainment, Inc.
i	[City, State] Franchise

7.	OPERATION			13
	7.1	General Manager and Technician		13
	7.2	Operational Policies		13
	7.3	Suppliers		15
	7.4	General Maintenance		15
	7.5	Maintenance of Animated Entertainment		15
	7.6	Scheduled Refurbishment		16
	7.7	Inspection		16
		7.7.1	Testing	16
		7.7.2	Recommendations	16
		7.7.3	Failure to Correct Deficiencies	16
	7.8	Accounting and Records		17
		7.8.1	General Accounting Principles	17
		7.8.2	Accounting Statements	17
		7.8.3	Inspection of Accounting and Records	17
		7.8.4	Records of Ownership Interests in Franchisee	18
		7.8.5	Sales Records	18
	7.9	Internet		18
	7.10	Intranet		19
8.	ADVERTISING			20
	8.1	General Requirements		20
	8.2	Pre-Approved Advertising		20
	8.3	New Advertising		20
	8.4	Minimum Advertising Expenditures		20
	8.5	System Fund		21
	8.6	Advertising Cooperative		22
9.	REPRESENTATIONS AND WARRANTIES			23
	9.1	Representations, Warranties and Covenants of Franchisee		23
		9.1.1	Due Incorporation	23
		9.1.2	Authorization	23
		9.1.3	Exclusivity	23
		9.1.4	Execution and Performance	23
		9.1.5	Corporate Documents	23
		9.1.6	Ownership Interests	23
		9.1.7	Stop Transfer Instructions	24
	9.2	Financial Statements		24
	9.3	Franchisee’s Principals		24
	9.4	Guarantee		24
	9.5	Non-Competition During Term of Agreement		25

	CEC Entertainment, Inc.
ii	[City, State] Franchise

	9.6	Non-Competition after Termination or Non-Renewal of Agreement		25
	9.7	Independent Covenants		25
	9.8	Additional Covenants		26
	9.9	Guaranty		26
	9.10	Rights and Limitations to use Animated Entertainment		26
	9.11	Non-Liability		27
	9.12	Performance by Franchisor		27
	9.13	Licensing of Musical Compositions		27
10.	PROPRIETARY RIGHTS AND INFORMATION			27
	10.1	Confidential Information		27
		10.1.1	Confidentiality Agreements	27
		10.1.2	Improvements	28
	10.2	Proprietary Marks		28
	10.3	Copyrights		29
11.	TRANSFER OF INTEREST			30
	11.1	Transfer by Franchisor		30
	11.2	Transfer by Franchisee		30
		11.2.1	General Requisites	30
		11.2.2	Right of First Refusal	31
		11.2.3	Death or Disability	33
		11.2.4	Public Offerings	33
12.	INSURANCE AND INDEMNITY			34
	12.1	Insurance		34
	12.2	Indemnities		35
		12.2.1	Indemnification	35
		12.2.2	Notice and Counsel	36
		12.2.3	Settlement and Remedial Actions	36
		12.2.4	Expenses	36
		12.2.5	Third Party Recovery	36
		12.2.6	Survival	36
13.	TERM, RENEWAL AND TERMINATION			36
	13.1	Term		36
	13.2	Renewal		36
	13.3	Termination		37
		13.3.1	Automatic Termination	37
		13.3.2	Termination upon Notice	38
		13.3.3	Termination with Ten Day Notice	40
		13.3.4	Termination with Thirty Day Notice	40
	13.4	Obligations upon Termination or Expiration		40

	CEC Entertainment, Inc.
iii	[City, State] Franchise

14.	REMEDIES			44
	14.1	Remedies		44
		14.1.1	Cure	44
		14.1.2	Specific Enforcement	44
15.	DISPUTE RESOLUTION			44
	15.1	Mediation		44
	15.2	Applicable Law		44
	15.3	Jurisdiction and Venue		45
	15.4	Mutual Benefit		45
16.	MISCELLANEOUS			45
	16.1	Independent Contractors		45
	16.2	Entire Agreement		45
	16.3	Judgment; Discretion		46
	16.4	No Waiver		46
	16.5	Severability		46
	16.6	Notice		46
	16.7	Counterparts		46
	16.8	Headings		47
	16.9	Further Assurances		47
	16.10	Compliance with Laws		47
17.	ACKNOWLEDGMENTS			48
	17.1	Independent Investigation		48
	17.2	Opportunity to Assess Risks		48
	17.3	Receipt of Disclosure Document		48
	17.4	No Extraneous Promises		48
	17.5	No Extraneous Inducements		49
	17.6	Commercial Relationship		49
	17.7	Compliance with Anti-Corruption and Anti-Money Laundering Laws		49
	17.8	No Claims		49

SCHEDULE 1.14	STATEMENT OF OWNERSHIP INTERESTSAND FRANCHISEE’S PRINCIPALS	53
ATTACHMENT A	AGREEMENT AND GUARANTY OFFRANCHISEE’S PRINCIPALS	A-1
ATTACHMENT B	GENERAL RELEASE	B-1
ATTACHMENT C	LEASE RIDER	C-1

	CEC Entertainment, Inc.
iv	[City, State] Franchise

ATTACHMENT D	ADVERTISING COOPERATIVE AGREEMENT	D-1
ATTACHMENT E	EMPLOYEE’S CONFIDENTIALITY AND NON-COMPETITION AGREEMENT	E-1
ATTACHMENT F	RENEWAL AMENDMENT TO FRANCHISE AGREEMENT	F-1

	CEC Entertainment, Inc.
v	[City, State] Franchise

CEC ENTERTAINMENT, INC.

FRANCHISE AGREEMENT

This Franchise Agreement is executed and entered into this          of                     , 20    , by and between CEC Entertainment, Inc., a Kansas corporation (as Franchisor), and                             , a                      corporation (as Franchisee).

RECITALS

1. Franchisor has developed and is the owner of the System;

2. Franchisor has developed and is the owner of, or licensee with rights to sublicense, certain Animated Entertainment and Proprietary Marks which are utilized in connection with and identify the System; and

3. Franchisee desires to obtain from Franchisor and Franchisor desires to grant to Franchisee certain rights to use the System, the Animated Entertainment and the Proprietary Marks to develop and establish the Franchised Restaurant at the Site.

NOW THEREFORE, Franchisor and Franchisee in consideration of the undertakings and commitments set forth herein, agree as follows:

1. DEFINITIONS

As used in this Agreement and the above Recitals, the following capitalized terms shall have the meanings attributed to them in this Section:

1.1 “Action” means any cause of action, suit, proceeding, claim, demand, investigation or inquiry (whether a formal proceeding or otherwise) with respect to which Franchisee’s indemnity applies.

1.2 “Advertising Cooperative” means a group of two or more System Restaurants, as determined by Franchisor, for the purpose of funding, administering and developing regional advertising and promotion programs.

1.3 “Agreement” means this franchise agreement and all attachments.

1.4 “Animated Entertainment” means the computer hardware and software, artistic designs, scripts and musical scores, staging and lighting techniques and configurations, plans, manuals and specifications, manufacturing know-how and other intellectual property relating to video display, audio or other entertainment and to computer controlled three dimensional animated characters, including present and future improvements, patents, trademarks, copyrights and other intellectual and artistic property.

	CEC Entertainment, Inc.
1	[City, State] Franchise

1.5 “Association” means the International Association of CEC Entertainment, Inc. which, as of the date of this Agreement, serves as Franchisor’s designee to administer the System Fund, in accordance with the Association’s bylaws and this Agreement and to which Franchisee will have the right to be a member so long as Franchisee is in compliance with this Agreement and the Association’s bylaws.

1.6 “Change in Control” means a Transfer of an Equity Interest in Franchisee which, directly, indirectly, or combined with prior Transfers, causes a change in the number of Persons which can vote more than fifty percent (50%) of the total Equity Interest in Franchisee.

1.7 “Competing Business” means a business which operates a restaurant or food service outlet in combination with family entertainment, including without limitation, live entertainment and entertainment in the form of video games, video displays or computer controlled animated characters.

1.8 “Confidential Information” means the terms of this Agreement and Attachments and any amendments hereto, the components of the System, the Animated Entertainment, the Operational Policies, manuals, written directives and all drawings, equipment, recipes, and all other information know-how, techniques, materials and data imparted or made available by Franchisor to Franchisee which is (i) designated as confidential, (ii) known by Franchisee to be considered confidential by Franchisor, or (iii) by its nature inherently or reasonably to be considered confidential.

1.9 “Designated Market Area” means the geographic area which includes the Protected Territory as defined by Nielson Media Research, Inc. or a successor organization designated by Franchisor.

1.10 “Equity Interest” means a direct or indirect ownership interest in the capital stock of, partnership or membership interest in, or other equity or ownership interest in (including the right to vote) any type of legal entity.

1.11 “Execution Date” means the date upon which the Agreement is deemed duly executed and entered into by Franchisee and Franchisor, as indicated on the first page of the Agreement.

1.12 “Force Majeure” means acts of God (such as tornadoes, hurricanes, floods, fire or other natural catastrophe); strikes, lockouts or other industrial disturbances; war, riot, or other civil disturbance; epidemics; acts of governments, such as the exercise of eminent domain rights and condemnation (if caused by reasons beyond Franchisee’s control); or other forces beyond Franchisee’s reasonable control.

1.13 “Franchisee” means                             .

	CEC Entertainment, Inc.
2	[City, State] Franchise

1.14 “Franchisee’s Principals” means Franchisee’s spouse, if Franchisee is an individual, all officers and directors of Franchisee and all holders of an Equity Interest in Franchisee and of any entity directly or indirectly controlling Franchisee, all as listed on Schedule 1.14 attached hereto.

1.15 “Franchised Restaurant” means the family-oriented pizza restaurant that is established and operated by Franchisee utilizing the System, the Proprietary Marks and the Animated Entertainment in accordance with the terms and conditions of this Agreement.

1.16 “Franchisor” means CEC Entertainment, Inc. or any person or legal entity to which CEC Entertainment, Inc. assigns or otherwise transfers its rights and obligations contained in this Agreement.

1.17 “Gross Sales” means the total of all sales related to or arising from the operation of the Franchised Restaurant including, without limitation, all monies and receipts from the sale of all beverages, food, merchandise and the operation of rides, amusement games and other attractions in the Franchised Restaurant, as well as all revenue from the sale of tokens, whether for cash or credit and regardless of collection, less applicable sales taxes Franchisee collects and remits, and valid coupon credits and employee discounts deducted from revenues initially recorded as Gross Sales, but without deduction of any other costs or expenses whatsoever.

1.18 “Indemnitees” means any designee(s) of Franchisor which administer the System Fund, Franchisor and its subsidiaries and affiliates and their respective directors, officers, employees, shareholders, affiliates, successors and assigns.

1.19 “Internet” means collectively the myriad of computer and telecommunications facilities, including equipment and software, which comprise the interconnected worldwide network of networks that employ the TCP/IP (Transmission Control Protocol/Internet Protocol), or any predecessor or successor protocols to such protocol, to communicate information of all kinds by fiber optics, wire, radio, or other methods of electronic transmission.

1.20 “Intranet” means an intranet, extranet or other communications network between and among Franchisor and Franchisee that its accessed by the Internet.

1.21 “Losses and Expenses” means all losses, compensatory, exemplary or punitive damages, fines, penalties, charges, costs, expenses, lost profits, assessments and fees (including reasonable attorneys’, experts’, accountants’ and consultants’ fees); interest, court costs, settlement or judgment amounts, compensation for damages to Franchisor’s reputation and goodwill, costs of or resulting from delays, financing costs, costs of advertising material and media time/space, and costs of changing, substituting or replacing the same, and any and all expenses of recall, refunds, compensation, public notices and other similar amounts incurred, charged against or suffered by the Indemnitees in connection with any Action.

	CEC Entertainment, Inc.
3	[City, State] Franchise

1.22 “Minority Interest” means an Equity Interest of less than five percent (5%) of the capital stock of, partnership interest in, or other Equity Interest in (including the right to vote) any type of legal entity.

1.23 “Operational,” used in reference to the Franchised Restaurant, means that the Franchised Restaurant is fully constructed and finished out as approved by Franchisor and is legally permitted to render its services to, and is open to, the general public pursuant to this Agreement.

1.24 “Operational Policies” means the written standards, procedures, rules, regulations, and policies for the operation of a Franchised Restaurant pursuant to the System, as issued from time to time by Franchisor, a copy of which will be provided upon the execution of this Agreement.

1.25 “Person” means an individual, corporation, limited liability company, partnership, association, joint stock company, trust or trustee thereof, estate or executor thereof, unincorporated organization or joint venture, court or governmental unit or any agency or subdivision thereof, or any other legally recognizable entity.

1.26 “Proprietary Marks” means the trademarks, trade names, service marks, logos, emblems and other indicia of origin as designated from time to time by Franchisor, which may be owned by Franchisor or licensed to Franchisor with sublicensing rights, including, but not limited to, the marks “Chuck E. Cheese” and “Chuck E. Cheese’s.”

1.27 “Protected Territory” means the area within a          (    ) mile radius of the Franchised Restaurant.

1.28 “Site” means the location for the establishment and operation of the Franchised Restaurant which is approved as per Section 4.2 of this Agreement.

1.29 “Site Selection Territory” means                     ,                     .

1.30 “Sky Tubes” means components configured to create sequences of group/social and independent play, using tubes, windows, entries, climbs, crawls, play stations, passageways, and slides.

1.31 “System” means the distinctive system developed and owned by Franchisor for the establishment, development, and operation of family-oriented pizza restaurants, the distinguishing characteristics of which include without limitation, Animated Entertainment, Sky Tubes, separate areas with a variety of rides, amusement games and other attractions, characteristic decorations, furnishings and materials, specially-designed equipment and equipment layouts, trade secret food products and other special recipes, menus and food and beverage designations, food and beverage preparation and service procedures and techniques, operating procedures for sanitation and maintenance, methods and techniques for inventory and cost controls, record keeping and reporting, personnel training and management, and advertising and promotional programs, and Operational Policies, all of which may be changed, improved or further developed by Franchisor from time to time.

	CEC Entertainment, Inc.
4	[City, State] Franchise

1.32 “System Fund” means collectively, the three (3) funds currently identified as follows:

(a) the “Advertising Fund” (for the maintenance, administration, direction, preparation, purchasing and placement of advertising for the System, Proprietary Marks and Animated Entertainment, and the operation of one or more sites on the World Wide Web portion of the Internet),

(b) the “Entertainment Fund” (for the purchase, lease, shipping and installation of software programs and for the costs related to the production of show tapes, videos and other audio, video and software components of the Animated Entertainment, including licensing rights to certain music, and video, and the design, testing and implementation of new entertainment concepts which may or may not be directly related to the Animated Entertainment, as more fully described in Sections 3.3 and 8.5), and

(c) the “Media Fund” (for purchasing national network television advertising), established for the purposes described above, as well as any other objective which Franchisor designates in writing for the purpose of furthering the System, the Proprietary Marks, the Animated Entertainment or the sales of System Restaurants generally, to which Franchisee will contribute a stated percentage of Gross Sales on a monthly basis.

1.33 “System Restaurant” means a family-oriented pizza restaurant that is established and operated utilizing the System, the Proprietary Marks and the Animated Entertainment either in accordance with the terms and conditions of a franchise agreement or by Franchisor.

1.34 “Transfer” means the sale, assignment, conveyance, pledge, gift, mortgage or other encumbrance, whether direct or indirect, in whole or in part, or in one or a series of related transactions or occurrences, of (i) this Agreement or of any or all rights or obligations of herein, (ii) any Equity Interest in Franchisee, or (iii) any assets of Franchisee beyond transfers necessary in the ordinary course of business.

2. GRANT OF RIGHTS

2.1 Grant. Subject to the terms, conditions and limitations of this Agreement, Franchisor hereby grants to Franchisee the right, and Franchisee undertakes the obligation, to establish and operate the Franchised Restaurant at a duly approved Site in the Protected Territory. Franchisee’s use of the Proprietary Marks or any element of the System in the operation of a business at any other location or in any other channel of distribution without Franchisor’s express written authorization will constitute willful infringement of Franchisor’s rights in the Proprietary Marks and System.

	CEC Entertainment, Inc.
5	[City, State] Franchise

2.2 Exclusivity. For so long as Franchisee is in full compliance with this Agreement, Franchisor will not, without Franchisee’s prior written consent, establish or operate, or license anyone other than Franchisee to establish or operate, a System Restaurant which is physically located in the Protected Territory during the term of this Agreement.

2.3 Limitation of Rights. Franchisor retains all rights not expressly granted hereunder. Franchisor, its affiliates, and their respective franchisees and licensees may, among other things, operate other types of facilities besides System Restaurants in the Protected Territory, including facilities that are identified by some or all of the Proprietary Marks. The license granted by this Agreement is only for the operation of a single System Restaurant at the approved Site. Franchisor therefore may (or may authorize a third party to) conduct, among other things, the following activities:

(a) Advertise and promote sales of or by System Restaurants, at any location, including within the Protected Territory;

(b) Offer and sell collateral and ancillary products and services, such as pre-packaged food products, toys, games, clothing, and memorabilia, in the Protected Territory under the Proprietary Marks, even though those products and services may be similar to items offered by the Franchised Restaurant;

(c) Offer and sell any products and services (regardless of similarity to products and services sold in the Franchised Restaurant) under any names and marks other than the Proprietary Marks, at any location, including within the Protected Territory;

(d) Establish and operate a System Restaurant anywhere outside of the Protected Territory, regardless of proximity or financial impact to the Franchised Restaurant;

(e) Establish and operate a non-System Restaurant anywhere inside or outside of the Protected Territory, regardless of proximity or financial impact to the Franchised Restaurant; and

(f) Operate one or more sites on the World Wide Web portion of the Internet that advertise System Restaurants, allow customers and potential customers to make reservations at System Restaurants (including the Franchised Restaurant), sell any product or service including pre-packaged food products, games, toys, clothing or memorabilia, or permit other activities (whether or not similar), even though the Web site is accessible to or viewable by persons in the Protected Territory.

Franchisee shall have no right under this Agreement to sub-license others to use or grant any rights in the Proprietary Marks, the Animated Entertainment or the System.

	CEC Entertainment, Inc.
6	[City, State] Franchise

3. FEES AND CONTRIBUTIONS

3.1 Franchise Fee. Prior to or upon the execution of this Agreement, Franchisee shall deliver to Franchisor a franchise fee of Fifty Thousand and No/100 Dollars ($50,000.00) in readily available funds (“Franchise Fee”). The Franchise Fee will be fully earned by Franchisor and non-refundable upon receipt, in consideration for, among other things, Franchisor’s administrative expenses and lost or deferred opportunities in entering into this Agreement.

3.2 Royalty Fees. Beginning the calendar month in which the Franchised Restaurant is Operational, on or before the fifteenth (15th) day of each calendar month thereafter, Franchisee agrees to pay a continuing monthly royalty fee equal to 3.8% of the Gross Sales for the immediately preceding calendar month, subject to the immediately following sentence. During the term of this Agreement, Franchisor shall have the right, at its option, upon ninety (90) days’ prior notice to Franchisee, to increase the royalty fee to an amount not to exceed five percent (5%) of the Gross Sales of the Franchised Restaurant. In such event, Franchisee shall commence payment of the increased royalty fee in the month immediately following the expiration on the ninety (90) day period.

3.3 System Fund. Beginning the calendar month in which the Franchised Restaurant is Operational, on or before the fifteenth (15th) day of each calendar month thereafter, Franchisee agrees to pay to the System Fund a continuing monthly amount designated by Franchisor, but in no event more than three and one-tenth percent (3.1%) of Gross Sales, except as described in Section 3.7 and 8.5(f) (amounting to .2% of Gross Sales currently allocated to the Entertainment Fund, .4% of Gross Sales currently allocated to the Advertising Fund and 2.5% of Gross Sales currently allocated to the Media Fund). The portion of the System Fund payment allocated to the Media Fund may be withdrawn upon (1) the unilateral election of Franchisor or (2) the vote of System franchisees in good standing under their respective franchise agreements, with thirty (30) days advance notice of such vote, one vote per franchised restaurant location and a simple majority of restaurants voting in favor of withdrawal; provided however, that if such vote or election shall be taken on or before March 1 of any calendar year, it shall first become effective on September 1 of the same year, and if such vote or election shall have been taken after March 1 of any calendar year, it shall first become effective September 1 of the following calendar year. Not less than six (6) months following any such withdrawal, such payment may be reinstated, upon the unilateral election by Franchisor or by vote in favor of reinstatement in accordance with the procedure described in this Section.

3.4 Payments and Taxes. All franchise and royalty fees shall be paid directly to Franchisor or its designee. All payments and contributions shall be in United States dollars and will be made free and clear of any tax, deduction, offset or withholding of any kind. All taxes and penalties on any payment made by Franchisee pursuant to this Agreement now or in the future will be fully borne by Franchisee. In the event of any bona fide dispute as to liability for taxes assessed or other indebtedness, Franchisee may contest the validity or the amount of the tax or indebtedness in accordance with procedures of the taxing authority or applicable law; however, in no event shall Franchisee permit a tax sale or seizure by levy of execution or similar writ or warrant, or attachment by a creditor, to occur against the premises of the Franchised Restaurant or any improvements thereon.

	CEC Entertainment, Inc.
7	[City, State] Franchise

3.5 Overdue Payments. Any payment not actually received by Franchisor or its designee when due shall accrue late charges equal to one and one-half percent (1.5%) per month or the maximum rate permitted by law, whichever is less, from the date it was due until paid. Such interest charges will be in addition to any other remedies that may be available to Franchisor.

3.6 Franchisor’s Lien. The obligations to make monthly payments required in this Section 3 shall give rise to and remain, until paid in full, a lien in favor of Franchisor against any and all of the personal property, machinery, fixtures, equipment and inventory owned by Franchisee at the Franchised Restaurant, and against the proceeds and replacements thereof. Franchisee hereby irrevocably appoints Franchisor as its attorney-in-fact (surviving any termination or expiration hereof) to execute and file in the name of Franchisee as debtor such instruments, including Uniform Commercial Code financing statements, as may be required by Franchisor from time to time to evidence such lien. Franchisee shall, immediately upon Franchisor’s request, execute such documents as Franchisor may, from time to time, deem necessary to effectuate the above.

3.7 Contribution Increases. The monthly contribution to the System Fund shall be subject at any time to increase upon a majority vote cast by all System franchisees in good standing under their franchise agreements (e.g., not subject to a pending default notice from Franchisor). Each franchisee shall be provided thirty (30) days advance notice and opportunity to vote on the proposed increase and shall be entitled to one (1) vote per System Restaurant in operation, and a majority vote required for any increase shall be a majority of all restaurants represented by the votes cast. Franchisor shall provide written notice to Franchisee at least sixty (60) days prior to the effective date of any increase so approved by such majority vote.

4. SITE SELECTION

4.1 Criteria for Site Approval. Franchisee agrees that prior to or within one hundred and twenty (120) days after the execution of this Agreement, it will locate and obtain the approval of Franchisor for a Site within the Site Selection Territory for the establishment and operation of the Franchised Restaurant.

Franchisee must submit to Franchisor:

(a) a completed site review form designated by Franchisor, which will include, among other things, demographic information, a site plan, and traffic-related information;

(b) if the premises for the proposed Site are to be leased, satisfactory evidence that the lessor will agree to the requirements contained in the Lease Rider to be executed between Franchisor, Franchisee and the lessor attached hereto as Attachment C; and

	CEC Entertainment, Inc.
8	[City, State] Franchise

(c) any other information or materials as Franchisor reasonably requires, such as a letter of intent or other document which confirms Franchisee’s favorable prospects for obtaining the proposed Site.

4.2 Approval by Franchisor. Upon receipt of all requested documentation as required in Section 4.1, Franchisor will notify Franchisee of its approval or disapproval in writing within a period of thirty (30) days. Franchisor shall act in a commercially reasonable manner when approving or disapproving any proposed Site. However, Franchisee agrees that Franchisor will have absolute discretion in approving any proposed Site and Franchisee agrees to accept any of Franchisor’s decisions as final. Franchisee hereby acknowledges and agrees that Franchisor’s approval of a site does not constitute an assurance, representation or warranty of any kind, express or implied, as to the suitability of the Site for the Franchised Restaurant or for any other purpose or of the financial success of operating the Franchised Restaurant at such Site.

4.3 Costs of On-Site Evaluation. If Franchisor deems necessary, Franchisor will undertake one (1) on-site evaluation of a proposed Site free of charge. For all subsequent on-site evaluations requested by Franchisee or required by Franchisor, Franchisee agrees to reimburse Franchisor for its reasonable expenses, including, without limitation, travel expenses, and a per diem charge for room and board.

4.4 Executed Lease or Purchase Agreement. Franchisee shall execute a lease for the premises, or shall enter into a binding commitment to purchase such premises, within sixty (60) days after receipt of site approval from Franchisor. Franchisee will provide Franchisor with a fully executed copy of the lease or purchase agreement with respect to the approved Site within ten (10) days after execution thereof.

4.5 Extensions. Upon Franchisee’s written request, Franchisor, at its sole discretion and without obligation, may grant a written extension or extensions to the period for approval of a proposed Site. In the event Franchisor grants such extension, Franchisee agrees to pay the Franchisor a non-refundable extension fee of Two-thousand Five Hundred and No/100 Dollars ($2,500.00) for every thirty (30) day period of the agreed extension.

4.6 Relocation. Once the Franchised Restaurant is established at the proposed Site in accordance with this Agreement, Franchisee shall not relocate the Franchise Restaurant without the prior written consent of Franchisor. Franchisor will not unreasonably withhold its consent of such relocation and may require, among other things, that: (i) Franchisee has provided Franchisor with at least ninety (90) days prior written notice of its intent to relocate; (ii) Franchisee is not in default under this Agreement and all of Franchisee’s accrued monetary obligations to Franchisor have been satisfied; (iii) Franchisee has paid a relocation fee in an amount equal to fifty (50%) of the then-current initial Franchise Fee for a new franchisee; (iv) the new location is within the Protected Territory; (v) Franchisee agrees to execute the then-current form of franchise agreement, which agreement may contain materially different terms from this Agreement, including, without limitation, higher royalty fees, contributions, System assessments and a different Protected Territory, for a term

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equal to the unexpired portion of the initial term, and all unexpired renewal terms hereunder and any other ancillary agreements as Franchisor may require; provided, however, that Franchisee shall not be required to pay the initial franchise fee contained in Franchisor’s then-current form of franchise agreement; and (vi) Franchisee has made provisions acceptable to Franchisor for the removal of all signs and other materials containing Proprietary Marks from the existing site. Franchisee will receive written notification of Franchisor’s decision regarding relocation of the Franchised Restaurant. Upon approval by Franchisor, Franchisee must relocate the Franchised Restaurant within one hundred and eighty (180) days.

5. CONSTRUCTION AND REFURBISHMENT

5.1 Pre-Construction/Refurbishment Approval Criteria. Prior to commencing any construction/refurbishment on the Site, Franchisee, at its own cost, shall submit to Franchisor for its prior written approval:

(a) Complete plans and specifications for the Franchised Restaurant in accordance with local or state laws, regulations or ordinances, and which conform to Franchisor’s general design and specifications. Once approved by Franchisor pursuant to Section 5.2 below, such plans and specifications shall not be modified without the prior written consent of Franchisor;

(b) A statement in the form prescribed by Franchisor and signed by Franchisee, certifying that Franchisee has:

i. complied with all local or state laws, regulations or ordinances in preparing its plans and specifications;

ii. employed a qualified architect or engineer, approved by Franchisor, to prepare construction/refurbishment documents and supervise the construction/refurbishment of the Franchised Restaurant and completion of all improvements (such statement shall also identify the architect or engineer and describe his or her qualifications in detail);

iii. obtained all such permits and certifications required for lawful construction/refurbishment and operation of the Franchised Restaurant, including, without limitation, zoning, access, sign and fire requirements; and

iv. obtained required licenses to sell beer and/or wine, unless otherwise prohibited by law, and to operate rides, amusement games and other attractions as required herein.

(c) A construction/refurbishment schedule acceptable to Franchisor.

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5.2 Pre-Construction/Refurbishment Approval. Upon receipt of the above documents, Franchisor will notify Franchisee of its approval or disapproval in writing within a period of twenty-one (21) days. Given that the construction/refurbishment and appearance of the Franchised Restaurant is critical to the continued success and viability of the System, Franchisee agrees that Franchisor will have absolute discretion in making such decision and Franchisee agrees to accept any of Franchisor’s decisions as final.

5.3 Commencement of Construction/Refurbishment and Extensions. Once the pre-construction/refurbishment approval has been obtained and, for construction; within six (6) months after the date of execution of this Agreement, Franchisee will commence construction and provide Franchisor with written notice of such commencement within ten (10) days of such commencement of construction/refurbishment.

Upon Franchisee’s written request, Franchisor, at its sole discretion and without obligation, may grant to Franchisee written extensions of this six (6)-month period for construction and not refurbishment, with the understanding that, if granted, Franchisee shall pay to Franchisor a non-refundable extension fee of Two-Thousand Five Hundred and No/100 Dollars ($2,500.00) for each thirty (30) day period of extension.

5.4 Construction/Refurbishment. Franchisee shall complete construction/refurbishment, including, as applicable, all exterior and interior carpentry, electrical, painting and finishing work, and installation of all fixtures, equipment and signs, in accordance with the plans and specifications for the approved Site within:

(a) six (6) months after commencement of construction/refurbishment, for refurbishment and construction, if construction is a space conversion of existing premises, or

(b) nine (9) months after commencement of construction, if the construction is the erection of a free-standing building.

Franchisor may, at its sole discretion, provide up to two (2) on-site construction/ refurbishment visits to verify compliance with its standards. Franchisee shall fully cooperate with Franchisor and provide Franchisor and its representatives with full access to the Site in connection therewith.

Upon Franchisee’s written request, Franchisor, at its sole discretion and without obligation, may grant to Franchisee written extensions of the above-described periods for construction and not refurbishment, with the understanding that, if granted, Franchisee shall pay to Franchisor a non-refundable extension fee of Two-Thousand Five Hundred and No/100 Dollars ($2,500.00) for each thirty (30) day period of extension.

5.5 Opening Assistance. Franchisor shall provide one (1) representative to provide such

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on-site opening assistance and supervision as Franchisor deems necessary for a period of seven (7) to ten (10) days, at no charge to Franchisee. If Franchisor determines, in its sole discretion, that Franchisee requires any additional opening assistance or if Franchisee requests such assistance, Franchisor reserves the right to charge an additional fee for such assistance, in addition to obtaining reimbursement for related travel, meals and lodging expenses.

5.6 Inspection. Franchisee agrees that Franchisor and its agents shall have the right to inspect the construction/refurbishment at all reasonable times. Franchisee shall cooperate fully with Franchisor and provide Franchisor and its representatives with full access to the Site in connection therewith.

5.7 Continuing Statements. Beginning with the calendar month after the pre-construction/refurbishment approval issued by Franchisor and each calendar month thereafter until one (1) calendar month after the construction/refurbishment is completed, Franchisee shall provide Franchisor, on or before the first Monday of each such month, with a statement in the form prescribed by Franchisor and signed by Franchisee, certifying Franchisee’s continued compliance with and maintenance of the requirements of Section 5.1 (b).

5.8 Installation of Animated Entertainment. No later than one hundred fifty (150) days prior to the anticipated date of completion of construction/refurbishment of the Franchised Restaurant, Franchisee shall, if applicable, order the Animated Entertainment and related components specified by Franchisor from the supplier or suppliers designated by Franchisor and shall provide to Franchisor such evidence thereof as Franchisor requests. All payment terms for the Animated Entertainment shall be agreed to between Franchisee and respective suppliers.

Franchisor shall not have any liability to Franchisee for delivery or the condition of the Animated Entertainment ordered from the supplier or suppliers designated by Franchisor.

After delivery of the Animated Entertainment and preparation for installation of the Animated Entertainment by Franchisee, Franchisor will provide a technician to install the Animated Entertainment. If the technician is required for more than five (5) working days, then for such time period in excess of five (5) working days (excluding travel), the Franchisee will pay Franchisor a fee of Three Hundred and No/100 Dollars ($300.00) per day and shall reimburse Franchisor for additional actual air travel expenses and a per diem charge for room and board. Franchisor and Franchisee shall agree upon the dates for installation; provided, however, Franchisee shall request the services of the technician in writing, to Franchisor, at least sixty (60) days in advance of the requested installation dates.

5.9 Approval for Opening. Once construction/refurbishment is completed and within seven (7) days after obtaining Franchisor’s written approval for opening/reopening, Franchisee shall open/reopen the Franchised Restaurant to the public. Franchisee shall not open/reopen the Franchised Restaurant to the public unless Franchisor has granted its written approval to do so.

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6. TRAINING

6.1 Minimum Training. Prior to rendering their services to the Franchised Restaurant, both the general manager and technician described in Section 7.1 and any replacements or successors thereto shall attend and complete, to Franchisor’s satisfaction, initial training conducted by Franchisor. As part of this initial training, Franchisor shall provide Franchisee with a copy of the Operational Policies, which must be returned to Franchisor upon termination of this Agreement.

6.2 Location and Expenses. Franchisor will not charge Franchisee any fee for the training of Franchisee’s first general manager and technician. Franchisor reserves the right to charge a reasonable fee to Franchisee for any additional required or optional training and training for subsequent general managers, managers and technicians. All training shall be provided at such location as Franchisor may designate and Franchisee shall be responsible for Franchisee’s employees’ travel expenses and room, board and wages during such training.

6.3 Additional Training. Franchisor may periodically make other mandatory or optional training available to Franchisee’s employees as well as other programs, seminars and materials, and Franchisee shall ensure that all employees, as Franchisor may direct, satisfactorily complete any required training within the time specified.

7. OPERATION

7.1 General Manager and Technician. Franchisee shall at all times employ at least one fully-trained general manager and one fully-trained technician for the maintenance of the Animated Entertainment, who shall devote their full time to the Franchised Restaurant.

7.2 Operational Policies. The Operational Policies shall at all times (i) be kept in a secure place on the premises of the Franchised Restaurant, and (ii) remain the sole property of Franchisor. Franchisee and Franchisee’s Principals shall at all times ensure that Franchisee’s copy of the Operational Policies is kept current and up-to-date, and in the event of any dispute as to the contents of the Operational Policies, the terms of the version of the Operational Policies maintained by Franchisor at Franchisor’s home office shall be controlling. Franchisee acknowledges that every detail of the Franchised Restaurant is important to Franchisee, Franchisor and other franchisees in order to develop and maintain the high standards and public image of the System, to increase the demand for the products and services sold by all System Restaurants, and to protect Franchisor’s reputation and goodwill. As such, Franchisee agrees to:

(a) Operate the Franchised Restaurant in accordance with the Operational Policies to ensure that the highest degree of quality and service is uniformly maintained. If amended or modified by Franchisor, Franchisee agrees that it will fully implement Franchisor’s amended Operational Policies, within a period of time prescribed by Franchisor, but in no event to exceed three (3) months after receipt of notice of such amendment or modification;

(b) Devote the requisite time, energy and best efforts to the management and operation of the Franchised Restaurant;

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(c) Use, prepare, maintain in sufficient supply and offer for sale all and only such products, materials, ingredients, supplies and paper goods as conform with Franchisor’s standards and specifications;

(d) Sell or offer for sale all and only such services, products and menu items as meet Franchisor’s uniform standards of quality and quantity, as have been expressly approved for sale in writing by Franchisor, and as have been prepared in accordance with Franchisor’s methods and techniques. You must refrain from any deviation from our standards and specifications for serving or selling the above without our prior written consent and must discontinue selling and offering for sale any such items as we may in our sole discretion, disapprove at any time;

(e) Use at the Franchised Restaurant only such menus and animated character costumes which comply with the style, pattern and design prescribed by Franchisor;

(f) Purchase and install, at Franchisee’s expense, all fixtures, furnishings, signs, and equipment (including, without limitation, video display software which must be updated from time to time, point-of-sale computer hardware and software control systems, and a telephone modem) as Franchisor may reasonably direct from time to time in the Operational Policies or otherwise in writing;

(g) Employ security officers, if necessary, for secure operation of the Franchised Restaurant;

(h) Employ at least the minimum number of other employees as may be prescribed by Franchisor and to comply with all applicable federal, state and local laws, rules and regulations with respect to such employees;

(i) Cause all employees to wear uniforms of the color, style and design prescribed by Franchisor;

(j) Make daily and regular use of a Chuck E. Cheese walk-around character costume and all other animated character costumes designated by Franchisor and to maintain such costumes in good condition, as provided in the Operational Policies;

(k) Use the Site only for the operation of the Franchised Restaurant as well as keep and maintain the Franchised Restaurant open and Operational for the minimum number of hours and days as reasonably required by Franchisor;

(l) Meet and maintain the highest governmental standards and ratings applicable

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to the operation of the Franchised Restaurant (including health, alcohol and gaming) and immediately advise Franchisor in writing of any operational license (including health, alcohol and gaming) standard violations applicable to the operation of the Franchised Restaurant; and

(m) Purchase or lease and maintain the minimum number and type of rides, amusement games and other attractions required by Franchisor, with the understanding that Franchisee is prohibited from leasing any of the foregoing on a “shared revenue” or “coin sharing” basis. Franchisee shall obtain Franchisor’s written approval prior to installing any ride, game or other attraction at the Franchised Restaurant which has not been previously approved in writing by Franchisor. If any of the rides, amusement games and other attractions to be installed at the Franchised Restaurant are leased, the lease shall permit Franchisee to substitute rides, amusement games and other attractions subject to the lease, and will provide for Franchisee’s control over the maintenance and operation and the collection of monies from the rides, amusement games and other attractions that are subject to the proposed lease.

7.3 Suppliers. Franchisee shall purchase all equipment, supplies and other products and materials (including animated character costumes) used in the operation of the Franchised Restaurant solely from suppliers approved in writing by Franchisor. To qualify for approval, such suppliers must (i) demonstrate the ability to meet Franchisor’s reasonable standards and specifications for such items, and (ii) possess adequate quality controls and capacity to supply Franchisee’s needs promptly and reliably. Franchisor shall not be responsible for the delivery or the condition of goods ordered from any vendor. Franchisor shall have the right to require that its representatives be permitted to inspect the supplier’s facilities and that samples from the supplier be delivered, at Franchisor’s option, either to Franchisor or to an independent, certified laboratory designated by Franchisor for testing. A charge not to exceed the reasonable cost of the inspection and the actual cost of the test shall be paid by Franchisee or the supplier to Franchisor. Franchisor reserves the right, at its option, to re-inspect the facilities and products of any such approved supplier and to revoke its approval upon the supplier’s failure to continue to meet, in Franchisor’s discretion, any of Franchisor’s criteria.

7.4 General Maintenance. Franchisee shall at all times maintain the Franchised Restaurant in the highest degree of sanitation, repair and condition. Within three (3) months after receipt of notice from Franchisor, Franchisee agrees to make any additions, alterations repairs and replacements that Franchisor reasonably requires, including, without limitation, such periodic repainting, equipment repairs and replacement of obsolete signs, games, rides, equipment and floor coverings (including carpet and tile) as Franchisor may reasonably direct.

7.5 Maintenance of Animated Entertainment. Franchisee shall at all times maintain the Animated Entertainment and its components in good repair and full working order. Franchisee shall immediately, at its own expense, also install all retrofits and replacements to the Animated Entertainment components which are required by Franchisor from time-to-time. Franchisee shall, at

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Franchisor’s option, either destroy or relinquish and deliver to Franchisor or its designee title and possession of any existing trademarked or proprietary elements or components of the Animated Entertainment, immediately upon their replacement or obsolescence and all such elements or components shall become the property of Franchisor.

7.6 Scheduled Refurbishment. Commencing on January 1 of the second calendar year following the opening of the Franchised Restaurant and each January 1 thereafter during the term hereof, Franchisee, at its own expense, shall upgrade and refurbish the Franchised Restaurant, in conformity with Section 5 hereof. Such upgrades and refurbishment include, without limitation, those necessary to conform to the building decor, floor plan, trade dress, exterior signage and decor, color schemes, rides, amusement games and other attractions, food and beverage service, and presentation of trademarks and service marks consistent with the public image then prevailing in the latest of upgraded System restaurants operated by Franchisor. The amount expended for each such upgrade and/or refurbishment shall be at least the lesser of:

(a) Fifty Thousand and No/100 Dollars ($50,000.00); or

(b) Four percent (4%) of the Gross Sales of the Franchised Restaurant during the prior calendar year.

Each such upgrade and refurbishment shall be completed by Franchisee on or before June 30 of each respective year. Franchisee shall provide to Franchisor, on or before June 30 of each such year, such reports, records, receipts and other information as Franchisor may request evidencing Franchisee’s compliance with this requirement.

7.7 Inspection. Franchisor will provide such continuing advisory assistance, as it deems advisable, in the operation of the Franchised Restaurant. Franchisee agrees to permit Franchisor or its agents, at any reasonable time, access to the Franchised Restaurant to conduct inspections to ensure compliance with Franchisor’s then-current standards and specifications.

7.7.1 Testing. In conducting its inspections, Franchisor will have the right to obtain samples of any inventory items without payment therefor, in amounts reasonably necessary for testing by Franchisor or an independent certified laboratory to determine whether said samples meet Franchisor’s then-current standards and specifications. Franchisor may require Franchisee to bear the cost of such testing if the item or supplier of the item has not previously been approved by Franchisor or if the sample fails to conform to Franchisor’s specifications.

7.7.2 Recommendations. Franchisee acknowledges that Franchisor or its agents will have the authority to make immediate recommendations and resolutions to correct any deficiencies detected during such inspections (including ceasing of the use of the non-conforming equipment, advertising materials, products or supplies).

7.7.3 Failure to Correct Deficiencies. In the event Franchisee fails or refuses to

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implement recommendations or resolutions, Franchisor shall have the right, but not the obligation, to enter upon the Franchised Restaurant premises for the purpose of making or causing to be made such corrections as may be required, with all costs to be paid by Franchisee. The failure to correct any such deficiencies shall be a material default under Section 13.3.4.

7.8 Accounting and Records.

7.8.1 General Accounting Principles. Franchisee shall maintain for at least five (5) years from the dates of preparation, full, complete and accurate books, records and accounts in accordance with generally-accepted accounting principles in the United States and in the form and manner prescribed by Franchisor from time to time in the Operational Policies or otherwise in writing.

7.8.2 Accounting Statements. In addition to the general accounting requirements, at Franchisee’s cost, Franchisee shall submit to Franchisor:

(a) Unaudited quarterly profit and loss statements (in the form prescribed by Franchisor and showing the sources of all income and the amount expended each month during the period on local advertising) and balance sheet within forty-five (45) days of the end of each fiscal quarter during the term hereof;

(b) Unaudited annual statements, as well as a schedule of capital expenditures and a schedule of advertising expenditures, within ninety (90) days of the end of each fiscal year during the term hereof;

(c) Copies of Franchisee’s quarterly state sales tax returns; and

(d) Such other financial statements, reports and records as Franchisor prescribes.

7.8.3 Inspection of Accounting and Records. Franchisor or its representatives (including independent auditors, attorneys or agents) shall have the right at all reasonable times to examine and copy (and to remove and return the materials to be copied from the premises on which they are located), at Franchisor’s expense, the books, records and tax returns of Franchisee.

If an inspection should reveal that payments have been understated in any report to Franchisor, then Franchisee shall immediately pay to Franchisor the amount understated upon demand, in addition to interest from the date such amount was due until paid, at one and one-half percent (1.5%) per month or the maximum rate permitted by law, whichever is less.

Notwithstanding the foregoing, if an inspection discloses an understatement in any report of two percent (2%) or more, Franchisee shall reimburse Franchisor for any and all costs and expenses connected with the inspection (including, without limitation, reasonable accounting and attorneys’ fees). The foregoing remedies shall be in addition to any other remedies Franchisor may have, including, without limitation, the remedies for default.

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7.8.4 Records of Ownership Interests in Franchisee. In addition to the terms and conditions of Section 11 hereof, if there is a change in the Franchisee’s Principal’s listed in Schedule 1.14 during the term of this Agreement, Franchisee shall immediately provide Franchisor a list of all Persons owning an Equity Interest in Franchisee; provided, however, that if Franchisee’s shares are publicly traded on a nationally recognized stock exchange, the list of shareholders required shall include only those owning five percent (5%) or more of the shares outstanding.

7.8.5 Sales Records. Franchisee shall record all food, beverage and token sales and all other sales by, at, from or through the Franchised Restaurant (excluding only sales from pay telephones and vending machines, if approved by the Franchisor) on cash registers or other machines approved by Franchisor, which shall contain devices or systems that will record accumulated sales and provide such other information and reports as Franchisor may prescribe. Franchisee must report Gross Sales for royalty and assessment reporting requirements on the same accounting calendar used by the Franchisor.

Within six (6) months after receipt of written notification from Franchisor, Franchisee shall install at the Franchised Restaurant as designated by Franchisor, such point-of-sale computer hardware and software control systems and telephone modems as reasonably prescribed by Franchisor. Franchisee will enter into software license agreements as designated by Franchisor for such purposes.

Franchisee shall permit Franchisor to access such systems by telephone, modem, or such other means designated by Franchisor at all reasonable times for the purpose of inspecting, monitoring and retrieving information concerning the operation of the Franchised Restaurant. Franchisor shall have access as provided herein at such times, and in such manner as Franchisor shall from time to time specify.

7.9 Internet. During the term of this Agreement, Franchisor may establish and maintain an Internet Web site that provides information about the System and the products and services that System Restaurants offer. The Web site may also offer reservations or similar services at System Restaurants (including the Franchised Restaurant) or sales of items identified by the Proprietary Marks, including clothing, memorabilia, and pre-packaged food items.

(a) Franchisor will have sole discretion and control over the Web site’s design and contents. Franchisor will have no obligation to maintain the Web site indefinitely, but may discontinue it at any time without liability to Franchisee. Furthermore, Franchisor has no control over the stability or maintenance of the Internet generally, Franchisor is not responsible for damage or loss caused by errors of the Internet. The Franchisor is not liable for any direct, indirect, special, incidental, exemplary or consequential damages arising out of the use of the Internet or the inability to use the Internet including loss of profits, goodwill or savings, downtime, damage to or replacement of programs and data, whether based in contract or tort, product liability or otherwise.

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(b) Franchisor may use part of the System Fund contributions designated for advertising to maintain and further develop the Web site.

(c) If Franchisee fails to pay when due any fees or other amounts payable to Franchisor under this Agreement, Franchisor may temporarily remove or disable information or functionality relating to Franchisee, until Franchisee pays its outstanding obligations in full.

(d) Franchisee may not use any of the Proprietary Marks on or in connection with the Internet, except as permitted by this Section 7.9.

7.10 Intranet. Franchisor may, at its option, establish and maintain either a series of “private” pages on the Internet Web site, described in Section 7.9, or a so-called Intranet, through either of which Franchisor, its franchisees, and their respective employees may communicate with each other and through which Franchisor may disseminate updates to the Operational Policies and other confidential information.

(a) Franchisor will have no obligation to maintain the Intranet indefinitely, but may discontinue it at any time without liability to Franchisee.

(b) Franchisor will establish policies and procedures for the Intranet’s use. These policies, procedures and other terms of use will address issues such as (i) restrictions on the use of abusive, slanderous, or otherwise offensive language in electronic communications; (ii) restrictions on communications between or among franchisees that endorse or encourage breach of any franchisee’s franchise agreement with Franchisor; (iii) confidential treatment of materials that Franchisor transmits via the Intranet; (iv) password protocols and other security precautions; (v) grounds and procedures for Franchisor’s suspension or revocation of access to the Intranet by Franchisee and others; and (vi) a privacy policy governing Franchisor’s access to and use of electronic communications that franchisees and others post on the Intranet. Notwithstanding clause (vi), above, Franchisee acknowledges that, as administrator of the Intranet, Franchisor can technically access and view any communication that any person posts on the Intranet. Franchisee further acknowledges that the Intranet facility and all communications that are posted to it will become Franchisor’s property, free of any claims of privacy or privilege that Franchisee or any other person may assert.

(c) Upon receipt of notice from Franchisor that the Intranet has become functional, Franchisee agrees to purchase and install all necessary additions to the Franchised Restaurant’s computer system at Franchisee’s cost and to establish and continually maintain electronic connection with the Intranet that allows Franchisor to send messages to and receive messages from Franchisee. Franchisee’s obligation to maintain connection with the

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Intranet will continue until this Agreement’s expiration or termination (or, if earlier, until Franchisor discontinues the Intranet). Franchisee’s failure to comply with this Section 7.10 will constitute a material breach of this Agreement on account of which Franchisor may terminate this Agreement in accordance with Section 13.3.3, unless Franchisee cures the breach within 10 days after notice from Franchisor.

(d) If Franchisee fails to comply with any policy or procedure governing the Intranet, Franchisor may temporarily suspend Franchisee’s access to all or any aspect of the Intranet (such as a chat room, bulletin board, list serve, or similar feature) until Franchisee fully cures the breach.

8. ADVERTISING

8.1 General Requirements. Recognizing the importance of the standardization of advertising programs to the furtherance of the goodwill and public image of the System, Franchisor and Franchisee agree that all advertising by Franchisee shall be conducted in a commercially acceptable manner and shall conform to such standards and requirements as Franchisor may specify from time to time in writing.

8.2 Pre-Approved Advertising. Franchisor may offer from time to time to provide, upon Franchisee’s request and at Franchisee’s expense, approved local advertising and promotional plans and materials, including, without limitation, newspaper slicks, promotional leaflets and coupons. All such advertising shall be placed in or distributed through such media or channel of communication as approved by Franchisor.

8.3 New Advertising. Samples of all planned advertising, not previously approved by Franchisor, must be submitted to Franchisor (through the mail, return receipt requested), for Franchisor’s prior approval. Upon receipt of such planned advertising, Franchisor will notify Franchisee no later than fifteen (15) days after receipt of the proposed advertising whether such advertising has been approved, with no response being understood as approval. Franchisee shall not utilize any advertising which has not been approved by Franchisor, or which has been subsequently disapproved by Franchisor. All such advertising shall be placed in or distributed through such media or channel of communication as approved by Franchisor.

8.4 Minimum Advertising Expenditures. Franchisee shall spend during each calendar quarter a minimum of three percent (3%) of the Gross Sales of the Franchised Restaurant for local advertising and promotion in Franchisee’s Designated Market Area at least two-thirds (2/3) of which amount shall be spent for television advertising or advertising in some other form of media approved by Franchisor. Franchisee shall attempt to spend such amount equally throughout each month of the calendar quarter.

During the term of this Agreement, Franchisor may, upon ninety (90) days prior notice to Franchisee, increase the minimum expenditure amount to an amount not to exceed five percent (5%) of the Gross Sales of the Franchised Restaurant.

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The minimum expenditure amount will be reduced by an amount equal to Franchisee’s contributions to: (i) an Advertising Cooperative, and (ii) the System Fund while the System Fund remains in effect.

8.5 System Fund. Franchisor may, at any time during the term of this Agreement, establish and/or administer the System Fund. If Franchisor establishes or has established the System Fund, Franchisee will contribute an amount described in Section 3.3. Contributions to the System Fund will be paid at the time and in the manner as described in Section 3.3, and subject to the late payment charges described in Section 3.5. Franchisor will give Franchisee at least thirty (30) days’ written notice of the establishment of new or modified System Fund.

Once established, the System Fund will be maintained and administered by Franchisor or its designee as follows:

(a) The System Fund is intended to maximize general public recognition and acceptance of the Proprietary Marks, to enhance the collective success of all System Restaurants and to further develop and maintain the Animated Entertainment. Franchisor and/or its designees will direct all advertising and other programs produced using the System Fund, and will have sole discretion to approve or disapprove the creative concepts, materials, and media used in those programs, the placement of advertisements, and the allocation of the money in the System Fund to production, placement, or other costs. In administering the System Fund, Franchisor and its designees undertake no obligation to make expenditures for Franchisee which are equivalent or proportionate to Franchisee’s contribution, or to ensure that Franchisee or any particular System Restaurant benefits directly or pro rata from the placement of advertising of the expenditure of System Fund monies.

(b) The System Fund may be used to satisfy any and all costs of maintaining, administering, directing, preparing purchasing and placing advertising (including the cost of preparing and conducting television, radio, magazine, and newspaper advertising campaigns; direct mail and outdoor billboard advertising; public relations activities; and employing advertising agencies to assist in those activities), for purchasing, leasing shipping and installing software programs, for the costs related to producing show tapes, videos and other audio, video and software components of the Animated Entertainment, including licensing rights to music and videos, and for designing, testing and implementing new entertainment concepts which may not be directly related to Animated Entertainment. All sums paid by Franchisee to the System Fund will be maintained in a separate account or accounts by Franchisor and/or its designees and may be used to defray any of Franchisor’s reasonable operating costs and overhead that Franchisor incurs in activities reasonably related to the administration or direction of the System Fund and advertising programs for franchisees and the System. The System Fund and its earnings will not otherwise inure to the benefit of

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Franchisor. The System Fund is operated solely as a conduit for collecting and expending the System Fund fees as outlined above. Franchisor and its designees have no fiduciary duty to Franchisee, or any other franchisees, or their respective principals, including Franchisee’s Principals with regard to the operation or administration of the System Fund.

(c) Franchisor will, with respect to System Restaurants operated by Franchisor or any affiliate, contribute to the System Fund generally on the same basis as Franchisee.

(d) A statement of the operations of the System Fund will be prepared annually and will be made available to Franchisee upon written request.

(e) Although the System Fund is intended to be of perpetual duration, Franchisor may terminate the System Fund. The System Fund will not be terminated, however, until all monies in the System Fund have been expended or returned to contributing System Restaurants (whether franchised or operated by Franchisor or its affiliates), without interest, on the basis of their respective contributions.

(f) Franchisor reserves the right to structure the System Fund’s organization and administration in ways that, in Franchisor’s judgment, most effectively and efficiently accomplish the System Fund’s objectives. Franchisor may therefore organize or reorganize the System Fund as a separate non-profit corporation or other appropriate entity and transfer the System Fund’s assets to the entity to administer the System Fund. Franchisee agrees to become a member of the entity and, in that regard, to sign a participation agreement and take such other steps as Franchisor reasonably specifies.

(g) In the event Franchisor’s designee maintains or administers the System Fund, neither Franchisor nor its officers, directors, employees, or agents shall be liable to Franchisee for any act, error or omission committed by such designee or in connection with the designation of such designee(s).

8.6 Advertising Cooperative. Franchisor shall have the right, in its discretion, to designate any geographic area (e.g., a Designated Market Area) as a region for purposes of establishing an Advertising Cooperative to which Franchisee shall be a member. Such Cooperative will be established and operated in accordance with an advertising cooperative agreement which is attached hereto as Attachment D. If, on the date of this Agreement an Advertising Cooperative has already been established for a geographic area that encompasses the Franchised Restaurant, or if any Advertising Cooperative for that geographic area is established during the term of this Agreement, Franchisee will (immediately upon request of Franchisor) execute Attachment D hereof and any other documents required by Franchisor to become a member of the Advertising Cooperative. If the Franchised Restaurant is within the geographic area of more than one (1) Advertising Cooperative, Franchisee must be a member of only one (1) Advertising Cooperative as Franchisor designates.

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9. REPRESENTATIONS AND WARRANTIES

9.1 Representations, Warranties and Covenants of Franchisee. If Franchisee is not an individual, then Franchisee and each of Franchisee’s Principals represent, warrant and covenant to Franchisor that:

9.1.1 Due Incorporation. If Franchisee is a corporation, limited liability company, general or limited partnership or other form of business entity, it is duly formed and organized, validly existing and in good standing under the laws of the jurisdiction of its organization with all requisite power and authority to enter into this Agreement and perform the obligations contained herein.

9.1.2 Authorization. The execution, delivery and performance by Franchisee of this Agreement and all other agreements contemplated herein has been duly authorized by all requisite actions on the part of Franchisee and no further actions are necessary to make this Agreement or such other agreements valid and binding upon it and enforceable against it in accordance with their respective terms.

9.1.3 Exclusivity. Franchisee’s corporate charter, written partnership, limited liability company agreement, membership agreement or other governing documents will at all times provide that Franchisee’s activities are confined exclusively to the operation of the Franchised Restaurant unless otherwise consented to in writing by Franchisor.

9.1.4 Execution and Performance. Neither the execution, delivery nor performance by Franchisee of this Agreement or any other agreements contemplated hereby will conflict with, or result in a breach of any term or provision of Franchisee’s charter, by-laws, articles of organization, or partnership agreement and/or other governing documents and any amendments thereto, any indenture, mortgage, deed of trust or other material contract or agreement to which Franchisee is a party or by which it or any of its assets are bound, or breach any order, writ, injunction or decree of any court, administrative agency or governmental body.

9.1.5 Corporate Documents. Certified copies of Franchisee’s charter by-laws, articles of organization, partnership agreement, membership agreement and/or other governing documents and any amendments thereto, including board of director’s or partner’s resolutions authorizing this Agreement have been delivered to Franchisor. Any amendments or changes to such governing or charter documents subsequent to the date of this Agreement shall not be undertaken without Franchisor’s prior written consent.

9.1.6 Ownership Interests. All Equity Interests in Franchisee are accurately and completely described in Schedule 1.13. Franchisee will maintain at all times a current list of all owners of record and all beneficial owners of Equity Interests in Franchisee. Franchisee will make such list of available to Franchisor upon request.

9.1.7 Stop Transfer Instructions. If Franchisee is a corporation, Franchisee will

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maintain stop-transfer instructions against the transfer on Franchisee’s records of any of its equity securities and each stock certificate will have conspicuously endorsed upon it a statement in a form satisfactory to Franchisor that it is held subject to all restrictions imposed upon assignments by this Agreement; but the requirements of this Section 9.1.7 will not apply to the transfer of equity securities of a publicly-held corporation. If Franchisee is a partnership or limited liability company, its written partnership or limited liability company agreement will provide that ownership of an interest in the partnership or limited liability company is held subject to all restrictions imposed upon assignments by this Agreement.

If Franchisee is an individual, then Franchisee represents, warrants and covenants that neither the execution, delivery nor performance by Franchisee of this Agreement or any other agreements contemplated hereby conflicts with, or results in a breach of any contract or agreement to which Franchisee is a party or a breach of any order, writ, injunction or decree of any court, administrative agency or governmental body.

9.2 Financial Statements. Franchisee and, at Franchisor’s request, each of Franchisee’s Principals have provided Franchisor with their most recent financial statements in the form and for the time periods specified by Franchisor. The financial statements (i) present fairly Franchisee’s financial position and the financial position of each of Franchisee’s Principals, as applicable, at the dates indicated therein and, with respect to Franchisee, the results of its operations and cash flow for the periods then ended; (ii) are certified as true and correct by the Franchisee’s Chief Financial Officer or President, as applicable; and (iii) have been prepared in conformity with generally accepted accounting principles in the United States, applied on a consistent basis. No material liabilities, adverse claims, commitments or obligations of any nature, whether accrued, unliquidated, absolute, contingent or otherwise, exist as of the date of this Agreement which are not reflected as liabilities on Franchisee’s financial statements or those of Franchisee’s Principals.

9.3 Franchisee’s Principals. Franchisee will notify Franchisor within ten (10) days following the date that any person previously identified as Franchisee’s Principal ceases to qualify as such or that any new person succeeds to or otherwise comes to occupy a position which would qualify such person as one of Franchisee’s Principals. That person will immediately execute all documents and instruments (including, as applicable, this Agreement) required by Franchisor to be executed by others in a comparable position; but if there is any conflict between this provision and the transfer provisions of Section 11, the provisions of Section 11 will control.

9.4 Guarantee. Franchisee’s Principals will, jointly and severally, guarantee the performance of Franchisee’s obligations, covenants and agreements under this Agreement pursuant to the terms and conditions of the guaranty attached to this Agreement, and will otherwise bind themselves to the terms of this Agreement as stated herein.

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9.5 Non-Competition During Term of Agreement. In consideration of the training described herein and disclosure to Franchisee of the System and the Confidential Information, during the term of this Agreement, Franchisee and Franchisee’s Principals shall not, directly or indirectly:

(a) Divert or attempt to divert business of any System Restaurant to any competitor, or do or perform any other act injurious or prejudicial to the goodwill associated with Franchisor’s Proprietary Marks, the Animated Entertainment or the System;

(b) Employ or seek to employ any person who is employed by Franchisor or by any other franchisee of Franchisor, or induce such person to leave such employment; and

(c) Except as provided for herein, own, maintain, engage in, or have an Equity Interest in a Competing Business; provided that this provision shall not apply to any Minority Interest collectively held by Franchisee or Franchisee’s Principals in any publicly-held corporation listed on a national stock exchange.

9.6 Non-Competition after Termination or Non-Renewal of Agreement. In consideration of the training described herein and disclosure to Franchisee of the System and the Confidential Information, for a period of three (3) years after the expiration and non-renewal or termination of this Agreement or after the approved Transfer by Franchisee and/or Franchisee’s Principals, Franchisee and Franchisee’s Principals (as applicable) shall not, directly or indirectly:

(a) Divert or attempt to divert business of any System Restaurant to any competitor, or do or perform any other act injurious or prejudicial to the goodwill associated with Franchisor’s Proprietary Marks, the Animated Entertainment or the System;

(b) Employ or seek to employ any person who is employed by Franchisor or by any other franchisee of Franchisor, or induce such person to leave such employment; and

(c) Except as provided for herein, own, maintain, engage in, or have any interest in a Competing Business which is located within the Protected Territory or within a twenty-five (25) mile radius of the Protected Territory; provided that this provision shall not apply to any Minority Interest collectively held by Franchisee or Franchisee’s Principals in any publicly-held corporation listed on a national stock exchange.

9.7 Independent Covenants. Each of the covenants in Sections 9.5 and 9.6 will be construed as independent of any other covenant or provision of this Agreement.

(a) Franchisee and each of Franchisee’s Principals understand and acknowledge that Franchisor will have the right, in its sole discretion, to reduce the scope of any covenant set forth in Sections 9.5 and 9.6, or any portion thereof, without their consent, effective immediately upon notice to Franchisee; and Franchisee and Franchisee’s Principals agree that they will comply with any covenant as so modified, which will be fully enforceable notwithstanding the provisions of Section 17.5 hereof.

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(b) Franchisee and each of Franchisee’s Principals expressly agree that the existence of any claims they may have against Franchisor, whether or not arising from this Agreement, will not constitute a defense to the enforcement by Franchisor of the covenants in Sections 9.5 and 9.6.

(c) Franchisee and each of Franchisee’s Principals acknowledge that the covenants not to compete contained in Sections 9.5 and 9.6 are reasonable and necessary to protect the business and goodwill of the System and to avoid misappropriation or other unauthorized use of the System and Franchisor’s other trade secrets.

(d) Franchisee and each of Franchisee’s Principals acknowledge and confirms that Franchisee and Franchisee’s Principals possess the education, training and experience necessary to earn a reasonable livelihood apart from operating a Competing Business.

9.8 Additional Covenants. Franchisee shall require and obtain for the benefit of Franchisor execution of covenants similar to those set forth in Sections 9.5 and 9.6 from any and all of its employees having access to materials or information furnished or disclosed to Franchisee by Franchisor, including, without limitation, all managers, assistant managers and directors of operations.

9.9 Guaranty. As an inducement and as a condition to Franchisor’s execution and acceptance of this Agreement, all of Franchisee’s Principals shall execute the Agreement and Guaranty of Franchisee’s Principals attached hereto.

9.10 Rights and Limitations to use Animated Entertainment. Franchisee and Franchisee’s Principals acknowledge and agree that the rights granted to Franchisee under this Agreement to use Animated Entertainment, including, without limitation, computer-controlled animated characters, video displays (regardless of the format of the display, e.g., video tape, video disc, etc.), computer hardware and software, artistic designs, scripts and musical scores, staging and lighting techniques and configurations, and any and all improvements, additions, replacements, patents, copyrights, trademarks, service marks, technology, and know-how and all other intellectual and artistic property relating thereto, are limited solely to using the Animated Entertainment during the term of this Agreement in the Franchised Restaurant at the site approved by Franchisor. Franchisee shall not use the Animated Entertainment, including, without limitation, (i) toy versions, games, or anything of play value related to the Animated Entertainment, or (ii) records, cassettes, audio and video tapes or other recordings or embodiments of music or musical scores included in the Animated Entertainment, except on terms, if any, set forth in writing by Franchisor. Franchisee’s right to use the Animated Entertainment shall not survive termination or expiration hereof, nor shall such right be transferable by Franchisee except as part of, and in connection with, the transfer of the franchise granted hereunder, subject to the terms and conditions set forth in Section 11 hereof.

Franchisee and Franchisee’s Principals acknowledge superior rights and interest of

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Franchisor in and to the Animated Entertainment. Neither Franchise nor Franchisee’s Principals shall copy or reproduce in any manner and Franchisee and Franchisee’s Principals shall use their best efforts to prevent others from copying or reproducing in any manner the computer software, video displays, artistic designs, scripts and musical scores and all other plans, specifications, documentation and programming related to the Animated Entertainment and they agree that any duplication or unauthorized use thereof is and shall be deemed an infringement of the rights of Franchisor.

9.11 Non-Liability. Franchisee acknowledges and agrees that Franchisor shall not, by virtue of any approvals, advice or services provided to Franchisee, assume responsibility or liability to Franchisee or any third parties to which it would not otherwise be subject.

9.12 Performance by Franchisor. Franchisee acknowledges and agrees that any duty or obligation imposed on Franchisor by this Agreement may be performed by any designee, employee, or agent of Franchisor, as Franchisor may direct.

9.13 Licensing of Musical Compositions. Franchisee and Franchisee’s Principals understand that Franchisee’s right to use certain of the musical compositions contained in the Animated Entertainment programs is conditioned upon obtaining licenses from and the payment of fees to performing rights societies such as the American Society of Composers, Authors and Publishers, Broadcast Music, Inc. and SESAC, Inc. (“Societies”). Franchisor shall have the right to obtain and maintain on Franchisee’s behalf performing rights licenses from the Societies as may be required to authorize Franchisee to use such music at the Franchised Restaurant, and to forward payment on behalf of Franchisee (for which Franchisee shall reimburse Franchisor as described below) for the music performance fees due to the Societies under the licenses. Franchisee shall submit to Franchisor all information necessary to enable Franchisor to submit any required reports to the Societies and shall promptly reimburse Franchisor upon demand for all payments which are made on Franchisee’s behalf by Franchisor to the Societies and for which reimbursement is requested by Franchisor. Failure by Franchisee to comply with the terms of this Paragraph will constitute a material default pursuant to Section 13.3.4 and will result in Franchisee’s loss of rights to use the musical compositions in Animated Entertainment programs.

10. PROPRIETARY RIGHTS AND INFORMATION

10.1 Confidential Information. Except as expressly provided herein, Franchisee shall have no right, title or interest in the Confidential Information. Franchisee and the Franchisee’s Principals shall only communicate, disclose or use the Confidential Information as expressly permitted herein or as required by law. Franchisee and Franchisee’s Principals shall disclose the Confidential Information only to such of Franchisee’s employees, agents, or independent contractors who must have access to it in connection with their employment. The covenant in this Section will survive the expiration, termination, or transfer of this Agreement or any interest in this Agreement and will be perpetually binding upon Franchisee and each of Franchisee’s Principals.

10.1.1 Confidentiality Agreements. Franchisee shall cause Franchisee’s employees

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having access to the Confidential Information to execute confidentiality agreements substantially in the form of Attachment E, stating that they will preserve in confidence all Confidential Information. Neither Franchisee, Franchisee’s Principal’s nor their respective employees may at any time, without Franchisor’s prior written consent, copy, duplicate, record or otherwise reproduce the Confidential Information, in whole or in part, nor otherwise make the same available to any unauthorized person.

10.1.2 Improvements. If Franchisee makes any improvements (as determined by Franchisor) to the Confidential Information or the System, Franchisee and the Franchisee’s Principals shall each execute an amendment to this Agreement reflecting such improvements and Franchisor’s exclusive ownership thereof. All such improvements shall be considered Confidential Information.

10.2 Proprietary Marks. Franchisee acknowledges Franchisor’s exclusive ownership of, or right to sublicense, the Proprietary Marks and shall neither directly or indirectly, infringe, contest or otherwise impair Franchisor’s exclusive ownership of, and/or license, with respect to the Proprietary Marks either during or after the termination or expiration of this Agreement. Franchisee also expressly acknowledges and agrees that:

(a) The Proprietary Marks will only be used by Franchisee in connection with the operation of the Franchised Restaurant under the System and only in the manner authorized and prescribed by Franchisor herein or by written notification.

(b) Except for the non-exclusive license to use granted herein, Franchisee and Franchisee’s Principals acquire no right, title or interest in (or any goodwill associated with) the System, the Proprietary Marks and the Animated Entertainment.

(c) Upon the expiration or termination of this Agreement, no monetary amount shall be assigned as attributable to any goodwill associated with Franchisee’s use of the System, the Proprietary Marks or the Animated Entertainment and all goodwill associated with Franchisees’ use of the System, the Proprietary Marks and the Animated Entertainment will inure to the benefit of Franchisor or Franchisor’s licensors, as the case may be.

(d) Franchisee and Franchisee’s Principals shall promptly notify Franchisor of any use by any third party of the Proprietary Marks of which the Franchisee and Franchisee’s Principals know or have reason to know is unauthorized.

(e) Franchisee and Franchisee’s Principals shall promptly notify Franchisor of any litigation action or claim instituted by any person or legal entity against Franchisor, Franchisee or Franchisee’s Principals involving the Proprietary Marks and, if necessary, shall execute any and all documents, and to render such assistance as may, in the opinion of Franchisor’s counsel, be reasonably requested to carry out such defense or prosecution.

(f) Franchisee shall operate, advertise and promote the Franchised Restaurant

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under the Proprietary Marks designated by Franchisor, without prefix or suffix, and shall use no other name or mark and shall refrain from using any of the Proprietary Marks in conjunction with any word or symbol without Franchisor’s prior written consent. Franchisee shall not use the Proprietary Marks as part of its corporate or other legal name, and will obtain Franchisor’s approval of its corporate or other legal name before applying for or filing it with the applicable government authority.

(g) This license to use the Proprietary Marks is non-exclusive, and Franchisor has the right: (i) to grant other franchises for the Proprietary Marks, in addition to those franchises already granted to existing franchisees, (ii) to use the Proprietary Marks in connection with the sale of food and other products through the Internet or at wholesale and/or retail outlets in the Protected Territory, and (iii) to develop and establish other systems for the same or similar products and services utilizing the same Proprietary Marks, or any similar or other proprietary marks, and to grant licenses thereto without providing Franchisee any right therein.

(h) Franchisee will use, promote and offer for sale under the Proprietary Marks only those products and services which meet Franchisor’s prescribed standards and specifications, as they may be revised by Franchisor from time to time.

(i) Franchisee will execute all documents requested by Franchisor or its counsel that are necessary to obtain protection for the Proprietary Marks or to maintain their continued validity or enforceability and to take no action that would jeopardize the validity or enforceability thereof.

10.3 Copyrights. Franchisee and Franchisee’s Principals acknowledge that Franchisor owns the worldwide copyright and other ownership rights to all materials provided by Franchisor (in all forms or media now or hereafter known) including, without limitation the Operational Policies, the Animated Entertainment, promotional materials and software. Franchisee also agrees:

(a) If registration of the copyright of any of the materials mentioned above is required by law or deemed advisable by Franchisor, Franchisee agrees to cooperate with and assist Franchisor in obtaining the registration in the name of Franchisor and will not register or attempt to register or assist or be involved in any way with the registration (either directly or indirectly) of such materials;

(b) Franchisee agrees to use proper copyright and other proprietary notices in connection with all copyright materials and conform with Franchisor’s standards for protecting its rights; and

(c) Franchisee agrees to promptly cause the execution of any assignments, waivers of rights, or other documents, and take any further actions needed or advisable to ensure that Franchisor has such copyright and other rights described in this Section 10.

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11. TRANSFER OF INTEREST

11.1 Transfer by Franchisor. Franchisor shall have the right to transfer or assign this Agreement, its rights to the Proprietary Marks, and all or any part of its rights or obligations herein to any person or legal entity without the consent of Franchisee or Franchisee’s Principals. Upon such transfer by Franchisor, any transferee or assignee of Franchisor shall become solely responsible for all such obligations of Franchisor under this Agreement from the date of transfer or assignment. Without limiting the foregoing, Franchisee acknowledges that Franchisor may sell its assets (including its rights in the Proprietary Marks and the System) to a third party; may offer its securities privately or publicly; may merge, acquire other legal entities or be acquired by another legal entity; and may undertake a refinancing, recapitalization, leveraged buy out or other economic or financial restructuring. With regard to any or all of the above sales, assignments and dispositions, Franchisee expressly and specifically waives any claims, demands, or damages against Franchisor or its affiliates arising from or related to Franchisor’s transfer of its rights in this Agreement, the Proprietary Marks or the System to any other party. Nothing contained in this Agreement will require Franchisor to remain in the business of operating or licensing the operation of the System Restaurants or other businesses or to offer any services or products to Franchisee, whether or not bearing or not bearing the Proprietary Marks, if Franchisor transfers or assigns its rights in or obligations under this Agreement.

11.2 Transfer by Franchisee. Franchisee and Franchisee’s Principals understand and acknowledge that the rights and duties set forth in this Agreement are personal to Franchisee and are granted, in part, in reliance upon the skill, aptitude, business and financial capacity of Franchisee and Franchisee’s Principals and their intention of complying with its terms and conditions. Therefore, if the Franchisee and/or Franchisee’s Principals desire to Transfer any interest to any individual or entity (including a trust), they must first obtain the prior written approval of Franchisor. Any such attempted Transfer not approved by Franchisor shall be null and void from its purported inception.

11.2.1 General Requisites. Prior to authorizing a Transfer by Franchisee of any interest, Franchisor may require, among other things, satisfaction of any or all of the following:

(a) Franchisee shall be in full compliance with all of the terms and conditions of this Agreement;

(b) Franchisee and/or any of Franchisee’s Principals shall remain liable for the performance of its obligations contained in this Agreement through the date of Transfer and shall execute all instruments reasonably requested by Franchisor to evidence such liability;

(c) The transferee shall satisfy, in Franchisor’s reasonable judgment,

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Franchisor’s then existing criteria for a franchisee including, without limitation: (i) education; (ii) business skill, experience and aptitude; (iii) character and reputation; and (iv) financial resources;

(d) The transferee and all owners of any record or beneficial interest in the capital stock (or other interest) of transferee shall execute all instruments (including a new franchise agreement and guaranty) reasonably requested by Franchisor to evidence acceptance and assumption of all of the terms and conditions of this Agreement. Such new franchise agreement may contain terms materially different from this Agreement, including higher fees and shall be for a term equal to the then unexpired term hereof; and

(e) Franchisee and Franchisee’s Principals (if applicable) must have executed a general release, in a form satisfactory to Franchisor, of any and all claims against Franchisor, its affiliates, and the officers, directors, members, shareholders, partners, agents, representatives, independent contractors, servants and employees of each of them, in their corporate and individual capacities, including, without limitation, claims arising under this Agreement and any other agreement between Franchisee or any of Franchisee’s affiliates and Franchisor or any of its affiliates or under federal, state or local laws, rules, regulations or orders. Franchisor’s current form of general release is attached hereto as Attachment B.

(f) Franchisee pays a transfer fee equal to (i) one half ( ¹/2) of the then current initial Franchise Fee for franchise agreements if the Franchisee does not have a Controlling Interest in the transferee (who is not one of Franchisee’s Principals); or (ii) an amount equal to the reasonable costs incurred by Franchisor in connection with the Transfer among Franchisee’s Principals only, but in no event less than One Thousand and No/100 Dollars ($1,000.00);

(g) At the transferee’s expense, the transferee and any of the transferee’s employees responsible for the operation of the Franchised Restaurant have satisfactorily completed such training as Franchisor may then require; and

(h) The transferee has complied with Franchisor’s then-current application requirements for a new franchise.

11.2.2 Right of First Refusal. In the event that Franchisee and/or any of Franchisee’s Principals or any holder of an Equity Interest in Franchisee desire to effectuate a Transfer, Franchisor shall have the right and option, exercisable within thirty (30) days after Franchisor’s receipt of all materials and information described in Section 11.2.2(a), (b) and (c) to purchase the interest proposed to be transferred in accordance with the following:

(a) Franchisee or the proposed transferee shall notify Franchisor in

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writing of any bona fide proposed Transfer and set forth a complete description of all terms and fees of the proposed Transfer in the manner prescribed by the Franchisor, including the prospective transferee’s name, address, financial qualifications and previous five years business experience;

(b) Franchisee shall provide the Franchisor with any additional information, agreements, certifications or documents Franchisor requests for use in its evaluation of whether to exercise its first refusal right.

(c) Upon receipt of the Franchisor’s request, Franchisee or the proposed transferee shall promptly provide Franchisor with access to any real or personal property, documents or records relevant to the transaction and to the interest which is the subject of the Transfer. Once Franchisor has received all materials submitted by Franchisee or the proposed transferee and has reviewed all property, records and documents it has requested, Franchisor shall notify Franchisee or the proposed transferee of its decision to exercise its option to acquire the interest being transferred, and the conditions, if any, under which it will approve the proposed Transfer.

(d) If the Franchisor exercises its first refusal right, the transferor shall transfer the interest to Franchisor or to its assignee pursuant to an agreement to purchase which contains the material terms to which the transferor and the proposed transferee had agreed. If the offer or proposed purchase contract omitted any terms customarily addressed in a transfer of an interest of the type which is the subject of the transaction, Franchisor may supply those terms in the purchase agreement and related documents.

(e) If the proposed transferor wishes to make a Transfer, the transferor shall provide Franchisor with a copy of any offer or agreement to purchase, signed by the proposed transferee, together with copies of any documents referenced in the offer or agreement. If all material terms of the proposed sale are not described in the offer or agreement, Franchisee shall provide details of all such terms in its submission to the Franchisor, accompanied by the proposed transferee’s written agreement to the terms.

(f) In the event the consideration, terms, and/or conditions offered by the third party are such that Franchisor or its nominee may not reasonably be able to furnish the same consideration, terms, and/or conditions, then Franchisor or its nominee, as appropriate, may purchase the interest proposed to be transferred for the reasonable equivalent in cash. If the parties cannot agree, within a reasonable time, on the reasonable equivalent in cash of the consideration, terms, and/or conditions offered by the third party, an independent appraiser shall be designated by Franchisor, and such appraiser’s determination shall be binding.

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11.2.3 Death or Disability. Within fifteen (15) days after the death or permanent disability of Franchisee or any of Franchisee’s Principals, Franchisee or a representative of Franchisee must notify Franchisor in writing. Any transfer upon death or permanent disability will be subject to the same terms and conditions as described in this Section for any inter vivos transfer.

Upon the death of Franchisee (if a natural person) or any Franchisee’s Principal who is a natural person and who has an interest in this Agreement, in the Franchised Restaurant, or in Franchisee, the executor, administrator, or other person representative of the deceased will transfer the interest of the deceased to a third party approved by Franchisor within twelve (12) months after the date of death. If no personal representative is designated or appointed and no probate proceedings are instituted with respect to the estate of the deceased, then the distributee of the interest of the deceased must be approved by Franchisor. If the distributee is not approved by Franchisor, then the distributee will transfer the interest of the deceased to a third party approved by Franchisor within twelve (12) months after the date of death of the deceased.

Upon the permanent disability of Franchisee (if a natural person) or any of Franchisee’s Principals who is a natural person and who has an interest in this Agreement, in the Franchised Restaurant or in Franchisee, Franchisor may require the interest to be transferred to a third party in accordance with the conditions described in this Section 11 within six (6) months after notice to Franchisee. For purposes of this Section 11.2.3, “permanent disability” means any physical, emotional, or mental injury, illness, or incapacity that would prevent a person from performing the obligations set forth in this Agreement or in the Guaranty made part of this Agreement for at least ninety (90) consecutive days, and from which condition recovery within ninety (90) days from the date of determination of disability is unlikely. If the parties disagree as to whether a person is permanently disabled, the existence of permanent disability will be determined by a licensed practicing physician selected by Franchisor, upon examination of the person; or if the person refuses to submit to an examination, then (for the purpose of this Section 11.2.3) the person automatically will be considered permanently disabled as of the date of refusal. The costs of any examination required by this Section 11.2.3 will be paid by Franchisor.

If an interest is not transferred upon death or permanent disability as required in this Section 11.2.3 then the failure will constitute a material event of default under this Agreement.

11.2.4 Public Offerings. Equity Interests in Franchisee and Franchisee’s Principals may be offered, only with the prior written consent of Franchisor, which consent shall not be unreasonably withheld. Such approval will be subject to the following:

(a) All registration materials required for such offering by federal or state law shall be submitted to Franchisor for review prior to their being filed with any government agency;

(b) No offering material (for either a public or private offering) shall

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express or imply (by use of the Proprietary Marks or otherwise) that Franchisor is participating in an underwriting, issuance or public offering of Franchisee, Franchisee’s Principals, or Franchisor securities. Franchisor may, at its option, require such offering materials to contain a written statement prescribed by Franchisor concerning the limitations described in the preceding sentence;

(c) Franchisee, Franchisee’s Principals and the other participants in the registration and offering must fully indemnify Franchisor in connection with the offering;

(d) For each proposed public offering, other than offerings which are exempt from registration, Franchisee shall pay to Franchisor a non-refundable fee of Ten Thousand and No/100 Dollars ($10,000.00) or such greater amount as is necessary to reimburse Franchisor for its reasonable costs and expenses associated with reviewing the proposed offering, including, without limitation, legal and accounting fees;

(e) Franchisor’s receipt of a legal opinion from counsel satisfactory to Franchisor stating (a) that the offering materials and the conduct of the securities offering comply in all material respects with the laws of the applicable Territory Segment from which an offer of securities originates or into which an offer of securities is directed, and (b) that neither the conduct nor consummation of the securities offering will result in a violation of any anti-terrorism or anti- money laundering laws.

(f) Franchisee and Franchisee’s Principals shall give Franchisor at least sixty (60) days’ prior written notice before the effective date of any offering or other transaction covered by this Section 11.2.4.

12. INSURANCE AND INDEMNITY

12.1 Insurance. Prior to the commencement of construction of the Franchised Restaurant and for the entire term of this Agreement, Franchisee shall obtain and maintain insurance protecting Franchisee and the Indemnitiees against any demand or claim arising or occurring in connection with the construction and operation of the Franchised Restaurant. Such policies shall: (i) be of the types and for the minimum amounts of coverage indicated in the Operational Policies; (ii) contain a waiver of subrogation in favor of Franchisor; (iii) name the Indemnitees as additional insureds; (iv) contain no provision which limits or reduces coverage in the event of a claim by any one (1) or more of the Indemnitees; (v) provide that policy limits shall not be reduced, coverage restricted, canceled, allowed to lapse or otherwise altered or such policy(ies) amended without Franchisor’s consent; and (vi) be obtained from reputable insurance companies approved by Franchisor and authorized to do business in all jurisdictions in which the Franchised Restaurant is located. Franchisee also acknowledges and agrees to:

(a) furnish Franchisor with evidence that Franchisee has obtained the required insurance at least fifteen (15) days prior to the commencement of construction of the Franchised Restaurant, and each year afterwards, and at any other time a carrier or coverage is changed;

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(b) increase the insurance coverage amounts in the amounts indicated by Franchisor upon thirty (30) days prior written notice from Franchisor; and

(c) reimburse Franchisor for any insurance policies obtained by Franchisor on behalf of Franchisee if Franchisee fails to obtain the insurance required by this Section.

12.2 Indemnities.

12.2.1 Indemnification. Franchisee and Franchisee’s Principals agree to and hereby, jointly and severally, indemnify, defend (by counsel chosen by Franchisor) and agree to hold harmless each Indemnitee from all Losses and Expenses alleged, incurred or assessed in connection with:

(a) Franchisee’s or any Franchisee’s Principal’s alleged infringement or alleged violation of any trademark or other proprietary name, mark, or right allegedly owned or controlled by a third party;

(b) The violation, breach or asserted violation or breach, by Franchisee or any of Franchisee’s Principals, of any federal, state or local law, regulation, ruling, standard or directive or any industry standard;

(c) Libel, slander or any other form of defamation of Franchisor, the System or any franchisee operating under the System, by Franchisee or by any of Franchisee’s Principals;

(d) The violation or breach by Franchisee or any of Franchisee’s Principals, of any warranty, representation, agreement or obligation in this Agreement or in any other agreement, between Franchisee, its subsidiaries and affiliates and Franchisor, its subsidiaries and affiliates or the officers, directors, shareholders, partners, agents, representatives, independent contractors and employees thereof; and

(e) Acts, errors or omissions of Franchisee, any of Franchisee’s subsidiaries or affiliates or any of Franchisee’s Principals and the officers, directors, shareholders, partners, agents, representatives, independent contractors and employees of Franchisee and its subsidiaries and affiliates in connection with the activities contemplated under this Agreement, including the operation of the Franchised Restaurant.

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12.2.2 Notice and Counsel. Franchisee and each of Franchisee’s Principals agree to give Franchisor immediate notice of any Action. Franchisor may engage, at its expense, separate counsel to represent the Indemnitees in such Action and/or elect to assume (but under no circumstance is obligated to undertake) the defense and/or reasonable settlement of any Action. Franchisor’s election to settle shall not diminish Franchisee’s and each of Franchisee’s Principal’s obligation to defend, indemnify and hold the Indemnitees harmless from all Losses and Expenses.

12.2.3 Settlement and Remedial Actions. In order to protect persons or property, or its reputation or goodwill, or the reputation or goodwill of others, Franchisor may, at any time and without notice, as it, in its judgment deems appropriate, consent or agree to settlements or take such other remedial or corrective actions it deems expedient with respect to any Action if, in Franchisor’s sole judgment, there are reasonable grounds to believe that:

(a) any of the acts or circumstances enumerated in Section 12.2.1 ((a) through (d)) above have occurred; and

(b) any act, error, or omission as described in Section 12.2.1 (e) may result directly or indirectly in damage, injury, or harm to any person or any property.

12.2.4 Expenses. All Losses and Expenses incurred under this Section 12 shall be chargeable to and paid by Franchisee or any of Franchisee’s Principals pursuant to Franchisee’s obligations of indemnity under this Section 12 regardless of any actions, activity or defense undertaken by Franchisor or the subsequent success or failure of such actions, activity, or defense.

12.2.5 Third Party Recovery. Under no circumstances shall the Indemnitees be required or obligated to seek recovery from third parties or otherwise mitigate their losses in order to maintain a claim against Franchisee or any of Franchisee’s Principals. Franchisee and each of Franchisee’s Principals agree that the failure to pursue such recovery or mitigate loss will in no way reduce the amounts recoverable from Franchisee or any of Franchisee’s Principals by the Indemnitees.

12.2.6 Survival. Franchisee and Franchisee’s Principals expressly agree that the terms of this Section 12 shall survive the termination, expiration or transfer of this Agreement or any interest herein.

13. TERM, RENEWAL AND TERMINATION

13.1 Term. Unless terminated as provided for herein, the term of this Agreement shall commence upon the Execution Date and shall expire fifteen (15) years thereafter.

13.2 Renewal. Franchisee may, at Franchisee’s option, renew this Agreement for one (1) additional period of ten (10) years, provided that at the end of the initial term:

(a) Franchisee has given Franchisor written notice of election to renew not less than nine (9) months nor more than twelve (12) months prior to the end of the initial term;

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(b) Franchisee shall have completed to Franchisor’s satisfaction all maintenance, refurnishing, renovating and remodeling of the premises and equipment as Franchisor shall require in order to meet Franchisor’s then-current standards for System Restaurants;

(c) Franchisee is in compliance with all of the terms of this Agreement and any other agreement between Franchisee and Franchisor;

(d) Franchisee shall have executed upon renewal hereunder Franchisor’s then current form of franchise agreement, which agreement may have different terms from this Agreement including, without limitation, the royalty fee, contributions and System assessments, for a term equal to the renewal terms hereof (unless otherwise agreed to by Franchisor), and any other ancillary agreements as Franchisor may then require; provided, however, Franchisee shall be required to pay, in lieu of the then-current initial Franchise Fee, a renewal fee which shall be fifty percent (50%) of the then-current initial Franchise Fee as then charged by Franchisor; and

(e) Franchisee and Franchisee’s Principals shall execute a general release, in a form prescribed by Franchisor, of any and all claims the against the Indemnitees. Franchisor’s current form of general release is attached hereto as Attachment B.

13.3 Termination.

13.3.1 Automatic Termination. Franchisee will be in default under this Agreement, and all rights granted by this Agreement will automatically terminate without notice to Franchisee:

(a) If Franchisee becomes insolvent or makes a general assignment for the benefit of creditors;

(b) If Franchisee files a voluntary petition under any section or chapter of the federal bankruptcy law or under any similar law or statute of the United States or any state, or admits in writing its inability to pay its debts when due;

(c) If Franchisee is adjudicated bankrupt or insolvent in proceedings filed against Franchisee under any section or chapter of the federal bankruptcy laws or under any similar law or statute of the United States or any state; or if a bill in equity or other proceeding for the appointment of a receiver of Franchisee or other custodian for Franchisee’s business or assets is filed and consented to by Franchisee; or if a receiver or other custodian (permanent or temporary) of Franchisee’s assets or property, or any part thereof, is appointed by any court of competent jurisdiction;

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(d) If proceedings for a composition with creditors under any state or federal law is instituted by or against Franchisee;

(e) If a final judgment against Franchisee in any amount Franchisor deems material (but in no event more than $25,000.00) remains unsatisfied or of record for thirty (30) days or longer (unless a supersedeas bond is filed);

(f) If Franchisee is dissolved;

(g) If Franchisee, or any of Franchisee’s Principals, makes any offer, attempts to offer, solicits an offer, or takes steps to offer publicly any interest in Franchisee in violation of Section 11 of this Agreement;

(h) If execution is levied against Franchisee’s business or property in any amount Franchisor deems material (but in no event more than $25,000.00);

(i) If suit to foreclose any lien or mortgage against the Franchised Restaurant premises or equipment in any amount Franchisor deems material (but in no event more than $25,000.00) is instituted against Franchisee and not dismissed within thirty (30) days; or

(j) If the real or personal property of Franchised Restaurant will be sold after levy thereupon by any sheriff, marshal, or constable.

13.3.2 Termination upon Notice. This Agreement shall terminate immediately upon notice from Franchisor to Franchisee and without providing Franchisee the right to cure such default, if Franchisee:

(a) Ceases to do business at the Franchised Restaurant;

(b) Or any of Franchisee’s Principals cause a threat or danger to the public health or safety in the construction or operation of the Franchised Restaurant;

(c) Or any of Franchisee’s Principals is convicted of, or pleads nolo conendere to a felony or any other crime or offense that is reasonably likely, in the opinion of Franchisor, to adversely affect the System, the Proprietary Marks, the Animated Entertainment, the goodwill associated therewith, or Franchisor’s interest therein;

(d) Or any of Franchisee’s Principals copies or duplicates any Animated

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Entertainment programs or materials or purports to transfer ownership or possession of any Animated Entertainment components or materials without the prior written consent of Franchisor;

(e) Or any of Franchisee’s Principals, except as described in Section 13.3.1(g), violates the requirements for Transfers contained in Section 11;

(f) Or any of Franchisee’s Principals, as applicable, fails to comply with the representations and warranties in Sections 9 and 17 hereof;

(g) Or any of Franchisee’s Principals discloses or divulges the contents of the Operational Policies or other trade secret or confidential information provided Franchisee by Franchisor contrary to the provisions of this Agreement;

(h) Fails to maintain the insurance(s) required by Section 12;

(i) Knowingly maintains false books or records, or submits any false reports to Franchisor;

(j) Operates the Franchised Restaurant or sells products or services authorized by Franchisor for sale at the Franchised Restaurant from a location which has not been approved by Franchisor;

(k) Fails to construct or refurbish the Franchised Restaurant in accordance with Section 5 hereof;

(l) Fails to open the Franchised Restaurant for business as a System Restaurant by the date described in Section 5.9;

(m) At any time ceases to operate or otherwise abandons the Franchised Restaurant, or loses the right to possession of the premises, or otherwise forfeits the right to do or transact business in the jurisdiction where the Franchised Restaurant is located. This provision will not apply if through no fault of Franchisee, the premises are damaged or destroyed by an event of Force Majeure, provided that Franchisee applies for Franchisor’s approval to relocate or reconstruct the premises within thirty (30) days after the event and Franchisee diligently pursues the reconstruction or relocation after Franchisor’s approval. Franchisor will not unreasonably withhold its approval to relocate or reconstruct the premises after an event of Force Majeure, but Franchisor may condition its approval upon Franchisee’s payment of an agreed minimum fee to Franchisor during the period in which the Franchised Restaurant is not in operation;

(n) Or any of Franchisee’s Principals fails to comply with the in-term

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covenants in Section 9.5 or if Franchisee fails to obtain execution of the covenants and related agreements required under Section 9.8 within thirty (30) days after being requested to do so by Franchisor;

(o) Misuses or makes any unauthorized use of the Proprietary Marks or otherwise materially impairs the goodwill associated therewith or Franchisor’s rights therein and Franchisee fails to cure that default within twenty-four (24) hours after notice from Franchisor;

(p) Or Franchisee’s Principals engage in any act, conduct, or practice which Franchisor, in its sole judgment, deems to be deceptive, misleading, unethical or otherwise contrary to or in conflict with the reputation and image of the System; or

(q) Fails to cure any default of which it has been given prior notices on two (2) occasions.

13.3.3 Termination with Ten Day Notice. Franchisee shall have ten (10) days after its receipt from Franchisor of a written notice to remedy Franchisee’s failure, refusal, or neglect to pay promptly any monies due under this Agreement or to submit the financial information or other reports required by Franchisor under this Agreement. If such default is not cured within that time, this Agreement shall terminate without further notice to Franchisee effective immediately upon the expiration of the ten (10) day period.

13.3.4 Termination with Thirty Day Notice. Except as otherwise provided in this Section 13, Franchisee shall have thirty (30) days after its receipt from Franchisor of a written notice within which to remedy any default of the terms of this Agreement and the attachments hereunder and provide evidence thereof to Franchisor. If any such default is not cured within that time, this Agreement shall terminate without further notice to Franchisee effective immediately upon the expiration of the thirty (30) day period.

13.4 Obligations upon Termination or Expiration. Upon termination or expiration of this Agreement for any reason, all rights of Franchisee under this Agreement will immediately terminate and Franchisee will have the following duties which will survive termination of this Agreement:

(a) Amounts Due. Franchisee will promptly pay to Franchisor and its affiliates all sums due under this Agreement and any other agreements, including, without limitation, all damages, costs, expenses, and reasonable attorneys’ fees incurred by Franchisor by reason of default on the part of Franchisee, whether or not the expenses occur before or after the termination or expiration of this Agreement;

(b) Franchised Restaurant. Franchisee will immediately cease to operate the Franchised Restaurant and cease to use the Proprietary Marks, the Animated Entertainment,

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the System, and the Operational Policies in any manner including any advertising, equipment, format, confidential methods, procedures and techniques associated with the Franchised Restaurant, the Proprietary Marks, the Animated Entertainment, the System, and the Operational Policies, and shall not thereafter hold itself out as a former franchisee of Franchisor;

(c) Operational Policies. Franchisee shall immediately return all manuals, including the Operational Policies, records, files, instructions, correspondence, all materials related to operating the Franchised Restaurant, and shall retain no copy or record of any of the foregoing, excepting only Franchisee’s copy of this Agreement and of any correspondence between the parties, and any other documents which Franchisee and Franchisee’s Principals reasonably need for compliance with any provision of law;

(d) Proprietary Marks. Franchisee will immediately cease to use in any manner whatsoever, any Proprietary Marks and distinctive trade dress, forms, slogans, signs, symbols, devices, or animated character costumes associated with the System;

(e) Assumed Name. Franchisee shall take such action as may be necessary to cancel any assumed name or equivalent registration which contains any of the Proprietary Marks, and Franchisee and Franchisee’s Principals shall furnish Franchisor with evidence satisfactory to Franchisor of compliance with this obligation within thirty (30) days after termination or expiration of this Agreement; and

(f) Payments. Franchisee and Franchisee’s Principals will promptly pay all sums owing to Franchisor and its affiliates, including all damages, costs, and expenses, including reasonable attorneys’ fees, incurred by Franchisor as a result of any default by Franchisee. Until those amounts are paid in full, the obligation to pay them will give rise to and remain a lien in favor of Franchisor against all of the personal property, furnishings, equipment, signs, fixtures, and inventory owned by Franchisee and on the premises of the Franchised Restaurant at the time of default.

In addition, Franchisee and Franchisee’s Principals will pay to Franchisor all damages, costs, and expenses, including reasonable attorneys’ fees, incurred by Franchisor in connection with obtaining any remedy available to Franchisor for any violation of this Agreement and subsequent to the termination or expiration of this Agreement in obtaining injunctive or other relief for the enforcement of any provisions of this Section13.4.

(g) Confidentiality and Non-Competition. Franchisee and Franchisee’s Principals will comply with the non-competition covenants and the restrictions on confidential information contained in Sections 9.6 and 10.1 of this Agreement. Any other person required to execute similar covenants pursuant to Sections 9.8 and 10.1 will also comply with those covenants.

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(h) Leases. If Franchisee leases the Franchised Restaurant premises or leases any equipment used in the operation of the Franchised Restaurant from a third party, then Franchisee will, at Franchisor’s option, assign to Franchisor any interest that Franchisee has in the lease or sublease. Franchisor may exercise this option at any time within thirty (30) days from and including either the date of termination or (subject to any existing right to renew) expiration of this Agreement. The time for closing on the assignment of the lease described in this Section13.4(h) will be on the date of or no later than ten (10) days after Franchisor’s exercise of its option hereunder unless Franchisor is also exercising its purchase options under Section13.4(i), in which case the date of the closing will be on the same closing date prescribed for the purchase option. In any event, closing will take place at Franchisor’s corporate offices or at such other location Franchisor may designate.

(i) Purchase Options. Except as provided in Section13.4(h) (with respect to leased equipment), Franchisor will have the option, to be exercised within thirty (30) days from and including either the date of termination or expiration of this Agreement (unless appraisals are needed as described below, in which case such option shall be exercised within thirty (30) days after such appraisals are provided), to purchase from Franchisee any or all of the furnishings, equipment, signs, fixtures, motor vehicles, supplies, and inventory of Franchisee related to the operation of the Franchised Restaurant, at Franchisee’s cost or fair market value, whichever is less. Franchisor will purchase Franchisee’s assets only and will assume no liabilities whatsoever, unless otherwise agreed to in writing by the parties. If the parties cannot agree on the fair market value within thirty (30) days after Franchisor’s exercise of its option, fair market value will be determined by two appraisers, with each party selecting one appraiser, and the average of their determinations will be binding. In the event of such appraisal, each party will bear its own legal and other costs and will split the appraisal fees equally. Within thirty (30) days after Franchisor’s receipt of such appraisal, the parties agreement as to fair market value or Franchisor’s receipt of such information and materials from Franchisee as Franchisor may prescribe evidencing Franchisee’s cost, as applicable, Franchisor shall have the right to rescind its exercise of such option. If Franchisor elects to exercise any option to purchase herein provided, it will have the right to set off all amounts due from Franchisee to Franchisor or any of its affiliates (including any costs for the appraisal) and any costs incurred in connection with any escrow arrangement (including reasonable legal fees) against any payment therefor and will pay the remaining amount in cash.

With respect to the option described in this Section13.4(i) Franchisee will deliver to Franchisor, in a form satisfactory to Franchisor, such warranties, deeds, releases of lien, bills of sale, assignments, and any other documents and instruments necessary in order to perfect Franchisor’s title and possession in and to the properties being purchased or assigned and to meet the requirements of all tax and government authorities. If, at the time of closing, Franchisee has not obtained all of these certificates and other documents, Franchisor may, in its sole discretion, place the purchase price or rent in escrow pending issuance of any required certificates or documents.

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The time for closing of the purchase and sale of the properties described in this Section13.4(i) will be a date not later than sixty (60) days after the purchase price is determined by the parties or the determination of the appraisers, or such date Franchisor receives and obtains all necessary permits and approvals, whichever is later, unless the parties mutually agree to designate another date. Closing will take place at Franchisor’s corporate offices or at such other location as Franchisor may designate.

(j) Modification of Premises. If Franchisor does not elect to exercise the options under Sections13.4(h) or 13.4(i) as applicable, to acquire the lease or sublease for the Franchised Restaurant premises, then Franchisee will make all modifications or alterations to the Franchised Restaurant premises that are necessary to distinguish the appearance of the Franchised Restaurant from that of other System Restaurants and will make any specific additional changes that Franchisor reasonably requests. If Franchisee fails or refuses to comply with the requirements of this Section13.4(j), then Franchisor may enter upon the premises of the Franchised Restaurant, without being guilty of trespass or any other crime or tort, to make or cause to be made the changes required, at the expense of Franchisee, which expense Franchisee agrees to pay upon demand.

(k) Assignments. If requested by Franchisor, Franchisee will (at Franchisee’s expense) assign to Franchisor all rights to the: (i) telephone numbers of the Franchised Restaurant and any related Yellow Pages or other business listings; and (ii) all e-mail addresses, URLs, domain names, Internet listings, and Internet accounts related to the Franchised Restaurant. Franchisee will execute all forms and documents required by Franchisor, by any telephone company, or by any Internet service provider at any time to transfer those services and numbers to Franchisor. In addition to any forms and documents which may have been executed by Franchisee hereunder, Franchisee hereby appoints Franchisor its true and lawful agent and attorney-in-fact with full power and authority for the sole purpose of taking such action as is necessary to complete these assignments. This power of attorney will survive the expiration or termination of this Agreement. Franchisee will thereafter use different telephone numbers and e-mail addresses or listings at or in connection with any subsequent business conducted by Franchisee.

(l) Cease to Use and Cease to Operate. For purposes of the Section 13.4, “cease to use” as referring to the Proprietary Marks, Animated Entertainment, System, Operational Policies, and distinctive trade dress, forms, slogans, signs, symbols and devices or animated character costumes associated with the System, shall include without limitation, refraining from deriving any economic benefit therefrom or displaying to the public and, at Franchisor’s option and as applicable, destroying or relinquishing and delivering to Franchisor or its designee title and possession of the Animated Entertainment, all items bearing the Proprietary Marks, the Operational Policies and all embodiments thereof, and any distinctive trade dress, forms, slogans, signs, symbols, devices, or animated character costumes associated with the System. “Cease to Operate” as referring to the Franchised Restaurant shall include, without limitation, refraining from offering or selling any goods or services therefrom.

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14. REMEDIES

14.1 Remedies. Upon the occurrence of an uncured breach, Franchisor may exercise one or more of the following remedies or such other remedies as may be available at law or in equity:

14.1.1 Cure. Franchisor, at Franchisor’s discretion and without obligation, may cure such breach at Franchisee’s expense and, in connection therewith, Franchisee (i) hereby grants to Franchisor all rights and powers necessary or appropriate to accomplish such cure; (ii) shall indemnify and hold the Indemnitees harmless from and against all costs, expenses (including reasonable fees of counsel and other engaged professionals), liabilities, claims, demands and causes of action (including actions of third parties) incurred by or alleged against any Indemnitee in connection with Franchisor’s cure; and (iii) shall reimburse or pay such costs or damages within ten (10) days of receipt of Franchisor’s invoice therefor; or

14.1.2 Specific Enforcement. Franchisor may, in addition to pursuing any other remedies, specifically enforce Franchisee’s and Franchisee’s Principal’s obligations, covenants and agreements or obtain injunctive or other equitable relief in connection with the violation or anticipated violation of such obligations, covenants and agreements without the necessity of showing (i) actual or threatened harm; (ii) the inadequacy of damages as a remedy; or (iii) likelihood of success on the merits, and without being required to furnish bond or other security. Nothing in this Agreement shall impair Franchisor’s right to obtain equitable relief.

15. DISPUTE RESOLUTION

15.1 Mediation. Except for infringement of Proprietary Marks, Animated Entertainment or other violation of Franchisor’s intellectual property rights, regarding which Franchisor may apply for emergency, special, or injunctive relief, both Franchisor and Franchisee will attempt in good faith to settle any dispute related to the execution of or performance under this Agreement and the operation of the Franchised Restaurant. If Franchisor and Franchisee are unable to do so, they hereby agree to submit to non-binding mediation prior to bringing such claim, controversy or dispute in a court. The mediation shall be conducted through either an individual mediator or a mediator appointed by a mediation services organization or body, experienced in the mediation of food service business disputes, as agreed upon by Franchisor and Franchisee. The costs and expenses of mediation, including compensation of the mediator, shall be borne by the parties equally. If the parties are unable to resolve the claim, controversy or dispute within ninety (90) days after the mediator has been appointed, unless such time period is extended by written agreement of the parties, then either party may bring a legal proceeding under the following Sections, 15.2 through 15.4, to resolve such claim.

15.2 Applicable Law. Franchisor and Franchisee agree that this Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Texas without regard to its conflicts of laws provisions.

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15.3 Jurisdiction and Venue. FRANCHISOR AND FRANCHISEE HEREBY IRREVOCABLY SUBMIT THEMSELVES TO THE JURISDICTION OF THE STATE COURTS OF DALLAS COUNTY, TEXAS AND THE FEDERAL DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS, DALLAS DIVISION. FRANCHISEE AND FRANCHISEE’S PRINCIPALS FURTHER AGREE THAT VENUE FOR ANY PROCEEDING RELATING TO OR ARISING OUT OF THIS AGREEMENT WILL BE DALLAS COUNTY, TEXAS; PROVIDED, HOWEVER THAT WITH RESPECT TO ANY ACTION (I) FOR MONIES OWED, (II) FOR INJUNCTIVE OR OTHER EXTRAORDINARY RELIEF, (III) INVOLVING OWNERSHIP OR USE OF THE PROPRIETARY MARKS OR THE ANIMATED ENTERTAINMENT, OR (IV) INVOLVING POSSESSION OR DISPOSITION OF, OR OTHER RELIEF RELATING TO THE PREMISES OF THE FRANCHISED RESTAURANT, FRANCHISOR MAY BRING SUCH ACTION IN ANY STATE OR FEDERAL DISTRICT COURT WHICH HAS JURISDICTION.

15.4 Mutual Benefit. FRANCHISEE, FRANCHISEE’S PRINCIPALS AND FRANCHISOR ACKNOWLEDGE THAT THE PARTIES’ AGREEMENT REGARDING APPLICABLE STATE LAW AND FORUM IN SECTIONS 15.2 AND 15.3 PROVIDES THE PARTIES WITH THE MUTUAL BENEFIT OF UNIFORM INTERPRETATION OF THIS AGREEMENT AND ANY DISPUTE ARISING OUT OF THIS AGREEMENT OR THE PARTIES’ RELATIONSHIP CREATED BY THIS AGREEMENT. FRANCHISEE, FRANCHISEE’S PRINCIPALS AND FRANCHISOR FURTHER ACKNOWLEDGE THE RECEIPT AND SUFFICIENCY OF MUTUAL CONSIDERATION FOR THAT BENEFIT.

16. MISCELLANEOUS

16.1 Independent Contractors. In performing this Agreement, the parties specifically agree that Franchisor and Franchisee’s relationship is and always will be solely that of independent contractors. Neither Franchisor or Franchisee shall not represent itself or permit any of its employees, agents, servants, or representatives to represent itself as an employee, agent, servant, or joint venturer of the other. Neither party shall have no right to and shall not attempt to enter into contracts or commitments in the name of or on behalf of the other in any respect whatsoever.

16.2 Entire Agreement. This Agreement and the attachments hereto constitute the entire agreement between Franchisor, Franchisee and Franchisee’s Principals concerning the subject matter hereof. All prior agreements, discussions, representations, warranties and covenants are merged herein. THERE ARE NO WARRANTIES, REPRESENTATIONS, COVENANTS OR AGREEMENTS, EXPRESS OR IMPLIED, BETWEEN THE PARTIES EXCEPT THOSE EXPRESSLY SET FORTH IN THIS AGREEMENT. Except those permitted to be made unilaterally by Franchisor, any amendments or modifications of this Agreement shall be in writing and executed by Franchisor and Franchisee.

	CEC Entertainment, Inc.
45	[City, State] Franchise

16.3 Judgment; Discretion. FRANCHISEE AND FRANCHISOR ACKNOWLEDGE THAT VARIOUS PROVISIONS OF THIS AGREEMENT SPECIFY CERTAIN MATTERS THAT ARE WITHIN THE DISCRETION OR JUDGMENT OF FRANCHISOR OR ARE OTHERWISE TO BE DETERMINED UNILATERALLY BY FRANCHISOR. IF THE EXERCISE OF FRANCHISOR’S DISCRETION OR JUDGMENT AS TO ANY SUCH MATTER IS SUBSEQUENTLY CHALLENGED, THE PARTIES TO THIS AGREEMENT EXPRESSLY DIRECT THE TRIER OF FACT THAT FRANCHISOR’S RELIANCE ON A BUSINESS REASON IN THE EXERCISE OF ITS DISCRETION OR JUDGMENT IS TO BE VIEWED AS A REASONABLE AND PROPER EXERCISE OF SUCH DISCRETION OR JUDGMENT, WITHOUT REGARD TO WHETHER OTHER REASONS FOR ITS DECISION MAY EXIST, WITHOUT REGARD TO WHETHER THE TRIER OF FACT WOULD INDEPENDENTLY ACCORD THE SAME WEIGHT TO THE BUSINESS REASONS, AND WITHOUT REGARD TO WHETHER SUCH DISCRETION OR JUDGMENT IS EXERCISED IN THE BEST INTERESTS OF FRANCHISEE.

16.4 No Waiver. Either party’s failure to exercise any right or remedy or to enforce any obligation, covenant or agreement herein shall not constitute a waiver by, or estoppel of, such party’s right to enforce strict compliance with any such obligation, covenant or agreement. No custom or practice shall modify or amend this Agreement. Either party’s waiver of, or failure or inability to enforce, any right or remedy shall not impair such party’s rights or remedies with respect to subsequent default of the same, similar or different nature. Acceptance of any payment shall not waive any default.

16.5 Severability. If all or any portion of any covenant contained herein are held unreasonable or unenforceable by a court or agency having valid jurisdiction in an unappealed final decision to which Franchisor is a party, Franchisee and Franchisee’s Principals expressly agree to be bound by any lesser covenant subsumed within the terms of the covenant that imposes the maximum duty permitted by law, as if the resulting covenant were separately stated in and made a part of this Agreement. Notwithstanding the above, should any term, covenant or provision hereof, or the application thereof, be determined by a valid, final, non-appealable order to be invalid or unenforceable, the remaining terms, covenants or provisions hereof shall continue in full force and effect without regard to the invalid or unenforceable provision. In such event such term, covenant or provision shall be deemed modified to impose the maximum duty permitted by law and such term, covenant or provision shall be valid and enforceable in such modified form as if separately stated in and made a part of this Agreement. Notwithstanding the foregoing, if any term hereof is so determined to be invalid or unenforceable and such determination adversely affects, in Franchisor’s reasonable judgment, Franchisor’s ability to preserve its rights in, or the goodwill underlying, the Proprietary Marks, the Animated Entertainment, the System and/or the Confidential Information, or materially effects Franchisor’s other rights hereunder, Franchisor may terminate this Agreement upon notice to Franchisee.

16.6 Notice. All notices required or desired to be given hereunder shall be in writing and shall be sent by personal delivery, expedited delivery service, return receipt requested or facsimile to the following addresses or such other addresses as designated by Franchisor or Franchisee in writing pursuant to this Section:

	CEC Entertainment, Inc.
46	[City, State] Franchise

Notices to Franchisor:	Director of Franchise
	CEC Entertainment, Inc.
	4441 W. Airport Freeway
	Irving, Texas 75062
	Tel. (972) 258-8507
	Fax. (972) 258-5528
Notices to Franchisee:
	Tel. (    )
	Fax. (    )

Notices posted by personal delivery or given by facsimile shall be deemed given upon receipt. Notice to Franchisee shall constitute notice to Franchisee’s Principals.

16.7 Counterparts. This Agreement may be executed in any number of counterparts each of which when so executed shall be an original, but all of which together shall constitute one (1) and the same instrument.

16.8 Headings. The section headings in this Agreement are for convenient reference only and shall be given no substantive or interpretive effect.

16.9 Further Assurances. Franchisor and Franchisee shall execute and deliver any and all additional papers, documents, and other assurances and shall do any and all acts and things reasonably necessary in connection with the performance of their obligations hereunder and to carry out the intent of the parties hereto.

16.10 Compliance with Laws. Franchisee agrees to comply at its sole expense with all laws and regulations applicable to this Agreement and the operation of the Franchised Restaurant. Copies of all inspection reports, warnings, certificates and ratings, issued by any governmental entity during the term of this Agreement in connection with the conduct of the Franchised Restaurant which indicate Franchisee’s failure to meet or maintain the highest governmental standards (such as, without limitation, a Grade A sanitation rating or its equivalent) or less than full compliance by Franchisee with any applicable law, rule or regulation, shall be forwarded to Franchisor by Franchisee within five (5) days of Franchisee’s receipt thereof.

	CEC Entertainment, Inc.
53	[City, State] Franchise

17. ACKNOWLEDGMENTS

17.1 Independent Investigation. Franchisee and Franchisee’s Principals acknowledge that they have conducted an independent investigation of the business venture contemplated by this Agreement and recognize that the success of this business venture involves substantial business risks and will largely depend upon the ability of Franchisee. Franchisor expressly disclaims making, and Franchisee and Franchisee’s Principals acknowledge that they have not received or relied on, any warranty or guaranty, express or implied, as to the potential volume, profits or success of the business venture contemplated by this Agreement.

Franchisee’s Principals Initials,

individually and on behalf of

Franchisee

17.2 Opportunity to Assess Risks. Franchisee and Franchisee’s Principals acknowledge that they have received, read, and understand this Agreement and the related Attachments and agreements and that Franchisor has afforded them sufficient time and opportunity to consult with advisors selected by Franchisee about the potential benefits and risks entering into this Agreement.

Franchisee’s Principals Initials,

individually and on behalf of

Franchisee

17.3 Receipt of Disclosure Document. Franchisee and Franchisee’s Principals acknowledge that they have received a complete copy of this Agreement and all related attachments and agreements at least five (5) business days before the date on which this Agreement was executed. Franchisee and Franchisee’s Principals further acknowledge that they have received the disclosure document required by the Trade Regulation Rule of the Federal Trade Commission entitled “Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures” at least ten (10) business days before the date of on which this Agreement was executed.

Franchisee’s Principals Initials,

individually and on behalf of

Franchisee

17.4 No Extraneous Promises. Franchisee and Franchisee’s Principals confirm and acknowledge that no written or oral agreements, promises, commitments, undertakings or understandings were made to or with Franchisee that are not expressly set forth in this Agreement and any duly executed amendment or addendum attached to this Agreement.

Franchisee’s Principals Initials,

individually and on behalf of

Franchisee

	CEC Entertainment, Inc.
48	[City, State] Franchise

17.5 No Extraneous Inducements . Franchisee and Franchisee’s Principals confirm and acknowledge that no representation, warranty, guaranty or promise other than those expressly set forth in this Agreement and in the disclosure document described in Section 17.3 was made by Franchisor or any other person to induce Franchisee to sign this Agreement. Franchisee and Franchisee’s Principals recognize that neither Franchisor nor any other party can guarantee Franchisee’s business success or state the exact costs of opening and operating the Franchised Restaurant, and that such success and costs will depend primarily upon Franchisee’s own efforts and business ability. Franchisee and Franchisee’s Principals also recognize that any new business venture is speculative.

Franchisee’s Principals Initials,

individually and on behalf of

Franchisee

17.6 Commercial Relationship. Franchisee and Franchisee’s Principals acknowledge that this Agreement creates an arm’s length commercial relationship that cannot and will not be transformed into a fiduciary or other “special” relationship by course of dealing, by any special indulgences or benefits that Franchisor bestows on Franchisee, or by inference from a party’s conduct.

Franchisee’s Principals Initials,

individually and on behalf of

Franchisee

17.7 Compliance with Anti-Corruption and Anti-Money Laundering Laws. Franchisee and Franchisee’s Principals represent, covenant and warrant to Franchisor that, to the best of their knowledge, neither Franchisee nor any of Franchisee Principals or managerial employees thereof is identified, either by name or an alias, pseudonym or nickname, on the lists of “Specially Designated Nationals” or “Blocked Persons” maintained by the U.S. Treasury Department’s Office of Foreign Assets Control (texts currently available at www.treas.gov/offices/enforcement/ofac/). Further, Franchisee and Franchisee’s Principals represent, covenant and warrant that, to the best of their knowledge, they have not violated and agree that they will not violate any law (in effect now or which may become effective in the future) prohibiting corrupt business practices, money laundering or the aid or support of persons or entities who conspire to commit acts of terror against any person or government, including acts prohibited by the U.S. Patriot Act, Public Law No. 107-56 (text currently available at http://www.epic.org/privacy/terrorism/hr3162.html), U.S. Executive Order

	CEC Entertainment, Inc.
49	[City, State] Franchise

13244 (text currently available at http://treas.gov/offices/enforcement/ofac/ sanctions/terrorism.html), or similar law. The foregoing constitute continuing representations and warranties, and Franchisee shall notify Franchisor immediately in writing of the occurrence of any event or the development of any circumstance that might render the foregoing representation and warranty false, inaccurate or misleading.

Franchisee’s Principals Initials,

individually and on behalf of

Franchisee

17.8 No Claims. Franchisee and Franchisee’s Principals represent, covenant and warrant to Franchisor that, to the best of their knowledge, neither they nor an affiliate of either hold or are due, as applicable, any claims, debts, liabilities, demands, obligations, expenses, actions, or causes of action of any nature, character or description related to this Agreement against Franchisor, and its affiliates and each of their respective successors, partners and the partners, shareholders, representatives, assigns, agents, servants, employees, independent contractors, officers and directors of each of them, in their corporate and individual capacities.

Franchisee’s Principals Initials,

individually and on behalf of

Franchisee

[Signatures appear on following pages]

	CEC Entertainment, Inc.
50	[City, State] Franchise

IN WITNESS WHEREOF, the parties hereto have fully executed, sealed and delivered this Agreement in duplicate on the day and year first above written.

FRANCHISOR:

CEC ENTERTAINMENT, INC.

By:

Name:

Title:

STATE OF TEXAS

COUNTY OF DALLAS

Before me personally appeared                                  who, after being duly sworn, says that he is the                                  of CEC Entertainment, Inc., a corporation, organized and existing under the laws of Kansas, and that he has authority to execute under oath and has so executed the above Agreement for and on behalf of such corporation for such purposes therein contained.

WITNESS my hand and official seal this        day of                     , 20    .

(SEAL) Notary Public

	CEC Entertainment, Inc.
51	[City, State] Franchise

FRANCHISEE:

By:

Name:

Title:

STATE OF                     

COUNTY OF                     

Before me personally appeared                              who, after being duly sworn, says that he is the                                  of                             , a (corporation) (partnership), organized and existing under the laws of                             , and that he has authority to execute under oath and has so executed the above Agreement for and on behalf of such corporation for the purposes therein contained.

WITNESS my hand and official seal this        day of                     , 20    .

(SEAL) Notary Public

	CEC Entertainment, Inc.
52	[City, State] Franchise

SCHEDULE 1.14

STATEMENT OF OWNERSHIP INTERESTS

AND FRANCHISEE’S PRINCIPALS

A. The following is a list of stockholders, partners or other investors in Franchisee, including all investors who own or hold a direct or indirect interest in Franchisee, and a description of the nature of their interest. All such individuals and entities shall be deemed to be “Franchisee’s Principals” described in and designated pursuant to the Franchise Agreement, each of whom will execute the Agreement and Guaranty of Franchiser’s Principals:

Name Percentage of Ownership/Nature of Interest

B. The following is a list of all other of “Franchisee’s Principals” not described in “A”, above, described in and designated pursuant to the Franchise Agreement, each of whom will execute the Agreement and Guaranty of Franchisee’s Principals.

	CEC Entertainment, Inc.
53	[City, State] Franchise

ATTACHMENT A

AGREEMENT AND GUARANTY OF

FRANCHISEE’S PRINCIPALS

Each of the undersigned acknowledges and agrees as follows:

(1) Each has read the terms and conditions of the Franchise Agreement and acknowledges that the execution of this Guaranty and the undertakings of the Franchisee’s Principals in the Franchise Agreement are in partial consideration for, and a condition to, the granting of the franchise, and that Franchisor would not have granted the franchise without the execution of this Guaranty and the other undertakings by each of the undersigned;

(2) Each is included in the term “Franchisee’s Principals”;

(3) Each individually, jointly, and severally, makes all of the covenants, representations, warranties and agreements of Franchisee’s Principals set forth in the Franchise Agreement and is obligated to perform thereunder; and

(4) Each individually, jointly and severally, unconditionally, and irrevocably guarantees to Franchisor and its successors and assigns that all of Franchisee’s obligations under the Franchise Agreement will be punctually paid and performed. Upon default by Franchisee or upon notice from Franchisor, each will immediately make each payment and perform each obligation required of Franchisee under the Franchise Agreement.

(5) Without affecting the obligations of any of Franchisee’s Principals under this Guaranty, Franchisor may, without notice to the Franchisee’s Principals, waive, renew, extend, modify, amend, or release any indebtedness or obligation of Franchisee or settle, adjust, or compromise any claims that Franchisor may have against Franchisee.

(6) Each of the Franchisee’s Principals waives all demands and notices of every kind with respect to the enforcement of this Guaranty, including notices of presentment, demand for payment or performance by Franchisee, any default by Franchisee or any guarantor, and any release of any guarantor or other security for this Guaranty or the obligations of Franchisee.

(7) Franchisor may pursue its rights against any of Franchisee’s Principals without first exhausting its remedies against Franchisee and without joining any other guarantor and no delay on the part of Franchisor in the exercise of any right or remedy will operate as a waiver of the right or remedy, and no single or partial exercise by Franchisor of any right or remedy will preclude the further exercise of that or any other right or remedy.

	CEC Entertainment, Inc.
A–1	[City, State] Franchise

(8) Upon receipt by Franchisor of notice of the death of any of Franchisee’s Principals, the estate of the deceased will be bound by the foregoing Guaranty, but only for defaults and obligations under the Franchise Agreement existing at the time of death, and in that event, the obligations of the remaining Franchisee’s Principals will continue in full force and effect.

ATTEST: FRANCHISEE’S PRINCIPALS

Name:

Name:

Name:

STATE OF

COUNTY OF

Before me personally appeared the following persons:                             ,                              and                              who are known to me to be the persons who executed the foregoing Agreement and Guaranty of Franchisee’s Principals and each acknowledged the same to be his or her free act and deed for the purpose s therein contained.

WITNESS my hand and official seal this        day of                 , 20    .

(SEAL) Notary Public

	CEC Entertainment, Inc.
A–2	[City, State] Franchise

ATTACHMENT B

GENERAL RELEASE

(UPON RENEWAL OF FRANCHISE AGREEMENT)

THIS GENERAL RELEASE (this “Release”) is made and entered into this        day of                     , 20    , by                              (“Franchisee”), and                              and                              (the “Franchisee’s Principals”).

RECITALS

WHEREAS, CEC Entertainment, Inc. (“Franchisor”) and Franchisee entered into that certain Franchise Agreement dated                      (the “Franchise Agreement”), for the establishment of a Chuck E. Cheese’s located at                             ;

WHEREAS, the Franchisee’s Principals are described in the Franchise Agreement as “Franchisee’s Principals” and as such, have among other things, agreed to be bound by certain of the obligations contained in the Franchise Agreement; and

WHEREAS, Franchisee desires to renew or otherwise extend the term of the Franchise Agreement and the Franchise Agreement provides that as a condition to such renewal, Franchisee and the Franchisee’s Principals shall, among other things, execute a general release as contained herein.

NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged by each of the parties hereto, Franchisee and the Franchisee’s Principals agree as follows:

AGREEMENT

1. RELEASE. Franchisee, and each of the Franchisee’s Principals, individually and collectively, jointly and severally, do hereby release and forever discharge Franchisor and its affiliates, and each of their respective successors, partners, and the shareholders, partners, representatives, assigns, agents, servants, employees, independent contractors, officers, and directors of each of them, in their corporate and individual capacities (“Designees”), of and from any claims, debts, liabilities, demands, obligations, costs, expenses, actions, and causes of action of every nature, character, and description, known or unknown, vested or contingent, which the Franchisee and the Franchisee’s Principals now own or hold, or have at any time heretofore owned or held, or may at any time own or hold against the Franchisor, or each of the respective Designees of the Franchisor, arising under or in connection with any agreement, law, rule, regulation ordinance, or any other context whatsoever, including, without limitation, the Franchise Agreement or the operation of the Chuck E. Cheese’s store established thereunder, and any state or federal franchise or business opportunity law; provided, however, that this release shall not serve to terminate any agreement currently effective by an among Franchisee or any or all of the Franchisee’s Principals and Franchisor.

	CEC Entertainment, Inc.
B–1	[City, State] Franchise

[The parties intend this paragraph 1 to cover, encompass, release, and extinguish all claims and matters that might otherwise be reserved by California Civil Code section 1542, which provides as follows:

“A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected the settlement with the debtor.”]

2. AUTHORITY. By executing this Release, the parties represent and warrants that each have the right and authority to enter into and to accept the terms and covenants of this Release, and that no third party has or claims an interest in any claim released hereby.

3. NO CONFLICTS. Each of the undersigned hereby represents and warrants that its execution of this Release does not violate any other agreement to which it is a party.

4. MISCELLANEOUS.

4.1 Counterparts. This Release may be executed simultaneously in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute but one and the same instrument.

4.2 Opportunity to Review. Franchisee and the Franchisee’s Principals represent and warrant that they: (i) have had an opportunity to review this Release; (ii) have had an opportunity to consult with an attorney; and (iii) fully understand the content and legal effect of this Release; and

4.3 Governing Law. This Release shall be governed by the laws of the State of                         , which laws shall be controlling in the event of any conflict of law.

4.4 Section Headings. The section headings of this Release are for the convenience of the parties only shall have no force or effect.

4.5 Severability. The provisions of this release are severable, and, in the event that any of them is held void and unenforceable as a matter of law, the remainder shall continue in full force and effect.

[Signatures appear on following pages]

	CEC Entertainment, Inc.
B–2	[City, State] Franchise

IN WITNESS WHEREOF, Franchisee and the Franchisee’s Principals have executed and delivered this Release.

FRANCHISEE:

By:

Name:

Title:

FRANCHISEE’S PRINCIPALS:

Name:	Name:
Date:	Date:
Name:	Name:
Date:	Date:
Name:	Name:
Date:	Date:

	CEC Entertainment, Inc.
B–3	[City, State] Franchise

GENERAL RELEASE

(UPON TRANSFER)

THIS GENERAL RELEASE (this “Release”) is made and entered into this        day of                     , 20    , by                              (“Franchisee”),                              and                              (the “Franchisee’s Principals”).

RECITALS

WHEREAS, CEC Entertainment, Inc. (“Franchisor”) and Franchisee entered into that certain Franchise Agreement (the “Franchise Agreement”) for the establishment and operation of a Chuck E. Cheese’s restaurant located at                             ;

WHEREAS, the Franchisee and/or one or more of Franchisee’s Principals desire to effect a Transfer, as such term is defined in the Franchise Agreement; and

WHEREAS, the Franchise Agreement provides, as a condition to Franchisor’s approval of such Transfer, Franchisee and Franchisee’s Principals shall execute a release of certain claims.

NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged by each of the parties hereto, Franchisee and the Franchisee’s Principals agree as follows:

AGREEMENT

1. RELEASE. Franchisee, each of the Franchisee’s Principals, individually and collectively, jointly and severally, do hereby release and forever discharge Franchisor and its affiliates, and each of their respective successors, partners, and the shareholders, partners, representatives, assigns, agents, servants, employees, independent contractors, officers, and directors of each of them, in their corporate and individual capacities (“Designees”), of and from any claims, debts, liabilities, demands, obligations, costs, expenses, actions, and causes of action of every nature, character, and description, known or unknown, vested or contingent (“Claims”), which the Franchisee and the Franchisee’s Principals now own or hold, or have at any time heretofore owned or held, or may at any time own or hold against the Franchisor, or each of the respective Designees of the Franchisor, arising under or in connection with any agreement, law, rule, regulation ordinance, or any other context whatsoever, including, without limitation, the Franchise Agreement and any other franchise agreement or the operation of the Chuck E. Cheese’s restaurant established thereunder, and any state or federal franchise or business opportunity law; provided, however, that this release shall not serve to terminate any agreement currently effective by an among Franchisee or any or all of the Franchisee’s Principals and Franchisor.

	CEC Entertainment, Inc.
B–4	[City, State] Franchise

[The parties intend this paragraph 1 to cover, encompass, release, and extinguish all claims and matters that might otherwise be reserved by California Civil Code section 1542, which provides as follows:

“A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected the settlement with the debtor.”]

2. AUTHORITY. By executing this Release, the parties represent and warrants that each have the right and authority to enter into and to accept the terms and covenants of this Release, and that no third party has or claims an interest in any claim released hereby.

3. NO CONFLICTS. Each of the undersigned hereby represents and warrants that its execution of this Release does not violate any other agreement to which it is a party.

4. MISCELLANEOUS.

4.1 Counterparts. This Release may be executed simultaneously in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute but one and the same instrument.

4.2 Opportunity to Review. Franchisee and the Franchisee’s Principals represent and warrant that they: (i) have had an opportunity to review this Release; (ii) have had an opportunity to consult with an attorney; and (iii) fully understand the content and legal effect of this Release; and

4.3 Governing Law. This Release shall be governed by the laws of the State of                             , which laws shall be controlling in the event of any conflict of law.

4.4 Section Headings. The section headings of this Release are for the convenience of the parties only shall have no force or effect.

4.5 Severability. The provisions of this release are severable, and, in the event that any of them is held void and unenforceable as a matter of law, the remainder shall continue in full force and effect.

[Signatures appear on following page]

	CEC Entertainment, Inc.
B–5	[City, State] Franchise

IN WITNESS WHEREOF, Franchisee, the Franchisee’s Principals and the Affiliates have executed and delivered this Release.

FRANCHISEE:

By:

Name:

Title:

FRANCHISEE’S PRINCIPALS:

Name:	Name:
Date:	Date:
Name:	Name:
Date:	Date:
Name:	Name:
Date:	Date:

	CEC Entertainment, Inc.
B–6	[City, State] Franchise

ATTACHMENT C

LEASE RIDER

This Lease Rider is made and entered into                     , 20    , by and between CEC Entertainment, Inc., a Kansas corporation (“Franchisor”),                             , a                              corporation (“Franchisee”) and                                  (“Landlord”).

WHEREAS, Franchisor and Franchisee are parties to that certain Franchise Agreement dated                     , 20     (“Franchise Agreement”);

WHEREAS, Franchisee and Landlord desire to enter into a lease (the “Lease”) pursuant to which Franchisee will occupy the premises located at                              (the “Premises”) for a family-oriented pizza restaurant (hereinafter “Restaurant”) licensed under the Franchise Agreement; and

WHEREAS, as a condition to entering into the Lease, the Franchisee is required under the Franchise Agreement to execute this Lease Rider along with the Landlord and Franchisor;

NOW, THEREFORE, the parties in consideration of the mutual undertakings and commitments of each party to the other party set forth herein and in the Franchise Agreement, mutually agree as follows:

1. During the term of the Franchise Agreement, the Premises shall be used only for the operation of the Restaurant.

2. Landlord consents to Franchisee’s use of such marks and signs, decor items, color schemes and related components of the Chuck E. Cheese system as Franchisor may prescribe for the Restaurant.

3. Landlord agrees to furnish Franchisor with copies of any and all letters and notices sent to Franchisee pertaining to the Lease and the Premises, at the same time that such letters and notices are sent to Franchisee.

4. Franchisor shall have the right to enter the Premises to make any modification or alteration necessary to protect the Chuck E. Cheese system and marks or to cure any default under the Franchise Agreement or any development agreement entered into between Franchisor and Franchisee or under the Lease, without being guilty of trespass or any other crime or tort, and Landlord shall not be responsible for any expenses or damages arising from Franchisor’s action in connection therewith.

5. Franchisee shall not assign the Lease or renew or extend the term thereof without the prior written consent of Franchisor.

	CEC Entertainment, Inc.
X–1	[City, State] Franchise

6. Landlord and Franchisee shall not amend or otherwise modify the Lease in any manner that could materially affect any of the foregoing requirements without the prior written consent of Franchisor.

7. In the event of Franchisee’s default under the terms of the Lease, Franchisor may, but is not required, to cure the default and may assume the Lease in Franchisor’s name. Within thirty (30) days after Franchisor receives notice of the default, Franchisor will have the option, in its sole discretion, to cure the default and assume the Lease. If Franchisor elects to cure the default and assume the Lease, Franchisor will notify Landlord of its intent to cure such default and to assume the Lease. Franchisor will cure the default within thirty (30) days of such election or, if the default cannot be reasonably cured within such thirty (30) day period, then Franchisor will commence and proceed to cure the default within such time as is reasonably necessary to cure the default. If Franchisor elects to assume the Lease, Landlord agrees to recognize Franchisor as the tenant under the Lease and Franchisee will no longer have any rights thereunder. Landlord shall provide to Franchisor an estoppel certificate confirming that no additional defaults exist and no acts or omissions have occurred which, with the passage of time, would result in default.

8. Franchisee will be permitted to assign the Lease to Franchisor or its affiliates upon the expiration or earlier termination of the Franchise Agreement and the Landlord hereby consents to such assignment and agrees not to impose or assess any assignment fee or similar charge or accelerate rent under the Lease in connection with such assignment, or require Franchisor to pay any past due rent or other financial obligation of Franchisee to Landlord, it being understood that Landlord will look solely to the Franchisee for any rents or other financial obligations owed to Landlord prior to such assignment. Landlord and Franchisee acknowledge that Franchisor is not a party to the Lease and will have no liability under the Lease, unless and until the Lease is assigned to, or assumed by, Franchisor.

9. Except for the Franchisee’s obligations to Landlord for rents and other financial obligations accrued prior to the assignment of the Lease, in the event of such assignment, Franchisor or any affiliate designated by Franchisor will agree to assume from the date of assignment all obligations of Franchisee remaining under the Lease, and in such event Franchisor or any affiliate will assume Franchisee’s occupancy rights, and the right to sublease the Premises, for the remainder of the term of the Lease.

10. Notwithstanding anything contained in this Lease, Franchisor is expressly authorized, without the consent of the Landlord, to sublet the Premises to an unauthorized franchisee, provided such subletting is specifically subject to the terms of this Lease and further provided Franchisor remains liable for the performance of the terms of this Lease and provided the franchisee expressly assumes all obligations of the Lease. Franchisor agrees to notify Landlord as to the name of the franchisee within ten (10) days after such subletting.

11. The terms of this Lease Rider will supersede any conflicting terms of the Lease.

	CEC Entertainment, Inc.
X–2	[City, State] Franchise

IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Lease Rider as of the date first above written.

FRANCHISOR:

CEC ENTERTAINMENT, INC.
a Kansas corporation

By:

Name:

Title:

FRANCHISEE:

a                      (corporation) (partnership)

By:

Name:

Title:

LANDLORD:

a                      corporation

By:

Name:

Title:

	CEC Entertainment, Inc.
X–3	[City, State] Franchise

ATTACHMENT D

ADVERTISING COOPERATIVE AGREEMENT

THIS                              DMA ADVERTISING COOPERATIVE AGREEMENT (hereinafter referred to as “Agreement”) is made and entered into this        day of                     , 20    , by and between the undersigned franchisees (“Members”), and CEC Entertainment, Inc., a Kansas corporation (“Franchisor”) or any of its affiliates to the extent they are operating a Chuck E. Cheese’s restaurant (“Franchised Restaurant”) as such term is defined in the Franchise Agreement (“Franchise Agreement”) located in the                              Designated Marketing Area, or DMA (as such term is defined in the Franchise Agreement), then Franchisor shall be included in the term “Member” and shall execute this Agreement as a Member, with reference to the following facts:

WHEREAS, each of the Members is engaged in the operation of a Franchised Restaurant, pursuant to the terms of a Franchise Agreement entered into by and between the Member and the Franchisor;

WHEREAS, the Franchised Restaurants operated by the Members are located within the                          DMA (“DMA”);

WHEREAS, the Franchisor is requiring the Members to form a cooperative advertising association (the “Cooperative”) for the purpose of advertising and promoting the Franchised Restaurants in the DMA pursuant to specified advertising and promotional activities, and each Member is required to contribute a portion of the Member’s Gross Sales (as defined in the Franchise Agreement) to the Cooperative for this purpose;

WHEREAS, the Members acknowledge and agree that the formation of the Cooperative is in the best interest of the Members and the System (as defined in the Franchise Agreement), and that the formation of the Cooperative by the Members will provide each Member with greater and more effective exposure of the products and services marketed by each Member to the general public than would otherwise be available; and

THEREFORE, in consideration of the mutual covenants and agreements contained herein, Members have agreed as follows:

SECTION 1. ORGANIZATION.

1.1 Formation. The Members agree that they shall hereby form and participate in the Cooperative for the exclusive purposes of funding and administering regional advertising and promotion programs, and developing, subject to Franchisor’s approval, standardized advertising materials for use by the Members in regional advertising.

	CEC Entertainment, Inc.
D–1	[City, State] Franchise

1.2 Use of Funds. The Cooperative shall be operated solely as a conduit for funds contributed for the purpose referenced above and as otherwise set forth herein.

SECTION 2. MEMBERSHIP.

2.1 Establishing Cooperative. Franchisor shall have the right, in its discretion, to designate any geographic area (i.e., DMA) as a region for purposes of establishing a Cooperative and to determine whether a Cooperative is applicable to the Members. Throughout the term of this Agreement, the geographic area encompassed by the DMA shall be subject to change in accordance with the boundaries as established by Nielsen Media Research, Inc. A Cooperative shall be composed of any two or more restaurants, whether such restaurants are operated by Franchisor or franchisees. If a Cooperative has been established for the geographic area in which the Franchised Restaurant is located at the time a System Restaurant (as defined in the Franchise Agreement) commences business hereunder, the operator of such System Restaurant (franchisee, Franchisor (or any of its affiliates) shall immediately become a member of such Cooperative not later than thirty (30) days after the date on which the Cooperative commences operation, as provided below. If the System Restaurant is within the geographic area of more than one Cooperative, the franchisee shall be required to be a member of only one such Cooperative as designated by Franchisor.

2.2 Termination of Membership. The membership of any Member in the Cooperative shall terminate upon the termination, expiration, or transfer of the Franchise Agreement applicable to the Member’s Franchised Restaurant located in the DMA, or in the event the Member’s Franchised Restaurant ceases to be located in the DMA due to a change in the geographic area constituting the DMA, at the time of such change. In the event the Member operates more than one System Restaurant located in the DMA, the Member’s membership shall terminate upon the termination, expiration, or transfer of all of the Franchise Agreements applicable to such System Restaurants or upon all such System Restaurants ceasing to be located within the DMA; provided, however, that a Member shall not be required to pay a cooperative fee and shall not have any voting rights in the Cooperative with respect to any System Restaurant for which the Franchise Agreement has terminated, expired, or been transferred or which is no longer located in the DMA. Any Member whose membership in the Cooperative has been terminated as provided herein shall have no further rights of membership in the Cooperative.

SECTION 3. CONTRIBUTIONS.

3.1 Amount of Contributions. Commencing upon the date of this Agreement (or upon the effective date of membership with respect to a new Member) and continuing until the dissolution of the Cooperative or the earlier termination of a Member’s membership in the Cooperative, each Member shall pay directly to the Cooperative contributions in such amounts as are determined by the Cooperative; provided, however, that Member shall be required to contribute to the Cooperative at least three percent (3.0%) of the Member’s monthly gross sales of each System Restaurant located in the DMA.

	CEC Entertainment, Inc.
D–2	[City, State] Franchise

3.2 Payment Date. Each Member shall submit to the Cooperative, no later that the fifteenth (15th) day of each month, for the preceding calendar month, its contribution as provided herein, together with such other statements or reports as may be required by Franchisor or by the Cooperative with Franchisor’s prior approval.

3.3 Overdue Contributions. Any cooperative fee which is not received by the Cooperative on or before the date on which it is due shall be deemed overdue. In addition to the overdue amount, the Member shall pay to the Cooperative interest on such amount from the date it was due until paid at the rate of twelve percent (12%) per annum, provided that in no event shall such interest rate be more than the maximum rate allowed by the applicable law. In addition, each Member agrees to pay all costs and expenses (including reasonable attorneys’ fees) incurred by the Cooperative and/or the Franchisor in connection with the recovery of any cooperative fee due hereunder. Except as described below with respect to the dissolution of the Cooperative, no cooperative fee paid by any Member hereunder shall be refundable in whole or in part upon termination of membership in the Cooperative or otherwise.

3.4 Default. The failure to pay any cooperative fee for any System Restaurant when due hereunder shall constitute a default by the Member and shall result in the suspension of the right of the Member to receive any advertising and promotional materials and services provided by the Cooperative, the suspension of the right to participate in any advertising and marketing activities conducted by the Cooperative and in the suspension of voting rights with respect to the Cooperative.

SECTION 4. GOVERNMENT AND MANAGEMENT.

4.1 Membership Meetings. The Members shall have at least one regularly scheduled meeting (which may be conducted through a telephonic conference call) during every fiscal year and shall hold additional meetings from time to time as the Members or Franchisor deems necessary to conduct the business of the Cooperative. Such meetings shall be necessary for all matters to be acted on by the Cooperative, including, but not limited to, the funding and administration of regional advertising and promotion programs and developing, subject to Franchisor’s approval, standardized advertising materials for use by the Members in regional advertising. Notice of any meeting shall be given to each Member entitled to vote at the meeting.

The holders of a majority of those votes entitled to be cast shall constitute a quorum at a meeting of Members. Any and all matters to be acted on by the Cooperative shall be determined by the affirmative vote of the majority of votes entitled to be cast at a meeting at which a quorum is present. Any CEC Entertainment, Inc. franchisee who has executed a Franchise Agreement but whose System Restaurant is not yet open for business may attend any meeting of Members, notwithstanding that such franchisee’s membership in the Cooperative is not yet effective and the franchisee has no voting privileges.

	CEC Entertainment, Inc.
D–3	[City, State] Franchise

4.2 Voting. Each Member shall be entitled to one (1) vote, in person, by written consent, or by proxy, for each System Restaurant operated by the Member that is located in the DMA. The voting rights of any Member shall be automatically suspended upon the failure to pay any cooperative fee when due hereunder and such suspension shall continue until such time as all overdue amounts (including interest, attorneys’ fees and other costs and expenses due hereunder) are paid in full. In addition, the voting rights of any Member shall be automatically suspended upon the occurrence of an event of default by the Member under any applicable Franchise Agreement to which such Member is a party. Such suspension shall continue until such default is cured within the time and in the manner specified in the applicable Franchise Agreement. Each Member’s obligation to pay cooperative fees hereunder shall continue notwithstanding any suspension of voting rights.

4.3 General Manager. If Franchisor is a member of the Cooperative it will be the General Manager; otherwise, the Cooperative will elect an individual to serve as General Manager. The Cooperative hereby appoints the General Manager as its true and lawful agent to collect all sums due the Cooperative, maintain and make disbursements from an account established for such sums collected, prepare an operating budget, including an advertising and marketing plan for each fiscal year, expend funds from the Cooperative’s account as necessary to conduct advertising and marketing activities for the Cooperative in accordance with standards and specifications set forth by the Franchisor, engage such advertising and marketing personnel (on an independent contractor basis) as the General Manager deems necessary, and conduct the meetings of the Members.

SECTION 5. BOOKS AND RECORDS; REPORTS.

General Manager shall maintain a comprehensive system of just and true books of account in which shall be entered fully and accurately each and every transaction with respect to the operation of the Fund. Such records, accounts, and books shall be maintained either at the office of the General Manager or at some other location, as the General Manager shall decide, or at such other place as Cooperative and Franchisor shall mutually determine, and each party shall at all reasonable times have access to such records, accounts, and books. Such records, accounts, and books shall be kept on a calendar year basis and on such method of accounting as Cooperative may direct. The books may be audited by a certified public accountant selected by Cooperative at the close of each such year and/or at such other times as Cooperative may direct. The cost of any such audit shall be borne by Cooperative.

SECTION 6. ACT OF COOPERATIVE.

All matters to be acted on by the Cooperative shall be determined by the General Manager or vote of the Members as described herein. Except as provided herein, no individual Member shall be an agent of the Cooperative for any purpose and no action taken by any individual Member, of whatever nature or kind, shall bind the Cooperative in any manner unless such action is specifically authorized by the Members as described below.

	CEC Entertainment, Inc.
D–4	[City, State] Franchise

SECTION 7. DISSOLUTION.

The Cooperative shall exist and operate hereunder until dissolved by the Franchisor. Upon dissolution and after payment of all liabilities of the Cooperative, all funds remaining in the Cooperative’s bank account shall be disbursed by the General Manager to the Members on a pro rata basis in accordance with cooperative fees respectively paid by the Members at the time the last cooperative fee was required to be paid hereunder.

SECTION 8. INDEMNIFICATION.

The Cooperative shall, at all times, indemnify and hold harmless the Franchisor, its designee(s) which administer the System Fund (as defined in the Franchise Agreement), and their respective subsidiaries, affiliates, successors, and assigns, and their respective directors, officers, shareholders, partners, servants, employees, agents, and representatives from and against any and all causes of action, suits, debts, costs, expenses, liabilities, claims, or demands, of whatever nature or kind, in law or in equity, arising out of or in connection with the existence and operation of the Cooperative. In addition, the Cooperative shall, at all times, indemnify and hold harmless any current or former General Manager of the Cooperative from and against any and all causes of action, suits, debts, costs, expenses, liabilities, claims, or demands, of whatever nature or kind, whether known or unknown, in law or in equity, arising because such person is or was an officer of the Cooperative. The Cooperative may additionally indemnify any person covered by the foregoing grant of mandatory indemnification to such further extent as is permitted by law and may indemnify any other person to the fullest extent permitted by law.

SECTION 9. NOTICES.

Any and all notices required or permitted under this Agreement shall be in writing and shall be personally delivered or mailed by expedited delivery service or certified or registered mail, return receipt requested, first class postage prepaid, or sent by prepaid facsimile or telex to the respective parties at the following addresses unless and until a different address has been designated by written notice to the other party:

If to Franchisor:	If to Cooperative:
Director of Franchise	International Association of CEC Entertainment, Inc.
CEC Entertainment, Inc.	c/o CEC Entertainment, Inc.
4441 West Airport Freeway	4441 West Airport Freeway
Irving, Texas 75062	Irving, Texas 75062
(214) 258-8507	(214) 258-8507
(214) 258-5528 (Fax)	(214) 258-8845 (Fax)

If to any Member:

The address set forth in the applicable Franchise Agreement

	CEC Entertainment, Inc.
D–5	[City, State] Franchise

Any notice shall be deemed to have been given at the time of personal delivery or, in the case of facsimile or telex, upon receipt or, in the case of expedited delivery service or registered or certified mail, three (3) business days after the date and time of mailing.

SECTION 10. MISCELLANEOUS PROVISIONS

10.1 Relationship with Franchisor. It is understood and agreed by the parties hereto that this Agreement does not constitute the Franchisor as a member of the Cooperative or as a partner, joint venturer, principal or affiliate of the Cooperative for any purpose; provided that the foregoing shall not apply in the event the Franchisor is a Member of the Cooperative as provided in Section 2 above.

10.2 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto, subject to the restrictions on assignment contained herein.

10.3 Assignment. The rights and obligations of each of the Members under this Agreement are personal and may not be transferred or assigned; provided that the Franchisor, in its capacity as a Member or otherwise, shall have the right to transfer or assign all or any part of its rights or obligations hereunder to any person or legal entity.

10.4 Waiver and Delay. The failure of the Cooperative or the Franchisor to exercise any right, power, or option of it hereunder, or to insist upon strict compliance with the terms hereof shall not constitute a waiver of any term and/or condition of this Agreement with respect to any other or subsequent breach thereof, nor a waiver of rights at any time thereafter to require exact and strict compliance with the terms and/or conditions set forth herein. The remedies hereunder are cumulative to any other rights or remedies which may be granted by law.

10.5 Arbitration. Any controversy or claim arising out of or relating to this Agreement, or any breach thereof, including, without limitation, any claim that any of said Agreement, or any part thereof, is invalid, illegal or otherwise voidable or void, shall be submitted to arbitration in accordance with the Commercial Rules of the American Arbitration Association; provided, however, this clause shall not be construed to limit or to preclude either party from bringing any action in any court of competent jurisdiction for injunctive or other provisional relief as is necessary or appropriate. The arbitration shall be conducted in Dallas, Dallas County, Texas, in the United States of America. Any award or determination of the arbitration tribunal shall be final, non-appealable, and conclusive upon the parties, and judgment thereon may be entered by any court of competent jurisdiction.

10.6 Attorneys’ Fees. If any arbitration or other legal action is initiated by either of the parties hereto, the prevailing party shall be entitled to recover from the other party reasonable attorneys’ fees in addition to any other relief that may be awarded.

	CEC Entertainment, Inc.
D–6	[City, State] Franchise

10.7 Titles for Convenience. Titles used in this Agreement are for convenience only and shall not be deemed to affect the meaning or construction of any of the terms, provisions, covenants, or conditions of this Agreement.

10.8 Choice of Law and Forum. All disputes concerning the validity, interpretation, or performance of this Agreement and any of its terms or provisions, or any rights or obligations of the parties hereto, shall be governed by and resolved in accordance with the laws of the State of Texas, and be resolved in the courts located within Dallas, Dallas County, Texas.

10.9 Severability. Nothing contained in this Agreement shall be construed as requiring the commission of any act contrary to law. Whenever there is any conflict between any provision of this Agreement and any present or future statute, law, ordinance or regulation contrary to which the parties have no legal right to contract, the latter shall prevail, but in such event the provision(s) of this Agreement thus affected shall be curtailed and limited only to the extent necessary to bring it within the requirements of the law. In the event that any part, article, paragraph, sentence or clause of this Agreement shall be held to be indefinite, invalid or otherwise unenforceable, the indefinite, invalid or unenforceable provision(s) shall be deemed deleted, and the remaining part of the Agreement shall continue in full force and effect. If any tribunal or court of competent jurisdiction deems any provision(s) hereof unenforceable, such provision(s) shall be modified only to the extent necessary to render it enforceable and this Agreement shall be valid and enforceable and the parties hereto agree to be bound by and perform same as thus modified.

10.10 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

10.11 Entire Agreement. With the exception of each Franchise Agreement to which the various Members are a party, this Agreement contains all of the terms and conditions agreed upon by the parties hereto with reference to the subject matter hereof. No other agreements, oral or otherwise, shall be deemed to exist or to bind either of the parties hereto, and all prior agreements and understandings are suspended hereby. Except for those amendments and modifications permitted to be made unilaterally by the Franchisor under this Agreement, this Agreement may only be amended or modified pursuant to the written agreement of all Members of the Cooperative, subject to the prior approval of the Franchisor.

[Signatures appear on following pages]

	CEC Entertainment, Inc.
D–7	[City, State] Franchise

MEMBER:

a                              (corporation) (partnership)

By:

Name:

Title:

Restaurant(s):

Date:

APPROVED AND AGREED TO:

FRANCHISOR:

CEC ENTERTAINMENT, INC.

By:

Name:

Title:

Date:

	CEC Entertainment, Inc.
D–8	[City, State] Franchise

ATTACHMENT E

EMPLOYEE’S CONFIDENTIALITY AND NON-COMPETITION AGREEMENT

(For Managers, Assistant Managers, Directors of Operations, District Managers and others)

This Confidentiality and Non-Competition Agreement (“Agreement”) is made and entered into this          day of                     , 20    , by and between CEC Entertainment, Inc., a Kansas corporation (“Franchisor”),                      (“Franchisee”), and                              (“Covenantor”).

RECITALS

WHEREAS, Franchisor and Franchisee have entered into a Franchise Agreement dated                      (the “Franchise Agreement”), pursuant to which Franchisor has granted Franchisee the right to establish and operate a family-oriented pizza restaurant (the “Franchised Restaurant”) and to use the Proprietary Marks and System solely in connection therewith; and

WHEREAS, Franchisor has provided, or will provide to Franchisee, a confidential operations manual and such other written or printed material to explain the operation of the System and aid in its use (the “Documentation”) and certain confidential information, knowledge, and know-how concerning the construction and methods of operation of the Franchised Restaurant relating to the System, including the Documentation, drawing, materials, equipment, techniques, products, recipes, and other data of Franchisor (“Trade Secrets”); and

WHEREAS, the Proprietary Marks and Trade Secrets provide economic advantages to Franchisor and the Trade Secrets are not generally known to, and are not readily ascertainable by proper means by, Franchisor’s competitors who could obtain economic value from knowledge and use of the Trade Secrets; and

WHEREAS, Covenantor or acknowledges that receipt of and the right to use the Trade Secrets constitutes independent valuable consideration for the representations, promises and covenants made by Covenantor or herein;

NOW, THEREFORE, in consideration of the mutual covenants and obligations contained herein, the parties agree as follows:

Confidentiality Agreement

1. Franchisor and Franchisee shall disclose to Covenantor some or all of the Trade Secrets. All information and materials, including, without limitation, the Documentation, which Franchisor provides to Franchisee and/or Covenantor shall be deemed confidential Trade Secrets for purposes of this Agreement.

	CEC Entertainment, Inc.
E–1	[City, State] Franchise

2. Covenantor shall at all times treat as confidential, and shall not at any time disclose, distribute, copy, duplicate, record, or otherwise reproduce, in whole or in part, or otherwise make available to any person or source or otherwise use in any manner except for the operation of the Franchised Restaurant, the contents of the Trade Secrets without the prior written consent of Franchisor.

3. Covenantor agrees that any goodwill that may arise from Covenantor’s use of the Trade Secrets shall at all times remain the sole and exclusive property of Franchisor and shall inure to the sole benefit of Franchisor.

4. Covenantor agrees to notify Franchisor and Franchisee promptly in writing of any loss, theft, or unauthorized disclosure or use of any of the Trade Secrets of which Covenantor has knowledge.

5. Covenantor shall surrender any material containing some or all of the Trade Secrets, including the Documentation, to Franchisee or Franchisor, upon request, or upon termination of employment by Franchisee, or upon conclusion of the use for which such information or material may have been furnished to Covenantor.

Covenants Not to Compete

1. Covenantor specifically acknowledges that, pursuant to Covenantor’s employment or association with Franchisee, Covenantor will receive valuable, specialized training and/or confidential information. In consideration for the disclosure of the Trade Secrets, Covenantor covenants that during Covenantor’s employment or association with Franchisee, and for one (1) year following the earlier of the expiration, termination or transfer of all of Franchisee’s interest in the Franchise Agreement or the termination of Covenantor’s association with or employment by Franchisee, except as otherwise approved in writing by Franchisor, Covenantor shall not, either directly or indirectly, for itself, or through, on behalf of, or in conjunction with, any person or legal entity:

(a) Divert or attempt to divert any business or customer of the Franchised Restaurant to any competitor, by direct or indirect inducement or otherwise, or do or perform, directly or indirectly, any other act injurious or prejudicial to the goodwill associated with the Proprietary Marks, the Animated Entertainment or the System;

(b) Employ or seek to employ any person who is at that time employed by Franchisor, or by any Licensee of Franchisor (other than Franchisee), or otherwise directly or indirectly induce such person to leave his or her employment; or

(c) Own, maintain, operate, engage in, be employed by, provide any assistance to, or have any interest in (as owner or otherwise) any business, which operates a restaurant or food service outlet in combination with family entertainment, including without limitation,

	CEC Entertainment, Inc.
E–2	[City, State] Franchise

live entertainment and entertainment in the form or video tapes, video displays or computer controlled animated characters; provided, however, that this provision shall not apply to the operation by Covenantor of any license which may be granted by Franchisor to Covenantor; and provided, further, that this provision shall not apply to any ownership by Covenantor, of less than five percent (5%) of the outstanding equity securities in any publicly-held corporation, and which business is located within the United States and any foreign jurisdiction where Franchisor or its licensees do business (during the term of Covenantor’s employment) or within a twenty-five (25)-mile radius from the Franchised Restaurant.

(d) Covenantor understands and acknowledges that Franchisor will have the right, in its sole discretion, to reduce the scope of any non-competition covenant set forth above, or any portion thereof, without its consent, effective immediately upon notice to Covenantor; and Covenantor agrees that he or she will comply with any covenant as so modified, which will be fully enforceable notwithstanding the provisions of Section 4 under the heading entitled “Miscellaneous.”

Miscellaneous

1. Franchisee and Covenantor agree that in the event of a breach of this Agreement, Franchisor and/or Franchisee shall be entitled to enforce the provisions of this Agreement and shall be entitled, in addition to any other remedies which are made available to it at law or in equity, to a temporary and/or permanent injunction and a decree for the specific performance of the terms of this Agreement, without the necessity of showing actual or threatened harm and without being required to furnish a bond or other security.

2. Covenantor agrees to pay all expenses (including court costs and reasonable attorneys’ fees) incurred by Franchisor and Franchisee in enforcing this Agreement.

3. THIS AGREEMENT SHALL BE INTERPRETED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF                     , WITHOUT REFERENCE TO                      CHOICE OF LAW PRINCIPLES.

4. This Agreement contains the entire agreement of the parties regarding the subject matter hereof. This Agreement may be modified only by a duly authorized writing executed by all parties.

5. Any and all notices required or permitted under this Agreement shall be in writing and shall be personally delivered or mailed by certified mail, return receipt requested, to the respective parties at the following addresses unless and until a different address has been designated by written notice to the other party:

	CEC Entertainment, Inc.
E–3	[City, State] Franchise

Notices to Franchisor:	Notices to Franchisee:
Director of Franchise
CEC Entertainment, Inc.
4441 West Airport Freeway
Irving, Texas 75062
(214) 258-8507	(    )
(214) 258-5528 (Fax)	(    )	(Fax)
Notices to Covenantor:

Any notice by certified mail shall be deemed to have been given at the date and time of mailing.

IN WITNESS WHEREOF, the undersigned have entered into this Agreement as witnessed by their signatures below.

FRANCHISOR:	FRANCHISEE:
CEC ENTERTAINMENT, INC.,		,
a Kansas corporation	a                      (corporation) (partnership)
By:	By:
Name:	Name:
Title:	Title:
COVENANTOR:
By:
Name:

	CEC Entertainment, Inc.
E–4	[City, State] Franchise

ATTACHMENT F

RENEWAL AMENDMENT

TO

FRANCHISE AGREEMENT

This Renewal Amendment to Franchise Agreement (“Amendment”) is executed and entered into this          day of                     , 20    , by and between CEC Entertainment, Inc. a Kansas corporation (as “Franchisor”), and                     , a                              corporation (as “Franchisee”).

RECITALS

1. On                     , Franchisor and Franchisee entered into that certain franchise agreement (the “Expiring Franchise Agreement”), pursuant to which Franchisee established and operates Chuck E. Cheese’s restaurant located at                              (the “Franchised Restaurant”);

2. The Expiring Franchise Agreement provides for an initial term of          years and grants Franchisee the conditional right to renew the Expiring Franchise Agreement for          consecutive renewal term(s) of          years each.

3. Such renewal is conditioned on, among other things, Franchisee’s execution of Franchisor’s then-current form of franchise agreement;

4. Franchisee desires to renew the Expiring Franchise Agreement and Franchisor and Franchisee have, contemporaneous with the execution of this Amendment, executed Franchisor’s then-current form of franchise agreement (the “Franchise Agreement”), which supercedes the Expiring Franchise Agreement; and

5. Franchisor and Franchisee desire to amend the terms of the Franchise Agreement to reflect the renewal conditions contained in the Expiring Franchise Agreement and Franchisee’s continued operation of the Franchised Restaurant.

NOW, THEREFORE, Franchisor and Franchisee, in consideration of the undertakings and commitments set forth herein and in the Franchise Agreement, agree as follows:

1. Section 1.28 of the Franchise Agreement shall be deleted in its entirety and shall have no force effect and the following shall be substituted in lieu thereof:

1.28 “Site” means the existing location of the Franchised Restaurant as of the date first above written.

2. Section 3.1 of the Franchise Agreement shall be deleted in its entirety and shall have no force or effect and the following shall be substituted in lieu thereof:

	CEC Entertainment, Inc.
F–1	[City, State] Franchise

3.1 Renewal Fee. Prior to or upon execution of this Agreement Franchisee shall deliver to Franchisor a renewal fee of              and No/100 Dollars ($            ) in readily available funds (the “Renewal Fee”). The Renewal Fee will be fully earned by Franchisor and non-refundable upon receipt, in consideration for, among other things, Franchisor’s administrative expenses and lost or deferred opportunities in entering into this Agreement.

3. Section 4 of the Franchise Agreement, entitled “Site Selection” shall be amended by the addition of the following Section 4.7, which shall deemed an integral part thereof:

4.7 Franchisor hereby approves the site described in Section 1.28 hereof as the Site for the Franchised Restaurant, and acknowledges receipt of a fully executed copy of the lease or purchase agreement as described in Section 4.4 hereof.

4. Section 6 of the Franchise Agreement, entitled “Training” shall be amended by the addition of the following Section 6.4, which shall be deemed an integral part thereof:

6.4 Franchisor and Franchisee acknowledge and agree that Franchisor has provided, and Franchisee’s current general manager and technician have attended and completed to Franchisor’s satisfaction, initial training conducted by Franchisor and that Franchisor has provided to Franchisee a copy of the Operational Policies. Franchisor shall not charge any additional fee for such training previously provided by Franchisor.

5. Section 12.1 of the Franchise Agreement shall be deleted in its entirety and shall have no force or effect and the following shall be substituted in lieu thereof:

12.1 Insurance. For the entire term of this Agreement, Franchisee shall obtain and maintain insurance protecting Franchisee and the Indemnitees against any demand or claim arising or occurring in connection with the operation of the Franchised Restaurant. Such policies shall: (i) be of the types and for the minimum amounts of coverage indicated in the Operational Policies; (ii) contain a waiver of subrogation in favor of Franchisor; (iii) name the Indemnitees as additional insureds; (iv) contain no provision which limits or reduces coverage in the event of a claim by any one (1) or more of the Indemnitees; (v) provide that policy limits shall not be reduced, coverage restricted, canceled, allowed to lapse or otherwise altered or such policy(ies) amended without Franchisor’s consent; and (vi) be obtained from reputable insurance companies approved by Franchisor and authorized to do business in all jurisdictions in which the Franchised Restaurant is located. Franchisee also acknowledges and agrees to:

(a) furnish Franchisor with evidence that Franchisee has obtained the required insurance each year afterwards, and at any other time a carrier or coverage is changed;

	CEC Entertainment, Inc.
F–2	[City, State] Franchise

(b) increase the insurance coverage amounts in the amounts indicated by Franchisor upon thirty (30) days prior written notice from Franchisor; and

(c) reimburse Franchisor for any insurance policies obtained by Franchisor on behalf of Franchisee if Franchisee fails to obtain the insurance required by this Section.

6. Section 13.1 of the Franchise Agreement shall be deleted in its entirety and shall have no force or effect and the following shall be substituted in lieu thereof:

13.1 Term. Unless terminated as provided for herein, the term of this Agreement shall expire                      (        ) years thereafter.

7. That portion of Section 13.2 of the Franchise Agreement prior to Section 13.2(a) shall be deleted in its entirety and shall have no force or effect and the following shall be substituted in lieu thereof:

13.2 Renewal. Franchisee may, at Franchisee’s option, renew this Agreement for                      (        ) additional period(s) of                      (        ) years [each], provided that at the end of the initial term:

8. All other provisions of the Franchise Agreement are hereby verified and confirmed.

IN WITNESS WHEREOF, the parties hereto have fully executed, sealed and delivered this Agreement in duplicate on the day and year first above written.

[Signatures appear on following pages]

	CEC Entertainment, Inc.
F–3	[City, State] Franchise

FRANCHISOR:

CEC ENTERTAINMENT, INC.

By:

Name:

Title:

STATE OF TEXAS

COUNTY OF DALLAS

Before me personally appeared                                 , who, after being duly sworn, says that he is the                                  of CEC Entertainment, Inc., a corporation, organized and existing under the laws of Kansas, and that he has authority to execute under oath and has so executed the above Agreement for and on behalf of such corporation for such purposes therein contained.

WITNESS my hand and official seal this          day of                     , 20    .

(SEAL) Notary Public

FRANCHISEE:

By:

Name:

Title:

STATE OF                             

COUNTY OF                             

Before me personally appeared                                 , who, after being duly sworn, says that he is the                                  of                                 , a (corporation) (partnership), organized and existing under the laws of                                 , and that he has authority to execute under oath and has so executed the above Agreement for and on behalf of such (corporation) (partnership) for the purposes therein contained.

WITNESS my hand and official seal this          day of                         , 20    .

(SEAL) Notary Public

	CEC Entertainment, Inc.
F–4	[City, State] Franchise

EX-10.32

Exhibit 10.32

AMENDMENT TO CEC ENTERTAINMENT, INC.

FRANCHISE AGREEMENT

FOR THE STATE OF CALIFORNIA

The CEC Entertainment, Inc. Franchise Agreement between                                          (“Franchisee” or “You”) and CEC Entertainment, Inc. (“Franchisor”) dated                              (the “Agreement”) shall be amended by the addition of the following language, which shall be considered an integral part of the Agreement (the “Amendment”):

CALIFORNIA LAW MODIFICATIONS

1. The California Department of Corporations requires that certain provisions contained in franchise documents be amended to be consistent with California law, including the California Franchise Investment Law, CAL. CORPORATIONS CODE Section 31000 et seq., and the California Franchise Relations Act, CAL. BUS. & PROF. CODE Section 20000 et seq. To the extent that the Agreement contains provisions that are inconsistent with the following, such provisions are hereby amended:

a. California Business and Professions Code Sections 20000 through 20043 provide rights to You concerning nonrenewal and termination of the Agreement. The Federal Bankruptcy Code also provides rights to You concerning termination of the Agreement upon certain bankruptcy-related events. To the extent the Agreement contains a provision that is inconsistent with these laws, these laws shall control.

b. If Franchisee is required in the Agreement to execute a release of claims, such release shall exclude claims arising under the California Franchise Investment Law and the California Franchise Relations Act.

c. If the Agreement requires payment of liquidated damages that is inconsistent with California Civil Code Section 1671, the liquidated damage clause may be unenforceable.

d. If the Agreement contains a covenant not to compete which extends beyond the expiration or termination of the Agreement, the covenant may be unenforceable under California law.

e. If the Agreement requires litigation, arbitration or mediation to be conducted in a forum other than the State of California, the requirement may be unenforceable under California law.

f. If the Agreement requires that it be governed by a state’s law, other than the State of California, such requirement may be unenforceable.

1

2. Each provision of this Amendment shall be effective only to the extent that the jurisdictional requirements of the California law applicable to the provision are met independent of this Amendment. This Amendment shall have no force or effect if such jurisdictional requirements are not met.

3. As to any state law described in this Amendment that declares void or unenforceable any provision contained in the Franchise Agreement, Franchisor reserves the right to challenge the enforceability of the state law by, among other things, bringing an appropriate legal action or by raising the claim in a legal action or arbitration that you have initiated.

IN WITNESS WHEREOF, the parties hereto have fully executed, sealed and delivered this Amendment to the Agreement on                             , 20    .

FRANCHISOR:	FRANCHISEE:
CEC Entertainment, Inc.
By:	By:
Name:	Name:
Title:	Title:
Witness:	Witness:

2

EX-10.33

Exhibit 10.33

AMENDMENT TO CEC ENTERTAINMENT, INC.

FRANCHISE AGREEMENT AND OFFERING CIRCULAR

FOR THE STATE OF MINNESOTA

The CEC Entertainment, Inc. Franchise Agreement between                                          (“Franchisee” or “You”) and CEC Entertainment, Inc. (“Franchisor”) dated                              (the “Agreement”) shall be amended by the addition of the following language, which shall be considered an integral part of the Agreement (the “Amendment”):

MINNESOTA LAW MODIFICATIONS

1. The Commissioner of Commerce for the State of Minnesota requires that certain provisions contained in franchise documents be amended to be consistent with Minnesota Franchise Act, Minn. Stat. Section 80.01 et seq., and of the Rules and Regulations promulgated under the Act (collectively the “Franchise Act”). To the extent that the Agreement and Offering Circular contain provisions that are inconsistent with the following, such provisions are hereby amended:

a. The Minnesota Department of Commerce requires that Franchisor indemnify Minnesota Franchisees against liability to third parties resulting from claims by third parties that Franchisee’s use of the Proprietary Marks infringes trademark rights of the third party. Franchisor does not indemnify against the consequences of Franchisee’s use of the Proprietary Marks except in accordance with the requirements of the Agreement, and, as a condition to indemnification, Franchisee must provide notice to Franchisor of any such claim within ten (10) days after the earlier of (i) actual notice of the claim or (ii) receipt of written notice of the claim, and must therein tender the defense of the claim to Franchisor. If Franchisor accepts the tender of defense, Franchisor has the right to manage the defense of the claim including the right to compromise, settle or otherwise resolve the claim, and to determine whether to appeal a final determination of the claim. If the Agreement and/or the Offering Circular contains a provision that is inconsistent with the Franchise Act, the provisions of the Agreement shall be superseded by the Act’s requirements and shall have no force or effect.

b. Franchise Act, Sec. 80C.14, Subd. 4., requires, except in certain specified cases, that Franchisee be given written notice of a Franchisor’s intention not to renew 180 days prior to expiration of the franchise and that Franchisee be given sufficient opportunity to operate the franchise in order to enable Franchisee the opportunity to recover the fair market value of the franchise as a going concern. If the Agreement and/or the Offering Circular contains a provision that is inconsistent with the Franchise Act, the provisions of the Agreement shall be superseded by the Act’s requirements and shall have no force or effect.

1

c. Franchise Act, Sec. 80C.14, Subd. 3., requires, except in certain specified cases, that Franchisee be given 90 days notice of termination (with 60 days to cure). If the Agreement and/or the Offering Circular contains a provision that is inconsistent with the Franchise Act, the provisions of the Agreement shall be superseded by the Act’s requirements and shall have no force or effect.

d. If the Agreement and/or the Offering Circular requires Franchisee to execute a release of claims or to acknowledge facts that would negate or remove from judicial review any statement, misrepresentation or action that would violate the Franchise Act, such release shall exclude claims arising under the Franchise Act, and such acknowledgments shall be void with respect to claims under the Act.

e. If the Agreement and/or the Offering Circular requires that it be governed by a state’s law, other than the State of Minnesota, those provisions shall not in any way abrogate or reduce any rights of Franchisee as provided for in the Franchise Act, including the right to submit matters to the jurisdiction of the courts of Minnesota.

f. If the Agreement and/or the Offering Circular requires Franchisee to sue Franchisor outside the State of Minnesota, those provisions shall not in any way abrogate or reduce any rights of Franchisee as provided for in the Franchise Act, including the right to submit matters to the jurisdiction of the courts of Minnesota. As such, the disclosure in risk factor 1 on the cover page of the Offering Circular that the Agreement requires Franchisee to sue outside the State of Minnesota is not applicable because of the Franchise Act.

g. Minn. Rule 2860.4400J. prohibits Franchisor from requiring You to consent to liquidated damages and prohibits waiver of a jury trial. If the Agreement and/or the Offering Circular contains a provision that is inconsistent with the Minn. Rule, the provisions of the Agreement and/or the Offering Circular shall be superseded by the Minn. Rule’s requirements and shall have no force or effect.

2. Each provision of this Agreement and/or the Offering Circular shall be effective only to the extent that the jurisdictional requirements of the Minnesota law applicable to the provision are met independent of this Amendment. This Amendment shall have no force or effect if such jurisdictional requirements are not met.

3. As to any state law described in this Amendment that declares void or unenforceable any provision contained in the Franchise Agreement, Franchisor reserves the right to challenge the enforceability of the state law by, among other things, bringing an appropriate legal action or by raising the claim in a legal action or arbitration that you have initiated.

IN WITNESS WHEREOF, the parties hereto have fully executed, sealed and delivered this Amendment to the Agreement on                             , 20    .

2

FRANCHISOR:	FRANCHISEE:
CEC Entertainment, Inc.
By:	By:
Name:	Name:
Title:	Title:
Witness:	Witness:

3

EX-10.34

Exhibit 10.34

AMENDMENT TO CEC ENTERTAINMENT, INC.

FRANCHISE AGREEMENT

FOR THE STATE OF NORTH DAKOTA

The CEC Entertainment, Inc. Franchise Agreement between                                          (“Franchisee” or “You”) and CEC Entertainment, Inc. (“Franchisor”) dated                              (the “Agreement”) shall be amended by the addition of the following language, which shall be considered an integral part of the Agreement (the “Amendment”):

NORTH DAKOTA LAW MODIFICATIONS

1. The North Dakota Securities Commissioner requires that certain provisions contained in franchise documents be amended to be consistent with North Dakota law, including the North Dakota Franchise Investment Law, North Dakota Century Code Annotated Chapter 51-19, Sections 51-19-01 through 51-19-17 (1993). To the extent that the Agreement contains provisions that are inconsistent with the following, such provisions are hereby amended:

a. If Franchisee is required in the Agreement to execute a release of claims or to acknowledge facts that would negate or remove from judicial review any statement, misrepresentation or action that would violate the Law, or a rule or order under the Law, such release shall exclude claims arising under the North Dakota Franchise Investment Law, and such acknowledgments shall be void with respect to claims under the Law.

b. Covenants not to compete during the term of and upon termination or expiration of the Agreement are enforceable only under certain conditions according to North Dakota Law. If the Agreement contains a covenant not to compete that is inconsistent with North Dakota Law, the covenant may be unenforceable.

c. The Commissioner has held that requiring franchisees to consent to the jurisdiction of courts outside of North Dakota is unfair, unjust or inequitable within the intent of Section 51-19-09 of the North Dakota Franchise Investment Law.

d. If the Agreement requires that a state’s law, other than the State of North Dakota govern it, to the extent that such law conflicts with the North Dakota Law, North Dakota Law shall control.

e. If the Agreement requires mediation or arbitration to be conducted in a forum other than the State of North Dakota, the requirement may be unenforceable under the North Dakota Franchise Investment Law. Arbitration involving a franchise purchased in the State of North Dakota must be held either in a location mutually agreed upon prior to the arbitration or if the parties cannot agree on a location, the location shall be determined by the arbitrator.

1

f. If the Agreement requires payment of a termination penalty, the requirement may be unenforceable under the North Dakota Franchise Investment Law.

2. Each provision of this Amendment shall be effective only to the extent that the jurisdictional requirements of the North Dakota Franchise Investment Law, with respect to each such provision, are met independent of this Amendment. This Amendment shall have no force or effect if such jurisdictional requirements are not met.

3. As to any state law described in this Amendment that declares void or unenforceable any provision contained in the Franchise Agreement, Franchisor reserves the right to challenge the enforceability of the state law by, among other things, bringing an appropriate legal action or by raising the claim in a legal action or arbitration that you have initiated.

IN WITNESS WHEREOF, the parties hereto have fully executed, sealed and delivered this Amendment to the Agreement on                             , 20    .

FRANCHISOR:	FRANCHISEE:
CEC Entertainment, Inc.
By:	By:
Name:	Name:
Title:	Title:
Witness:	Witness:

2

EX-10.35

Exhibit 10.35

AMENDMENT TO CEC ENTERTAINMENT, INC.

FRANCHISE AGREEMENT

FOR THE STATE OF NEW YORK

The CEC Entertainment, Inc. Franchise Agreement between                                          (“Franchisee” or “You”) and CEC Entertainment, Inc. (“Franchisor”) dated                              (the “Agreement”) shall be amended by the addition of the following language, which shall be considered an integral part of the Agreement (the “Amendment”):

NEW YORK LAW MODIFICATIONS

1. The New York Department of Law requires that certain provisions contained in franchise documents be amended to be consistent with New York law, including the General Business Law, Article 33, Sections 680 through 695 (1989). To the extent that the Agreement contains provisions that are inconsistent with the following, such provisions are hereby amended:

a. If the Agreement requires Franchisee to execute a release of claims or to acknowledge facts that would negate or remove from judicial review any statement, misrepresentation or action that would violate the General Business Law, or any regulation, rule or order under the Law, such release shall exclude claims arising under the New York General Business Law, Article 33, Section 680 through 695 and the regulations promulgated thereunder, and such acknowledgments shall be void. It is the intent of this provision that non-waiver provisions of Sections 687.4 and 687.5 of the General Business Law be satisfied.

b. If the Agreement requires that it be governed by a state’s law, other than the State of New York, the choice of law provision shall not be considered to waive any rights conferred upon the Franchisee under the New York General Business Law, Article 33, Sections 680 through 695.

2. Each provision of this Amendment shall be effective only to the extent that the jurisdictional requirements of the New York General Business Law, with respect to each such provision, are met independent of this Amendment. This Amendment shall have no force or effect if such jurisdictional requirements are not met.

3. As to any state law described in this Amendment that declares void or unenforceable any provision contained in the Franchise Agreement, Franchisor reserves the right to challenge the enforceability of the state law by, among other things, bringing an appropriate legal action or by raising the claim in a legal action or arbitration that you have initiated.

IN WITNESS WHEREOF, the parties hereto have fully executed, sealed and delivered this Amendment to the Agreement on                             , 20    .

1

FRANCHISOR:	FRANCHISEE:
CEC Entertainment, Inc.
By:	By:
Name:	Name:
Title:	Title:
Witness:	Witness:

2

EX-10.36

Exhibit 10.36

AMENDMENT TO CEC ENTERTAINMENT, INC.

FRANCHISE AGREEMENT

FOR THE STATE OF WASHINGTON

The CEC Entertainment, Inc. Franchise Agreement between                                          (“Franchisee” or “You”) and CEC Entertainment, Inc. (“Franchisor”) dated                              (the “Agreement”) shall be amended by the addition of the following language, which shall be considered an integral part of the Agreement (the “Amendment”):

WASHINGTON LAW MODIFICATIONS

1. The Director of the Washington Department of Financial Institutions requires that certain provisions contained in franchise documents be amended to be consistent with Washington law, including the Washington Franchise Investment Protection Act, WA Rev. Code §§ 19.100.010 to 19.100.940 (1991). To the extent that the Agreement contains provisions that are inconsistent with the following, such provisions are hereby amended:

a. Washington Franchise Investment Protection Act provides rights to You concerning nonrenewal and termination of the Agreement. If the Agreement contains a provision that is inconsistent with the Act, the Act shall control.

b. If Franchisee is required in the Agreement to execute a release of claims, such release shall exclude claims arising under the Washington Franchise Investment Protection Act; except when the release is executed under a negotiated settlement after the Agreement is in effect and where the parties are represented by independent counsel. If there are provisions in the Agreement that unreasonably restrict or limit the statute of limitations period for claims brought under the Act, or other rights or remedies under the Act, those provisions may be unenforceable.

c. If the Agreement requires litigation, arbitration or mediation to be conducted in a forum other than the State of Washington, the requirement may be unenforceable under Washington law. Arbitration involving a franchise purchased in the State of Washington must either be held in the State of Washington or in a place mutually agreed upon at the time of the arbitration, or as determined by the arbitrator.

d. If the Agreement requires that it be governed by a state’s law, other than the State of Washington, and there is a conflict between the law and the Washington Franchise Investment Protection Act, the Washington Franchise Investment Protection Act shall control.

1

2. Each provision of this Amendment shall be effective only to the extent that the jurisdictional requirements of the Washington law applicable to the provision are met independent of this Amendment. This Amendment shall have no force or effect if such jurisdictional requirements are not met.

3. As to any state law described in this Amendment that declares void or unenforceable any provision contained in the Franchise Agreement, Franchisor reserves the right to challenge the enforceability of the state law by, among other things, bringing an appropriate legal action or by raising the claim in a legal action or arbitration that you have initiated.

IN WITNESS WHEREOF, the parties hereto have fully executed, sealed and delivered this Amendment to the Agreement on                             , 20    .

FRANCHISOR:	FRANCHISEE:
CEC Entertainment, Inc.
By:	By:
Name:	Name:
Title:	Title:
Witness:	Witness:

2

EX-10.37

Exhibit 10.37

CEC ENTERTAINMENT, INC.

DEVELOPMENT AGREEMENT

[CITY AND STATE]

4441 West Airport Freeway

Irving, TX 75062

CEC Entertainment, Inc.

Domestic Development Agreement

TABLE OF CONTENTS

RECITALS				1
1.	DEFINITIONS			1
2.	GRANT OF RIGHTS			4
	2.1	Grant.		4
	2.2	Exclusivity.		4
	2.3	Right of First Refusal.		4
	2.4	Limitation of Rights.		5
3.	FEES			5
	3.1	Development Fee.		5
	3.2	Franchise Fees.		6
	3.3	Payment and Taxes.		6
4.	DEVELOPMENT SCHEDULE			6
	4.1	Development Schedule.		6
	4.2	Ownership Interest.		7
	4.3	Site Location and Approval.		7
	4.4	Operational Date.		7
	4.5	Extensions.		7
5.	REPRESENTATIONS, WARRANTIES AND COVENANTS			7
	5.1	Representations, Warranties and Covenants of Developer.		7
		5.1.1	Due Incorporation.	7
		5.1.2	Authorization.	7
		5.1.3	Exclusivity.	7
		5.1.4	Execution and Performance.	8
		5.1.5	Corporate Documents.	8
		5.1.6	Ownership Interests.	8
		5.1.7	Stop Transfer Instructions.	8
	5.2	Financial Statements.		8
	5.3	Developer’s Principals.		9
	5.4.	Guaranty.		9
	5.5	Non-Competition during Term of Agreement.		9
	5.6	Non-Competition after Termination or Non-Renewal of Agreement.		9
	5.7	Independent Covenants.		10
	5.8	Additional Covenants.		10

	CEC Entertainment, Inc.
i	Domestic Development Agreement

6.	PROPRIETARY INFORMATION			11
	6.1	Confidential Information.		11
		6.1.1	Confidentiality Agreements.	11
		6.1.2	Improvements.	11
	6.2	Proprietary Marks.		11
7.	TRANSFER OF INTEREST			11
	7.1	Transfer by Franchisor.		11
	7.2.	Transfer by Developer.		12
8.	INSURANCE AND INDEMNITY			15
	8.1	Insurance.		15
	8.2	Indemnitees.		16
		8.2.1	Indemnification.	16
		8.2.2.	Notice and Counsel.	16
		8.2.3	Settlement and Remedial Actions.	17
		8.2.4	Expenses.	17
		8.2.5	Third Party Recovery.	17
		8.2.6	Third Party Liability.	17
		8.2.7	Survival.	17
9.	TERM AND TERMINATION			18
	9.1	Term.		18
	9.2	Automatic Termination.		18
	9.3	Termination upon Notice.		19
10.	REMEDIES			20
	10.1	Remedies.		20
		10.1.1	Reduction of Exclusivity.	20
		10.1.2	Cure.	20
		10.1.3	Specific Enforcement.	20
11.	DISPUTE RESOLUTION			20
	11.1	Mediation.		20
	11.2	Applicable Law.		21
	11.3	Jurisdiction and Venue.		21
	11.4	Mutual Benefit.		21
12.	MISCELLANEOUS			21
	12.1	Independent Contractors.		21
	12.2	Entire Agreement.		22
	12.3	Judgment; Discretion.		22
	12.4	No Waiver.		22

	CEC Entertainment, Inc.
ii	Domestic Development Agreement

	12.5	Severability.		22
	12.6	Notice.		23
	12.7	Counterparts.		23
	12.8	Headings.		23
	12.9	Further Assurances.		24
	12.10	Compliance with Laws.		24
13.	ACKNOWLEDGMENTS			24
	13.1	Independent Investigation.		24
	13.2	Opportunity to Assess Risks.		24
	13.3	Receipt of Disclosure Document.		24
	13.4	No Extraneous Promises.		25
	13.5	No Extraneous Inducements.		25
	13.6	Commercial Relationship.		25
	13.7	Compliance with Anti-Corruption and Anti-Money Laundering Laws.		25
	13.8.	No Claims.		26
SCHEDULE 1.8			STATEMENT OF OWNERSHIP INTERESTS AND DEVELOPER’S PRINCIPALS	29
ATTACHMENT A			FRANCHISE AGREEMENT	A-1
ATTACHMENT B			AGREEMENT AND GUARANTY OF DEVELOPER’S PRINCIPALS	B-1
ATTACHMENT C			EMPLOYEE CONFIDENTIALITY AND NON-COMPETITION AGREEMENT	C-1
ATTACHMENT D			GENERAL RELEASE	D-1

	CEC Entertainment, Inc.
iii	Domestic Development Agreement

CEC ENTERTAINMENT, INC.

DEVELOPMENT AGREEMENT

This Development Agreement is executed and entered into as of this        day of                     , 20    , by and between CEC ENTERTAINMENT, INC., a Kansas corporation (as Franchisor), and                             , a                              corporation (as Developer).

RECITALS

1. Franchisor has developed and is the owner of the System;

2. Franchisor has developed and is the owner of, or licensee with rights to sublicense, certain Animated Entertainment and Proprietary Marks which are utilized in connection with and identify the System; and

3. Developer desires to obtain from Franchisor and Franchisor desires to grant to Developer certain rights to use the System, the Animated Entertainment and the Proprietary Marks to develop and establish Franchised Restaurants in the Territory.

NOW THEREFORE, Franchisor and Developer in consideration of the undertakings and commitments set forth herein, agree as follows:

1. DEFINITIONS

As used in this Agreement and the above Recitals, the following capitalized terms shall have the meanings attributed to them in this Section:

1.1 “Action” means any cause of action, suit, proceeding, claim, demand, investigation or inquiry (whether a formal proceeding or otherwise) with respect to which Developer’s indemnity applies.

1.2 “Agreement” means this Development Agreement and all attachments.

1.3 “Animated Entertainment” means the computer hardware and software, artistic designs, scripts and musical scores, staging and lighting techniques and configurations, plans, manuals and specifications, manufacturing know-how and other intellectual property relating to video display entertainment and to three dimensional computer controlled animated characters, including present and future improvements, patents, trademarks, copyrights and other intellectual and artistic property.

1.4 “Change in Control” means a Transfer of an Equity Interest in Developer which, directly, indirectly, or combined with prior Transfers, causes a change in the number of Persons which can vote more than fifty percent (50%) of the total Equity Interest in Developer.

	CEC Entertainment, Inc.
1	Domestic Development Agreement

1.5 “Competing Business” means a business which operates a restaurant or food service outlet in combination with family entertainment, including without limitation, live entertainment and entertainment in the form of video games, video displays or computer controlled animated characters.

1.6 “Confidential Information” means the terms of the Development Agreement and Franchise Agreement and any amendments thereto, the components of the System, the Animated Entertainment, manuals, written directives and all drawings, equipment, recipes, and all other information know-how, techniques, materials and data imparted or made available by Franchisor which is (i) designated as confidential, (ii) known by Developer to be considered confidential by Franchisor or (iii) by its nature inherently or reasonably considered confidential.

1.7 “Developer” means                             .

1.8 “Developer’s Principals” means Developer’s spouse, if Developer is an individual, all officers and directors of Developer and all holders of an ownership interest in Developer and of any entity directly or indirectly controlling Developer, all as listed on Schedule 1.8 attached hereto.

1.9 “Development Schedule” means the schedule pursuant to which the Developer will establish Franchised Restaurants as set forth in Section 4.

1.10 “Equity Interest” means a direct or indirect ownership interest in the capital stock of, partnership or membership interest in, or other equity or ownership interest in Developer (including the right to vote) any type of legal entity.

1.11 “Execution Date” means the date upon which the Agreement is deemed duly executed by Developer and Franchisor, as indicated on the first page of this Agreement.

1.12 “Franchise Agreement” means the then-current form of franchise agreement approved by Franchisor and to be executed with franchisees in accordance with this Agreement, the current form of which is attached as Attachment “A.”

1.13 “Franchised Restaurant” means a Restaurant opened pursuant to the Development Schedule and operated (i) at a Site approved by Franchisor pursuant to this Agreement and (ii) pursuant to a duly executed Franchise Agreement.

1.14 “Franchisee” means any person or legal entity approved by Franchisor to enter into a Franchise Agreement and to establish a Franchised Restaurant.

1.15 “Franchisor” means CEC Entertainment, Inc. or any person or legal entity to which CEC Entertainment, Inc. assigns or otherwise transfers its rights and obligations contained in this Agreement.

	CEC Entertainment, Inc.
2	Domestic Development Agreement

1.16 “Indemnitees” means Franchisor and is subsidiaries and affiliates, and directors, officers, employees, shareholders, affiliates, successors and assigns.

1.17 “Losses and Expenses” means all losses, compensatory, exemplary or punitive damages, fines, penalties, charges, costs, expenses, the lost profits, assessments and fees (including reasonable attorneys’, experts’, accountants’ and consultants’ fees); interest, court costs, settlement or judgment amounts, compensation for damages to Franchisor’s reputation and goodwill, costs of or resulting from delays, financing costs, costs of advertising material and media time/space, and costs of changing, substituting or replacing the same, and any and all expenses of recall, refunds, compensation, public notices and other similar amounts incurred, charged against or suffered by the Indemnitees in connection with any Action.

1.18 “Minority Interest” means a direct or indirect ownership interest of less than five percent (5%) of the capital stock of, partnership interest in, or other equity interest in (including the right to vote) any type of legal entity.

1.19 “Operational” used in reference to a Franchised Restaurant, means a Franchised Restaurant that is fully constructed and finished out as approved by Franchisor and is legally permitted to render its services to the general public pursuant to a duly executed Franchise Agreement.

1.20 “Person” means an individual, corporation, limited liability company, partnership, association, joint stock company, trust or trustee thereof, estate or executor thereof, unincorporated organization or joint venture, court or governmental unit or any agency or subdivision thereof, or any other legally recognizable entity.

1.21 “Proprietary Marks” means the trademarks, trade names, service marks, logos, emblems and other indicia of origin as designated from time to time by Franchisor, which may be owned by Franchisor or licensed to Franchisor with sublicensing rights, including, but not limited to, the marks: “Chuck E. Cheese” and “Chuck E. Cheese’s.”

1.22 “Restaurant” means a family-oriented pizza restaurant operated utilizing the System, the Proprietary Marks and the Animated Entertainment, either in accordance with the terms and conditions of a franchise agreement or by Franchisor.

1.23 “Site” means the location for the construction and operation of a Franchised Restaurant which has been approved as per Section 4 of this Agreement.

1.24 “Sky Tubes” means components configured to create sequences of group/social and independent play, using tubes, windows, entries, climbs, crawls, play stations, passageways, and slides.

1.25 “System” means the distinctive system developed and owned by Franchisor for the establishment, development, and operation of family-oriented pizza restaurants, the distinguishing

	CEC Entertainment, Inc.
3	Domestic Development Agreement

characteristics of which include without limitation, Animated Entertainment, separate areas with a variety of rides, amusement games and other attractions, characteristic decorations, furnishings and materials, specially-designed equipment and equipment layouts, trade secret food products and other special recipes, menus and food and beverage designations, food and beverage preparation and service procedures and techniques, operating procedures for sanitation and maintenance, methods and techniques for inventory and cost controls, record keeping and reporting, personnel training and management, and advertising and promotional programs, cornerstones of operation, and operational policies, all of which may be changed, improved or further developed by Franchisor from time to time.

1.26 “Territory” means                                                   in which the Developer shall develop the System in accordance with the terms and conditions of this Agreement.

1.27 “Transfer” means the sale, assignment, conveyance, pledge, mortgage or other encumbrance, whether direct or indirect, in whole or in part, or in one or a series of related transactions or occurrences, of (i) this Agreement, (ii) any Franchise Agreement between Franchisor and Developer, (iii) any Equity Interests in Developer, or (iv) in the assets of Developer, beyond transfer necessary in the ordinary course of business.

2. GRANT OF RIGHTS

2.1 Grant. Subject to the terms, and conditions and limitations of this Agreement, Franchisor hereby grants to Developer the right, and Developer undertakes the obligation to establish and operate                      (        ) Franchised Restaurants at duly approved Sites in the Territory and pursuant to duly executed Franchise Agreements. Franchisor retains all other rights.

2.2 Exclusivity. For so long as Developer is in compliance with this Agreement, Franchisor will not, without Developer’s prior written consent, establish or operate, or license anyone other than Developer to establish or operate a Restaurant, which is physically located in the Territory prior to the last date specified in the Development Schedule.

2.3 Right of First Refusal. For a period of two (2) years after the successful and timely completion of the Development Schedule, if Franchisor proposes to establish any additional Restaurants which are physically located in the Territory, Developer shall have the right to enter into a new Development Agreement and/or Franchise Agreement to establish such additional Restaurants under the terms and conditions of the then-current form of Development and/or Franchise Agreements. If the Developer and Franchisor have not executed a new Development and/or Franchise Agreement within a period of thirty (30) days after Franchisor provides written notice to Developer of Franchisor’s desire to further develop the Territory, Franchisor will have the right, to the exclusion of Developer, to further develop or establish additional Restaurants in the Territory on its own or with others.

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2.4 Limitation of Rights. Franchisor retains all rights not expressly granted hereunder. Franchisor, its affiliates, and their respective franchisees and licensees may, among other things, operate other types of facilities besides Restaurants in the Territory, including facilities that are identified by some or all of the Proprietary Marks. Franchisor therefore may (or may authorize a third party to) conduct, among other things, the following activities:

(a) Advertise and promote sales of or by Restaurants, at any location, including within the Territory;

(b) Offer and sell collateral and ancillary products and services, such as pre-packaged food products, toys, games, clothing, and memorabilia, in the Territory under the Proprietary Marks, even though those products and services may be similar to items offered by the Franchised Restaurants;

(c) Offer and sell any products and services (regardless of similarity to products and services sold in the Franchised Restaurants) under any names and marks other than the Proprietary Marks; at any location, including within the Territory;

(d) Establish and operate a Restaurant anywhere outside of the Territory, regardless of proximity or financial impact to the Franchised Restaurants;

(e) Establish and operate any business other than a Restaurant (including restaurants) anywhere inside or outside of the Territory, regardless of proximity or financial impact to the Franchised Restaurants; and

(f) Operate one or more sites on the World-Wide Web portion of the Internet that advertise Restaurants, allow customers and potential customers to make reservations at Restaurants (including the Franchised Restaurants), sell any product or service including pre-packaged food products, games, toys, clothing or memorabilia, or permit other activities (whether or not similar), even though the Web site is accessible to or viewable by persons in the Territory.

This Agreement is not a Franchise Agreement, and Developer shall have no right to use, or to license to others in any manner, the Proprietary Marks, the Animated Entertainment or the System by virtue hereof.

3. FEES

3.1 Development Fee. Upon the execution of this Agreement, Developer shall deliver a non-refundable development fee of                              and No/100 Dollars ($            ) in consideration for the administrative and other expenses incurred by Franchisor and for the development opportunities lost or deferred as a result of Franchisor’s entering into this Agreement with Developer. This development fee is Ten Thousand and No/100 Dollars ($10,000.00) for each restaurant to be developed. In addition, Developer will pay to Franchisor upon the execution of this

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Agreement a non-refundable amount equal to Twelve Thousand Five Hundred and No/100 Dollars ($12,500.00) multiplied by the number of Franchised Restaurants (excluding the first Franchised Restaurant) to be opened and operated pursuant to the Development Schedule in Section 4. This Twelve Thousand Five Hundred and No/100 Dollars ($12,500.00) will be credited toward each franchise fee (excluding the franchise fee for the first Franchise Agreement) to be paid to Franchisor pursuant the terms of this Development Agreement and the Franchise Agreements.

3.2 Franchise Fees. Upon the execution of this Agreement, Developer shall deliver a non-refundable franchise fee of Fifty Thousand and No/100 Dollars ($50,000.00) for the first Franchise Agreement to be executed pursuant to the Development Schedule. Such non-refundable fee, which shall be deemed earned by Franchisor when received, is in consideration for administrative and other expenses incurred by Franchisor and for the development opportunities lost or deferred as a result of Franchisor’s entering into this Agreement with Developer. The Developer will deliver all future franchise fees upon the execution of and in accordance with the terms (including franchise fee amounts) and conditions of the respective Franchise Agreement.

3.3 Payment and Taxes. All payments made by Developer to Franchisor pursuant to this Agreement will be in United States dollars and will be made free and clear of any tax, deduction, offset or withholding of any kind. All taxes and penalties on any payment made by Developer pursuant to this Agreement now or in the future will be fully borne by Developer. In the event of any bona fide dispute as to liability for taxes assessed or other indebtedness, Developer may contest the validity or the amount of the tax or indebtedness in accordance with procedures of the taxing authority or applicable law; however, in no event shall Developer permit a tax sale or seizure by levy of execution or similar writ or warrant, or attachment by a creditor, to occur against the premises of any Franchised Restaurant, or any improvements thereon.

4. DEVELOPMENT SCHEDULE

4.1 Development Schedule. The Developer agrees to execute separate Franchise Agreements and establish Franchised Restaurants at Sites in the Territory in accordance with the following Development Schedule:

Execution Date Number of Franchised Restaurants Operated by Developer Directly Number of Franchised Restaurants operated by an Entity in which Developer has a Majority Equity Interest Total Number of Franchised Restaurants

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4.2 Ownership Interest. Franchisor and Developer agree that the Developer shall enter into a Franchise Agreement and establish and operate the Franchised Restaurants either directly or by using subsidiaries in which it has a majority Equity Interest.

4.3 Site Location and Approval. Developer agrees that prior to or within one hundred and twenty (120) days after the execution of a Franchise Agreement, it will locate or cause the franchisee under the Franchise Agreement in question to locate a Site within the Territory for the establishment and operation of the respective Franchised Restaurant. Within the same one hundred and twenty (120) day period, Developer also agrees that it will cause the franchisee under the respective Franchise Agreement to obtain the approval for such Site from the Franchisor as per the terms and conditions of the respective Franchise Agreement.

4.4 Operational Date. Developer agrees that, within a period of three hundred and seventy-two (372) days (for the conversion of existing premises) or four hundred and sixty-two (462) days (for the erection of a free-standing building) after the execution of a Franchise Agreement, it will cause the respective Franchised Restaurant to be fully Operational.

4.5 Extensions. Developer shall at all times comply with the Development Schedule. However, Franchisor, at its sole discretion and without obligation, may grant a written extension or extensions to Developer for the period of time that the Developer requests. In the event Franchisor grants an extension, Developer agrees to pay Franchisor a non-refundable extension fee of Two Thousand Five Hundred and No/100 Dollars ($2,500.00) for every thirty (30) day period of the extension.

5. REPRESENTATIONS, WARRANTIES AND COVENANTS

5.1 Representations, Warranties and Covenants of Developer. If Developer is not an individual, then Developer and each of Developer’s Principals represent, warrant and covenant to Franchisor that:

5.1.1 Due Incorporation. If Developer is a corporation, limited liability company, limited or general partnership, or other form of business entity, it is duly formed and organized, validly existing and in good standing under the laws of the jurisdiction of its organization with all requisite power and authority to enter into this Agreement and perform the obligations contained herein.

5.1.2 Authorization. The execution, delivery and performance by Developer of this Agreement and all other agreements contemplated herein has been duly authorized by all requisite actions on the part of Developer and no further actions are necessary to make this Agreement or such other agreements valid and binding upon it and enforceable against it in accordance with their respective terms.

5.1.3 Exclusivity. Developer’s corporate charter, written partnership or limited liability company agreement, membership agreement or other governing documents will at all times provide that Developer’s activities are confined exclusively to the development of the Franchised Restaurants unless otherwise consented to in writing by Franchisor.

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5.1.4 Execution and Performance. Neither the execution, delivery nor performance by Developer of this Agreement or any other agreements contemplated hereby will conflict with, or result in a breach of any term or provision of Developer’s charter, by-laws, articles of organization, or partnership agreement and/or other governing documents and any amendments thereto, any indenture, mortgage, deed of trust or other material contract or agreement to which Developer is a party or by which it or any of its assets are bound, or breach any order, writ, injunction or decree of any court, administrative agency or governmental body.

5.1.5 Corporate Documents. Certified copies of Developer’s charter, by-laws, articles of organization, partnership agreement, membership agreement and/or other governing documents and any amendments thereto, including board of director’s or partner’s resolutions authorizing this Agreement have been delivered to Franchisor. Any amendments or changes to such governing or charter documents subsequent to the date of this Agreement, shall not be undertaken without Franchisor’s prior written consent.

5.1.6 Ownership Interests. All Equity Interests in Developer are accurately and completely described in Schedule 1.8. Developer will maintain at all times a current list of all owners of record and all beneficial owners of Equity Interests in Developer. Developer will make such list available to Franchisor upon request.

5.1.7 Stop Transfer Instructions. If Developer is a corporation, Developer will maintain stop-transfer instructions against the transfer on Developer’s records of any of its equity securities and each stock certificate will have conspicuously endorsed upon it a statement in a form satisfactory to Franchisor’s that it is held subject to all restrictions imposed upon assignments by this Agreement; but the requirements of this Section will not apply to the transfer of equity securities of a publicly-held corporation. If Developer is a partnership or limited liability company, its written partnership or limited liability company agreement will provide that ownership of an interest in the partnership or limited liability company is held subject to all restrictions imposed upon assignments by this Agreement.

If Developer is an individual, then Developer represents, warrants and covenants that neither the execution, delivery nor performance by Developer of this Agreement or any other agreements contemplated hereby conflicts with, or results in a breach of any contract or agreement to which Developer is a party or a breach of any order, writ, injunction or decree of any court, administrative agency or governmental body.

5.2 Financial Statements. Developer and, at Franchisor’s request, each of Developer’s Principals have provided Franchisor with your and their most recent financial statements in the form and for the time periods specified by Franchisor. The financial statements (i) present fairly Developer’s financial position and the financial position of each of Developer’s Principals, as applicable, at the dates indicated therein and, with respect to Developer, the results of its operations and cash flow for

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the periods then ended; (ii) are certified as true and correct by the Developer’s Chief Financial Officer or President, as applicable; and (iii) have been prepared in conformity with generally accepted accounting principles in the United States, applied on a consistent basis. No material liabilities, adverse claims, commitments or obligations of any nature, whether accrued, unliquidated, absolute, contingent or otherwise, exist as of the date of this Agreement which are not reflected as liabilities on Developer’s financial statements or those of Developer’s Principals.

5.3 Developer’s Principals. Developer will notify Franchisor within ten (10) days following the date that any person previously identified as Developer’s Principal ceases to qualify as such or that any new person succeeds to or otherwise comes to occupy a position which would qualify such person as one of Developer’s Principals. That person will immediately execute all documents and instruments (including, as applicable, this Agreement) required by Franchisor to be executed by others in a comparable position; but if there is any conflict between this provision and the transfer provisions of Section 7, the provisions of Section 7 will control.

5.4. Guaranty. As an inducement and as a condition to Franchisor’s execution and acceptance of this Agreement, Developer’s Principals will, jointly and severally, guarantee the performance of Developer’s obligations, covenants and agreements under this Agreement pursuant to the terms and conditions of the Agreement and Guaranty of Developer’s Principals in the form of Attachment B to this Agreement, and will otherwise bind themselves to the terms of this Agreement as stated herein.

5.5 Non-Competition during Term of Agreement. In consideration of, among other things, the disclosure to Developer of the System and the Confidential Information, during the term of this Agreement, Developer and Developer’s Principals shall not, directly or indirectly:

(a) Divert or attempt to divert business of any Restaurant to any competitor, or do or perform any other act injurious or prejudicial to the goodwill associated with Franchisor’s Proprietary Marks, the Animated Entertainment and the System;

(b) Employ or seek to employ any person who is employed by Franchisor or by any other franchisee or developer of Franchisor or entice such person to leave such employment; and

(c) Except as provided for herein, own, maintain, engage in, or have an Equity Interest in a Competing Business; provided that this provision shall not apply to any Minority Interest collectively held by Developer or Developer’s Principals in any publicly-held corporation listed on a national stock exchange.

5.6 Non-Competition after Termination or Non-Renewal of Agreement. In consideration of, among other things, the disclosure to Developer of the System and the Confidential Information, for a period of three (3) years after the expiration or approved Transfer by Developer and/or Developer’s Principals, Developer and Developer’s Principals (as applicable) shall not, directly or indirectly:

(a) Divert or attempt to divert business of any Restaurant to any competitor, or do or perform any other act injurious or prejudicial to the goodwill associated with Franchisor’s Proprietary Marks, the Animated Entertainment and the System;

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(b) Employ or seek to employ any person who is employed by Franchisor or by any other franchisee or developer of Franchisor, or entice such person to leave such employment; and

(c) Except as provided for herein, own, maintain, engage in, or have an Equity Interest in a Competing Business which is located within the Territory or within twenty five (25) miles from the outer boundaries of the Territory; provided that this provision shall not apply to any Minority Interest collectively held by Developer or Developer’s Principals in any publicly-held corporation.

5.7 Independent Covenants. Each of the covenants in Sections 5.5 and 5.6 will be construed as independent of any other covenant or provision of this Agreement.

(i) Developer and Developer’s Principals understand and acknowledge that Franchisor will have the right, in its sole discretion, to reduce the scope of any covenant set forth in Sections 5.5 and 5.6, or any portion thereof, without their consent, effective immediately upon notice to Developer; and Developer and Developer’s Principals agree that they will comply with any covenant as so modified, which will be fully enforceable notwithstanding the provisions of Section 12.2 hereof.

(ii) Developer and Developer’s Principals expressly agree that the existence of any claims they may have against Franchisor, whether or not arising from this Agreement, will not constitute a defense to the enforcement by Franchisor of the covenants in Sections 5.5 and 5.6.

(iii) Developer and each Developer’s Principal acknowledges that the covenants not to compete contained in Sections 5.5 and 5.6 are reasonable and necessary to protect the business and goodwill of the System and to avoid misappropriation or other unauthorized use of the System and Franchisor’s other trade secrets.

(iv) Developer and each Developer’s Principal acknowledges and confirms that Developer and the Developer’s Principals possess the education, training and experience necessary to earn a reasonable livelihood apart from operating a Competing Business.

5.8 Additional Covenants. Developer shall require and obtain for the benefit of Franchisor execution of covenants similar to those set forth in this Section from any and all of its employees having access to materials or information furnished or disclosed to Developer by Franchisor, including, which limitation, all managers, assistant managers and director of operations.

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6. PROPRIETARY INFORMATION

6.1 Confidential Information. Except as expressly provided herein, Developer shall have no right, title or interest in the Confidential Information. The Developer and the Developer’s Principals shall only communicate, disclose or use the Confidential Information as expressly permitted herein or as required by law. Developer and Developer’s Principals shall disclose the Confidential Information only to such of Developer’s employees, agents, or independent contractors who must have access to it in connection with their employment. The covenant in this Section will survive the expiration, termination, or transfer of this Agreement or any interest in this Agreement and will be perpetually binding upon Developer and each of Developer’s Principals.

6.1.1 Confidentiality Agreements. Developer shall cause all employees having access to the Confidential Information to execute confidentiality agreements substantially in the form of Attachment C stating that they will preserve in confidence all Confidential Information. Neither Developer, Developer’s Principal’s or their respective employees may at any time, without Franchisor’s prior written consent, copy, duplicate, record or otherwise reproduce the Confidential Information, in whole or in part, nor otherwise make the same available to any unauthorized person.

6.1.2 Improvements. If Developer makes any improvements (as determined by Franchisor) to the Confidential Information or the System, Developer and the Developer’s Principals shall each execute an amendment to this Agreement reflecting such improvements and Franchisor’s exclusive ownership thereof. All such improvements, which are hereby assigned to Franchisor, shall be considered Confidential Information.

6.2 Proprietary Marks. Developer acknowledges Franchisor’s exclusive ownership of or right to sublicense the Proprietary Marks and shall neither directly or indirectly infringe, contest or otherwise impair Franchisor’s exclusive ownership of, and/or license with respect to, the Proprietary Marks either during or after termination or expiration of this Agreement.

7. TRANSFER OF INTEREST

7.1 Transfer by Franchisor. Franchisor shall have the right to transfer or assign this Agreement, its rights to the Proprietary Marks, and all or any part of its rights or obligations herein to any person or legal entity without the consent of Developer or Developer’s Principals. Upon such transfer by Franchisor, any transferee or assignee of Franchisor shall become solely responsible for all obligations of Franchisor under this Agreement from the date of transfer or assignment. Without limiting the foregoing, Developer acknowledges that Franchisor may sell its assets (including its rights in the Proprietary Marks and the System) to a third party; may offer its securities privately or publicly; may merge, acquire other legal entities or be acquired by another legal entity; and may undertake a refinancing, recapitalization, leveraged buy out or other economic or financial restructuring. With regard to any or all of the above sales, assignments and dispositions, Developer expressly and specifically waives any claims, demands, or damages against Franchisor or its affiliates arising from or related to Franchisor’s transfer of its rights in this Agreement, the Proprietary Marks or the System to any other party. Nothing contained in this Agreement will require Franchisor to remain in the business of operating or licensing the operation of the Restaurants or other businesses or to offer any services or products to Developer, whether or not bearing or not bearing the Proprietary Marks, if Franchisor transfers or assigns its rights in or obligations under this Agreement.

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7.2. Transfer by Developer. Developer and Developer’s Principals understand and acknowledge that the rights and duties set forth in this Development Agreement are personal to Developer and are granted, in part, in reliance upon the skill, aptitude, business and financial capacity of Developer and Developer’s Principals and their intention of complying with its terms and conditions. Therefore, if the Developer and/or Developer’s Principals desire to Transfer any interest to any individual or entity (including a trust), they must first obtain the prior written approval of Franchisor. Any such attempted Transfer not approved by Franchisor shall be null and void from its purported inception.

Prior to authorizing such Transfer, Franchisor may require, among other things, satisfaction of any or all of the following:

(a) Developer shall be in full compliance with all of the terms and conditions of this Agreement;

(b) Developer and/or any Developer’s Principal shall remain liable for the performance of its obligations contained in this Agreement through the date of Transfer and shall execute all instruments reasonably requested by Developer to evidence such liability;

(c) The transferee shall satisfy, in Franchisor’s judgment, Franchisor’s then existing criteria for a developer including, without limitation: (i) education; (ii) business skill, experience and aptitude; (iii) character and reputation; and (iv) financial resources;

(d) The transferee and all owners of any record or beneficial interest in the capital stock (or other interest) of transferee shall execute all instruments (including a new development agreement and guaranty) reasonably requested by Franchisor to evidence acceptance and assumption of all of the terms and conditions of this Agreement. Such new development agreement may contain terms materially different from this Agreement; and

(e) Developer pays a transfer fee equal to (i) one half ( ¹ /2) of the development fee contained herein, if the Developer does not have a majority Equity Interest (as reasonably determined by Franchisor) in the transferee or (ii) an amount equal to the reasonable costs incurred by Franchisor in connection with the Transfer among Developers principals, but in no event less than One Thousand and No/100 Dollars ($1,000.00). Developer and Developer’s Principals (if applicable) must have executed a general release, in a form satisfactory to Franchisor, of any and all claims against Franchisor, its affiliates, and the officers, directors, members, shareholders, partners, agents, representatives, independent contractors, servants and employees of each of them, in their corporate and individual capacities, including, without limitation, claims arising under this Agreement and any other agreement between Developer or any of Developer’s affiliates and Franchisor’s or any of its affiliates or under federal, state or local laws, rules, regulations or orders. Franchisor’s current form of general release is attached hereto as Attachment D.

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7.3. Right of First Refusal. In the event that Developer and/or any of Developer’s Principals or any holder of an Equity Interest in Developer desire to effectuate a Transfer, Franchisor shall have the right and option, exercisable within thirty (30) days after Franchisor’s receipt of all materials and information described Section 7.3(a), (b), (c) and (e) to purchase the interest proposed to be transferred in accordance with the following:

(a) Developer or the proposed transferee shall notify Franchisor in writing of any bona fide proposed Transfer and set forth a complete description of all terms and fees of the proposed Transfer in the manner prescribed by the Franchisor, including the prospective transferee’s name, address, financial qualifications and previous five years business experience;

(b) Developer shall provide Franchisor with any additional information, agreements, certifications or documents Franchisor requests for use in its evaluation of whether to exercise its first refusal right.

(c) Upon receipt of the Franchisor’s request, Developer or the proposed transferee shall promptly provide Franchisor with access to any real or personal property, documents or records relevant to the transaction and to the interest which is the subject of the Transfer. Once Franchisor has received all materials submitted by Developer or the proposed transferee and has reviewed all property, records and documents it has requested, Franchisor shall notify Developer or the proposed transferee of its decision to exercise its option to acquire the interest being transferred, and the conditions, if any, under which it will approve the proposed Transfer.

(d) If the Franchisor exercises its first refusal right, the transferor shall transfer the interest to Franchisor or to its assignee pursuant to an agreement to purchase which contains the material terms to which the transferor and the proposed transferee had agreed. If the offer or proposed purchase contract omitted any terms customarily addressed in a transfer of an interest of the type which is the subject of the transaction, Franchisor may supply those terms in the purchase agreement and related documents.

(e) If the proposed transferor wishes to make a Transfer, the transferor shall provide Franchisor with a copy of any offer or agreement to purchase, signed by the proposed transferee, together with copies of any documents referenced in the offer or agreement. If all material terms of the proposed sale are not described in the offer or agreement, Developer shall provide details of all such terms in its submission to the Franchisor, accompanied by the proposed transferee’s written agreement to the terms.

(f) In the event the consideration, terms, and/or conditions offered by the third party are such that Franchisor or its nominee may not reasonably be able to furnish the same consideration, terms, and/or conditions, then Franchisor or its nominee, as appropriate, may purchase the interest proposed to be transferred for the reasonable equivalent in cash. If the parties cannot agree, within a reasonable time, on the reasonable equivalent in cash of the consideration, terms, and/or conditions offered by the third party, an independent appraiser shall be designated by Franchisor, and such appraiser’s determination shall be binding.

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7.4. Death or Disability. Within fifteen (15) days after the death or permanent disability of Developer or any Developer’s Principal, Developer or a representative of Developer must notify Franchisor in writing. Any transfer upon death or permanent disability will be subject to the same terms and conditions as described in this Section for any inter vivos transfer.

Upon the death of Developer (if natural person) or any Developer’s Principal who is a natural person and who has an interest in this Agreement, the Developer’s business or in Developer, the executor, administrator, or other person representative of the deceased will transfer the interest of the deceased to a third party approved by Franchisor within twelve (12) months after the date of death. If no personal representative is designated or appointed and no probate proceedings are instituted with respect to the estate of the deceased, then the distributee of the interest of the deceased must be approved by Franchisor. If the distributee is not approved by Franchisor, then the distributee will transfer the interest of the deceased to a third party approved by Franchisor within twelve (12) months after the date of death of the deceased.

Upon the permanent disability of Developer (if a natural person) or any Developer’s Principal who is a natural person and who has an interest in this Agreement, in Developer’s business or in Developer, Franchisor may require the interest to be transferred to a third party in accordance with the conditions described in this Section 7 within six (6) months after notice to Developer. For purposes of this Section 7.4, “permanent disability” means any physical, emotional, or mental injury, illness, or incapacity that would prevent a person from performing the obligations set forth in this Agreement or in the Guaranty made part of this Agreement for at least ninety (90) consecutive days, and from which condition recovery within ninety (90) days from the date of determination of disability is unlikely. If the parties disagree as to whether a person is permanently disabled, the existence of permanent disability will be determined by a licensed practicing physician selected by Franchisor, upon examination of the person or if the person refuses to submit to an examination, then (for the purpose of this Section 7.4) the person automatically will be considered permanently disabled as of the date of refusal. The costs of any examination required by this Section 7.4 will be paid by Franchisor.

If an interest is not transferred upon death or permanent disability as required in this Section 7.4 then the failure will constitute a material event of default under this Agreement.

7.5. Public Offerings. Equity Interests in Developer and Developer’s Principals may be offered, only with the prior written consent of Franchisor, which consent shall not be unreasonably withheld. Such approval will be subject to the following:

(a) All registration materials required for such offering by federal or state law shall be submitted to Franchisor for review prior to their being filed with any government agency;

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(b) No offering material (for either a public or private offering) shall express or imply (by use of the Proprietary Marks or otherwise) that Franchisor is participating in an underwriting, issuance or public offering of Developer, Developer’s Principals, or Franchisor securities. Franchisor may, at its option, require such offering materials to contain a written statement prescribed by Franchisor concerning the limitations described in the preceding sentence;

(c) Developer, Developer’s Principals and the other participants in the registration and offering must fully indemnify Franchisor in connection with the offering;

(d) For each proposed public offering, other than offerings which are exempt from registration, Developer shall pay to Franchisor a non-refundable fee of Ten Thousand and No/100 Dollars ($10,000.00) or such greater amount as is necessary to reimburse Franchisor for its reasonable costs and expenses associated with reviewing the proposed offering, including, without limitation, legal and accounting fees;

(e) Franchisor’s receipt of a legal opinion from counsel satisfactory to Franchisor stating (a) that the offering materials and the conduct of the securities offering comply in all material respects with the laws of the applicable Territory Segment from which an offer of securities originates or into which an offer of securities is directed, and (b) that neither the conduct nor consummation of the securities offering will result in a violation of any anti-terrorism or anti- money laundering laws; and

(f) Developer and Developer’s Principals shall give Franchisor at least sixty (60) days’ prior written notice before the effective date of any offering or other transaction covered by this Section 7.5.

8. INSURANCE AND INDEMNITY

8.1 Insurance. During the entire term of this Agreement, Developer shall obtain and maintain insurance protecting Developer and the Indemnitees against any demand or claim arising or occurring in connection with the operation of Developer’s business. Such policies shall: (i) be of the types and for the minimum amounts of coverage indicated in Franchisor’s operational policies; (ii) contain a waiver of subrogation in favor of Franchisor; (iii) name the Indemnitees as additional insureds; (iv) contain no provision which limits or reduces coverage in the event of a claim by any one (1) or more of the Indemnities; (v) provide that policy limits shall not be reduced, coverage restricted, canceled, allowed to lapse or otherwise altered or such policy(ies) amended without Franchisor’s consent; and (vi) be obtained from reputable insurance companies approved by Franchisor and authorized to do business in all jurisdictions in which the Franchised Restaurants are, or are to be located. Developer also acknowledges and agrees to:

(a) furnish Franchisor with evidence that Developer has obtained the required insurance not less than fifteen (15) days after the Execution Date, and each year afterwards, and at any other time a carrier or coverage is changed;

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(b) increase the insurance coverage amounts in the amounts indicated by Franchisor upon thirty (30) days prior written notice from Franchisor; and

(c) reimburse Franchisor for any insurance policies obtained by Franchisor on behalf of Developer if Developer fails to obtain the insurance required by this Section.

8.2 Indemnitees

8.2.1 Indemnification. Developer and Developer’s Principals agree to and hereby, jointly and severally, indemnify, defend (by counsel chosen by Franchisor) and agree to hold harmless each Indemnitee from all Losses and Expenses alleged, incurred or assessed in connection with:

(a) Developer’s or any Developer’s Principal’s alleged infringement or alleged violation of any trademark or other proprietary name, mark, or right allegedly owned or controlled by a third party;

(b) The violation, breach or asserted violation or breach, by Developer or any of Developer’s Principals, of any federal, state or local law, regulation, ruling, standard or directive or any industry standard;

(c) Libel, slander or any other form of defamation of Franchisor, the System or any developer or franchisee operating under the System, by Developer or by any of Developer’s Principals;

(d) The violation or breach by Developer or any of Developer’s Principals, of any warranty, representation, agreement or obligation in this Agreement or in any other agreement, between Developer, its subsidiaries and affiliates and Franchisor, its subsidiaries and affiliates or the officers, directors, shareholders, partners, agents, representatives, independent contractors and employees thereof; and

(e) Acts, errors, or omissions of Developer, any of Developer’s subsidiaries or affiliates or any of Developer’s Principals and the officers, directors, shareholders, partners, agents, representatives, independent contractors and employees of Developer and its subsidiaries and affiliates in connection with the development activities contemplated under this Agreement or the operation of a Franchised Restaurant.

8.2.2. Notice and Counsel. Developer and each of Developer’s Principals agree to give Franchisor immediate notice of any Action. Franchisor may engage, at its expense, separate counsel to represent the Indemnitees in such Action and/or elect to assume (but under no circumstance is obligated to undertake) the defense and/or reasonable settlement of any Action. Franchisor’s election to settle shall not diminish Developer’s and each of Developer’s Principal’s obligation to defend, indemnify and hold the Indemnitees harmless from all Losses and Expenses.

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8.2.3 Settlement and Remedial Actions. In order to protect persons or property, or its reputation or goodwill, or the reputation or goodwill of others, Franchisor may, at any time and without notice, as it, in its sole judgment deems appropriate, consent or agree to settlements or take such other remedial or corrective actions it deems expedient with respect to any Action if, in Franchisor’s sole judgment, there are reasonable grounds to believe that:

(a) any of the acts or circumstances enumerated in Section 8.2.1 ((a) through (d)) above have occurred;

(b) any act, error, or omission as described in Section 8.2.1 (e) may result directly or indirectly in damage, injury, or harm to any person or any property.

8.2.4 Expenses. All Losses and Expenses incurred under this Section shall be chargeable to and paid by Developer or any of Developer’s Principals pursuant to Developer’s obligations of indemnity under this Section 8 regardless of any actions, activity or defense undertaken by Franchisor or the subsequent success or failure of such actions, activity, or defense.

8.2.5 Third Party Recovery. Under no circumstances shall the Indemnitees be required or obligated to seek recovery from third parties or otherwise mitigate their losses in order to maintain a claim against Developer or any of Developer’s Principals. Developer and each of Developer’s Principals agree that the failure to pursue such recovery or mitigate loss will in no way reduce the amounts recoverable from Developer or any of Developer’s Principals by the Indemnitees.

8.2.6 Third Party Liability. The Indemnitees do not assume any liability whatsoever for acts, errors, or omissions of any third party with whom Developer, any of the Developer’s Principals, Developer’s affiliates or any of the officers, directors, shareholders, partners, agents, representatives, independent contractors and employees of Developer, its Principals or their affiliates may contract, regardless of the purpose. Developer and each of its Principals will hold harmless and indemnify the Indemnitees for all Losses and Expenses which may arise out of any acts, errors or omissions of Developer, Developer’s Principals, their respective affiliates, and the officers, directors, shareholders, partners, agents, representatives, independent contractors and employees of each and any such other third parties without limitation and without regard to the cause or causes thereof or the strict liability or negligence of Franchisor or any other party or parties arising in connection therewith, and whether such negligence be sole, joint or concurrent, or active or passive.

8.2.7 Survival. Developer and Developer’s Principals expressly agree that the terms of this Section 8 shall survive the termination, expiration or transfer of this Agreement or any interest herein.

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9. TERM AND TERMINATION

9.1 Term. Unless terminated as provided for herein, the term of this Agreement and all rights granted hereunder shall commence on the Execution Date and expire on the date on which Developer successfully and in a timely manner completes the Development Schedule.

9.2 Automatic Termination. Developer will be in default under this Agreement, and all rights granted by this Agreement will automatically terminate without notice to Developer:

(a) If Developer becomes insolvent or makes a general assignment for the benefit of creditors;

(b) If Developer files a voluntary petition under any section or chapter of the federal bankruptcy law or under any similar law or statute of the United States or any state, or admits in writing its inability to pay its debts when due;

(c) If Developer is adjudicated bankrupt or insolvent in proceedings filed against Developer under any section or chapter of the federal bankruptcy laws or under any similar law or statute of the United States or any state; or if a bill in equity or other proceeding for the appointment of a receiver of Developer or other custodian for Developer’s business or assets is filed and consented to by Developer; or if a receiver or other custodian (permanent or temporary) of Developer’s assets or property, or any part thereof, is appointed by any court of competent jurisdiction;

(d) If proceedings for a composition with creditors under any state or federal law is instituted by or against Developer;

(e) If a final judgment against Developer in any amount Franchisor deems material (but in no event more than $25,000) remains unsatisfied or of record for 30 days or longer (unless an appeal bond is filed);

(f) If Developer is dissolved;

(g) If Developer, or any of Developer’s Principals, makes any offer, attempts to offer, solicits an offer, or takes steps to offer publicly any interest in Developer in violation of Section 7.5 of this Agreement;

(h) If execution is levied against Developer’s business or property in any amount Franchisor deems material (but in no event more than $25,000);

(i) If suit to foreclose any lien or mortgage against the Developer’s business or any asset thereof in any amount Franchisor deems material (but in no event more the $25,000) is instituted against Developer and not dismissed within 30 days; or

(j) If the real or personal property of Developer’s business will be sold after levy thereupon by any sheriff, marshal, or constable.

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9.3 Termination upon Notice. This Agreement shall terminate immediately upon notice from Franchisor to Developer and without providing Developer the right to cure such default, if Developer:

(a) Or any of Developer’s Principals is convicted of, or pleads nolo conendere to a felony or any other crime or offense that is reasonably likely, in the opinion of Franchisor, to adversely affect the System, the Proprietary Marks, the Animated Entertainment, the goodwill associated therewith, or Franchisor’s interest therein;

(b) Or any of Developer’s Principals copies or duplicates any Animated Entertainment programs or materials or purports to transfer ownership or possession of any Animated Entertainment components or materials without the prior written consent of Franchisor;

(c) Or any of Developer’s Principals, except as described in Section 9.2(g), violates the requirements for Transfers contained in Section 7;

(d) Or any of Developer’s Principals, as applicable, fails to comply with the representations and warranties in Sections 5 and 13 hereof;

(e) Or any of Developer’s Principals discloses or divulges any Confidential Information contrary to the provisions of this Agreement;

(f) Or fails to maintain the insurance(s) required by Section 8;

(g) Or any of Developer’s Principals fails to comply with the in-term covenants in Section 5.5 or if Developer fails to obtain execution of the covenants and related agreements required under Section 5.8 within thirty (30) days after being requested to do so by Franchisor;

(h) Or Developer’s Principals engage in any act, conduct, or practice which Franchisor, in its sole judgment, deems to be deceptive, misleading, unethical or otherwise contrary to or in conflict with the reputation and image of the System;

(i) Or fails to meet is obligations under the Development Schedule, or fails to comply with the terms and/or conditions of any Franchise Agreement between Developer (or a person or entity affiliated with or controller by Developer) and Franchisor after receiving written notice from Franchisor and fifteen (15) days, within which to remedy such default; provided, however that if the applicable Franchise Agreement provides for a shorter notice period or provides for termination without notice and/or opportunity to cure, Franchisor may terminate this Agreement upon Developer’s receipt of written notice from Franchisor and, if applicable, such shorter time as described in the Franchise Agreement.

9.4 Termination with Thirty Day Notice. Except as otherwise provided in this Section 9, Developer shall have thirty (30) days after its receipt from Franchisor of a written notice within

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which to remedy any default of the terms of this Agreement and the attachments hereunder and provide evidence thereof to Franchisor. If any such default is not cured within that time, this Agreement shall terminate without further notice to Developer, effective immediately upon the expiration of the thirty (30) day period.

10. REMEDIES

10.1 Remedies. Upon the occurrence of an uncured breach and subsequent termination pursuant to Section 9, Franchisor may exercise one or more of the following remedies or such other remedies as may be available at law or in equity (each of the following remedies are non-exclusive and non-cumulative):

10.1.1 Reduction of Exclusivity. Franchisor, at its sole discretion, can completely terminate or, alternatively, reduce the number of Franchised Restaurants that Developer was given the right to develop and establish pursuant to the Development Schedule or terminate or reduce the territorial exclusivity granted Developer pursuant to Section 2 in the understanding that this Agreement will remain in effect and will be considered to be amended accordingly.

10.1.2 Cure. Franchisor, at Franchisor’s discretion and without obligation, may cure such breach at Developer’s expense and, in connection therewith, Developer (i) hereby grants to Franchisor all rights and powers necessary or appropriate to accomplish such cure; (ii) shall indemnify and hold the Indemnitees harmless from and against all costs, expenses (including reasonable fees of counsel and other engaged professionals), liabilities, claims, demands and causes of action (including actions of third parties) incurred by or alleged against any Indemnitee in connection with Franchisor’s cure; and (iii) shall reimburse or pay such costs or damages within ten (10) days of receipt of Franchisor’s invoice therefor;

10.1.3 Specific Enforcement. Franchisor may, in addition to pursuing any other remedies, specifically enforce Developer’s and Developer’s Principal’s obligations, covenants and agreements or obtain injunctive or other equitable relief in connection with the violation or anticipated violation of such obligations, covenants and agreements without the necessity of showing (i) actual or threatened harm; (ii) the inadequacy of damages as a remedy; or (iii) likelihood of success on the merits, and without being required to furnish bond or other security. Nothing in this Agreement shall impair Franchisor’s right to obtain equitable relief.

11. DISPUTE RESOLUTION

11.1 Mediation. Except for infringement of Proprietary Marks, Animated Entertainment or other violation of Franchisor’s intellectual property rights, regarding which Franchisor may apply for emergency, special, or injunctive relief, both Franchisor and Developer will attempt in good faith to settle any dispute related to the execution of or performance under this Agreement and the operation of Developer’s business. If Franchisor and Developer are unable to do so, they hereby agree to submit to non-binding mediation prior to bringing such claim, controversy or dispute in a court. The

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mediation shall be conducted through either an individual mediator or a mediator appointed by a mediation services organization or body, experienced in the mediation of food service business disputes, as agreed upon by Franchisor and Developer. The costs and expenses of mediation, including compensation of the mediator, shall be borne by the parties equally. If the parties are unable to resolve the claim, controversy or dispute within ninety (90) days after the mediator has been appointed, unless such time period is extended by written agreement of the parties, then either party may bring a legal proceeding under the following Sections, 11.2 through 11.4, to resolve such claim.

11.2 Applicable Law. Franchisor and Developer agree that this Agreement shall be governed, construed and enforced in accordance with the laws of the State of Texas without regard to its conflicts of laws provisions.

11.3 Jurisdiction and Venue. FRANCHISOR AND DEVELOPER HEREBY IRREVOCABLY SUBMIT THEMSELVES TO THE JURISDICTION OF THE STATE COURTS OF DALLAS COUNTY, TEXAS AND THE FEDERAL DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS, DALLAS DIVISION. DEVELOPER AND DEVELOPER’S PRINCIPALS FURTHER AGREE THAT VENUE FOR ANY PROCEEDING RELATING TO OR ARISING OUT OF THIS AGREEMENT WILL BE DALLAS COUNTY, TEXAS, PROVIDED HOWEVER THAT, WITH RESPECT TO ANY ACTION (I) FOR MONIES OWED, (II) FOR INJUNCTIVE OR OTHER EXTRAORDINARY RELIEF, (III) INVOLVING OWNERSHIP OR USE OF THE PROPRIETARY MARKS OR THE ANIMATED ENTERTAINMENT, OR (IV) INVOLVING POSSESSION OR DISPOSITION OF, OR OTHER RELIEF RELATING TO THE PREMISES OF ANY FRANCHISED RESTAURANT, FRANCHISOR MAY BRING SUCH ACTION IN ANY STATE OR FEDERAL DISTRICT COURT WHICH HAS JURISDICTION.

11.4 Mutual Benefit. FRANCHISOR, DEVELOPER AND DEVELOPER’S PRINCIPALS ACKNOWLEDGE THAT THE PARTIES’ AGREEMENT REGARDING APPLICABLE STATE LAW AND FORUM IN SECTIONS 11.2 AND 11.3 PROVIDES THE PARTIES WITH THE MUTUAL BENEFIT OF UNIFORM INTERPRETATION OF THIS AGREEMENT AND ANY DISPUTE ARISING OUT OF THIS AGREEMENT OR THE PARTIES’ RELATIONSHIP CREATED BY THIS AGREEMENT. FRANCHISOR, DEVELOPER AND DEVELOPER’S PRINCIPALS FURTHER ACKNOWLEDGE THE RECEIPT AND SUFFICIENCY OF MUTUAL CONSIDERATION FOR THAT BENEFIT.

12. MISCELLANEOUS

12.1 Independent Contractors. In performing this Agreement, the parties specifically agree that Franchisor and Developer’s relationship is and always will be solely that of independent contractors. Neither Franchisor or Developer shall not represent itself or permit any of its employees, agents, servants, or representatives to represent itself as an employee, agent, servant, or joint venturer of the other. Neither party shall have no right to and shall not attempt to enter into contracts or commitments in the name of or on behalf of the other in any respect whatsoever.

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12.2 Entire Agreement. This Agreement and the Attachments hereto constitute the entire agreement between Franchisor, Developer and Developer’s Principals concerning the subject matter hereof. All prior agreements, discussions, representations, warranties and covenants are merged herein. THERE ARE NO WARRANTIES, REPRESENTATIONS, COVENANTS OR AGREEMENTS, EXPRESS OR IMPLIED, BETWEEN THE PARTIES EXCEPT THOSE EXPRESSLY SET FORTH IN THIS AGREEMENT. Except those permitted to be made unilaterally by Franchisor, any amendments or modifications of this Agreement shall be in writing and executed by Franchisor and Developer.

12.3 Judgment; Discretion. DEVELOPER AND FRANCHISOR ACKNOWLEDGE THAT VARIOUS PROVISIONS OF THIS AGREEMENT SPECIFY CERTAIN MATTERS THAT ARE WITHIN THE DISCRETION OR JUDGMENT OF FRANCHISOR OR ARE OTHERWISE TO BE DETERMINED UNILATERALLY BY FRANCHISOR. IF THE EXERCISE OF FRANCHISOR’S DISCRETION OR JUDGMENT AS TO ANY SUCH MATTER IS SUBSEQUENTLY CHALLENGED, THE PARTIES TO THIS AGREEMENT EXPRESSLY DIRECT THE TRIER OF FACT THAT FRANCHISOR’S RELIANCE ON A BUSINESS REASON IN THE EXERCISE OF ITS DISCRETION OR JUDGMENT IS TO BE VIEWED AS A REASONABLE AND PROPER EXERCISE OF SUCH DISCRETION OR JUDGMENT, WITHOUT REGARD TO WHETHER OTHER REASONS FOR ITS DECISION MAY EXIST, WITHOUT REGARD TO WHETHER THE TRIER OF FACT WOULD INDEPENDENTLY ACCORD THE SAME WEIGHT TO THE BUSINESS REASONS, AND WITHOUT REGARD TO WHETHER SUCH DISCRETION OR JUDGMENT IS EXERCISED IN THE BEST INTERESTS OF DEVELOPER.

12.4 No Waiver. Either party’s failure to exercise any right or remedy or to enforce any obligation, covenant or agreement herein shall not constitute a waiver by, or estoppel of, such party’s right to enforce strict compliance with any such obligation, covenant or agreement. No custom or practice shall modify or amend this Agreement. Either party’s waiver of, or failure or inability to enforce, any right or remedy shall not impair such party’s rights or remedies with respect to subsequent default of the same, similar or different nature. Acceptance of any payment shall not waive any default.

12.5 Severability. If all or any portion of any covenant contained herein are held unreasonable or unenforceable by a court or agency having valid jurisdiction in an unappealed final decision to which Franchisor is a party, Developer and Developer’s Principals expressly agree to be bound by any lesser covenant subsumed within the terms of the covenant that imposes the maximum duty permitted by law, as if the resulting covenant were separately stated in and made a part of this Agreement. Notwithstanding the above, should any term, covenant or provision hereof, or the application thereof, be determined by a valid, final, non-appealable order to be invalid or unenforceable, this Agreement shall be deemed amended to delete therefrom the term or provision so held to be invalid or

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unenforceable and all of the remaining terms, covenants or provisions hereof shall continue in full force and effect without regard to the invalid or unenforceable provision. In such event such term, covenant or provision shall be deemed modified to impose the maximum duty permitted by law and such term, covenant or provision shall be valid and enforceable in such modified form as if separately stated in and made a part of this Agreement. Notwithstanding the foregoing, if any term hereof is so determined to be invalid or unenforceable and such determination adversely affects, in Franchisor’s absolute discretion, Franchisor’s ability to preserve its rights in, or the goodwill underlying, the Proprietary Marks, the Animated Entertainment, the System and/or the Confidential Information, or materially effects Franchisor’s other rights hereunder or its ability to receive and enjoy the economic benefits of this Agreement (including those provisions requiring the payment by Developer of liquidated damages or interest on past due payments or amounts under the indemnity provided by Developer) or to protect the System or the Mark (including the covenants regarding non-competition and confidentiality), Franchisor may terminate this Agreement immediately upon notice to Developer.

12.6 Notice. All notices required or desired to be given hereunder shall be in writing and shall be sent by personal delivery, expedited delivery service, return receipt requested or facsimile to the following addresses or such other addresses as designated by Franchisor or Developer in writing pursuant to this Section:

Notices to Franchisor:	Director of Franchise
	CEC Entertainment, Inc.
	4441 W. Airport Freeway
	Irving, Texas 75062
	Tel.	(972) 258- 8507
	Fax.	(972) 258- 8845
Notices to Developer:
	Tel.	(      )         -
	Fax.	(      )         -

Notices posted by personal delivery or given by facsimile shall be deemed given upon receipt. Notice to Developer shall constitute notice to Developer’s Principals.

12.7 Counterparts. This Agreement may be executed in any number of counterparts each of which when so executed shall be an original, but all of which together shall constitute one (1) and the same instrument.

12.8 Headings. The section headings in this Agreement are for convenient reference only and shall be given no substantive or interpretive effect.

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12.9 Further Assurances. Franchisor and Developer shall execute and deliver any and all additional papers, documents, and other assurances and shall do any and all acts and things reasonably necessary in connection with the performance of their obligations hereunder and to carry out the intent of the parties hereto.

12.10 Compliance with Laws. Developer agrees to comply at its sole expense with all laws and regulations applicable to this Agreement and the operation of the Franchised Restaurants.

13. ACKNOWLEDGMENTS

13.1 Independent Investigation. Developer and Developer’s Principals acknowledge that they have conducted an independent investigation of the business venture contemplated by this Agreement and recognize that the success of this business venture involves substantial business risks and will largely depend upon the ability of Developer. Franchisor expressly disclaims making, and Developer and Developer’s Principals acknowledge that they have not received or relied on, any warranty or guaranty, express or implied, as to the potential volume, profits or success of the business venture contemplated by this Agreement.

Developer’s Principals Initials,

individually and on behalf of

Developer

13.2 Opportunity to Assess Risks. Developer and Developer’s Principals acknowledge that Developer has received, read, and understands this Agreement and the related Attachments and agreements and that Franchisor has afforded Developer sufficient time and opportunity to consult with advisors selected by Developer about the potential benefits and risks entering into this Agreement.

Developer’s Principals Initials,

individually and on behalf of

Developer

13.3 Receipt of Disclosure Document. Developer and Developer’s Principals acknowledge that they received a complete copy of this Agreement and all related Attachments and agreements at least

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five business days before the date on which this Agreement was executed. Developer and Developer’s Principals further acknowledge that they have received the disclosure document required by the Trade Regulation Rule of the Federal Trade Commission entitled “Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures” at least ten business days before the date of on which this Agreement was executed.

Developer’s Principals Initials,

individually and on behalf of

Developer

13.4 No Extraneous Promises. Developer and Developer’s Principals confirm and acknowledge that no written or oral agreements, promises, commitments, undertakings or understandings were made to or with Developer that are not expressly set forth in this Agreement and any duly executed amendment or addendum attached to this Agreement.

Developer’s Principals Initials,

individually and on behalf of

Developer

13.5 No Extraneous Inducements. Developer and Developer’s Principals confirm and acknowledge that no representation, warranty, guaranty or promise other than those expressly set forth in this Agreement and in the disclosure described in Section 13.3 was made by Franchisor or any other person to induce Developer to sign this Agreement. Developer and Developer’s Principals recognize that neither Franchisor nor any other party can guarantee Developer’s business success or state the exact costs of operating Developer’s Business, and that such success and costs will depend primarily upon Developer’s own efforts and business ability. Developer and Developer’s Principals also recognize that any new business venture is speculative.

Developer’s Principals Initials,

individually and on behalf of

Developer

13.6 Commercial Relationship. Developer and Developer’s Principals acknowledge that this Agreement creates an arm’s length commercial relationship that cannot and will not be transformed into a fiduciary or other “special” relationship by course of dealing, by any special indulgences or benefits that Franchisor bestows on Developer, or by inference from a party’s conduct.

Developer’s Principals Initials,

individually and on behalf of

Developer

13.7 Compliance with Anti-Corruption and Anti-Money Laundering Laws. Developer and Developer’s Principals represent, covenant and warrant to Franchisor that, to the best of their

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knowledge, neither Developer nor any of Developer’s Principals or managerial employee thereof is identified, either by name or an alias, pseudonym or nickname, on the lists of “Specially Designated Nationals” or “Blocked Persons” maintained by the U.S. Treasury Department’s Office of Foreign Assets Control (texts currently available at www.treas.gov/offices/enforcement/ofac/). Further Developer and Developer’s Principals represent, covenant and warrant that, to the best of their knowledge, they have not violated and agree that they will not violate any law (in effect now or which may become effective in the future) prohibiting corrupt business practices, money laundering or the aid or support of persons or entities who conspire to commit acts of terror against any person or government, including acts prohibited by the U.S. Patriot Act, Public Law No. 107-56 (text currently available at http.//www.epic.org/privacy/terrorism/hr3162.html), U.S. Executive Order 13244 (text currently available at http://treas.gov/offices/enforcement/ofac/ sanctions/terrorism.html), or similar law. The foregoing constitute continuing representations and warranties, and Developer shall notify Franchisor immediately in writing of the occurrence of any event or the development of any circumstance that might render the foregoing representation and warranty false, inaccurate or misleading.

Developer’s Principals Initials,

individually and on behalf of

Developer

13.8. No Claims. Developer and Developer’s Principals represent, covenant and warrant to Franchisor that, to the best of their knowledge, neither they nor an affiliate of either hold or are due, as applicable, any claims, debts, liabilities, demands, obligations, expenses, actions, or causes of action of any nature, character or description related to this Agreement against Franchisor, and its affiliates and each of their respective successors, partners and the partners, shareholders, representatives, assigns, agents, servants, employees, independent contractors, officers and directors of each of them, in their corporate and individual capacities.

Developer’s Principals Initials,

individually and on behalf of

Developer

[Signatures appear on following pages]

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IN WITNESS WHEREOF, the parties hereto have fully executed and delivered this Agreement on the day and year first above written.

CEC ENTERTAINMENT, INC.

By:

Name:

Title:

STATE OF TEXAS	§
	§
COUNTY OF DALLAS	§

Before me personally appeared                              who, after being duly sworn, says that he is the                              of CEC Entertainment, Inc., a corporation, organized and existing under the laws of Kansas, and that he has authority to execute under oath and has so executed the above Agreement for and on behalf of such corporation for such purposes therein contained.

WITNESS my hand and official seal this        day of                     , 20    .

(SEAL)
	Notary Public in and for
	The State of

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27	Domestic Development Agreement

DEVELOPER:

By:

Name:

Title:

STATE OF	§
	§
COUNTY OF	§

Before me personally appeared                              who, after being duly sworn, says that he is the                              of                             , a (corporation) (partnership), organized and existing under the laws of                             , and that he has authority to execute under oath and has so executed the above Agreement for and on behalf of such (corporation) (partnership) for the purposes therein contained.

WITNESS my hand and official seal this        day of                     , 20    .

(SEAL)	Notary Public in and for
	The State of

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SCHEDULE 1.8

STATEMENT OF OWNERSHIP INTERESTS

AND DEVELOPER’S PRINCIPALS

A. The following is a list of stockholders, partners or other investors in Developer, including all investors who own or hold a direct or indirect interest in Developer, and a description of the nature of their interest. All such individuals and entities shall be deemed to be “Developer’s Principals” described in and designated pursuant to the Development Agreement, each of whom will execute the Agreement and Guaranty of Developer’s Principals:

Name Percentage of Ownership/Nature of Interest

B. The following is a list of all other of “Developer’s Principals” not described in “A”, above, described in and designated pursuant to the Development Agreement, each of whom will execute the Agreement and Guaranty of Developer’s Principals.

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ATTACHMENT A

FRANCHISE AGREEMENT

	CEC Entertainment, Inc.
A–1	Domestic Development Agreement

ATTACHMENT B

AGREEMENT AND GUARANTY OF

DEVELOPER’S PRINCIPALS

Each of the undersigned acknowledges and agrees as follows:

(1) Each has read the terms and conditions of the Development Agreement and acknowledges that the execution of this Guaranty and the undertakings of the Developer’s Principals in the Development Agreement are in partial consideration for, and a condition to, the granting of the rights contracted in the Development Agreement, and that the Franchisor would not have granted the rights contained in the Development Agreement without the execution of this Guaranty and the other undertakings by each of the undersigned;

(2) Each is included in the term “Developer’s Principals”;

(3) Each individually, jointly, and severally, makes all of the covenants, representations, warranties and agreements of Developer’s Principals set forth in the Development Agreement and is obligated to perform thereunder; and

(4) Each individually, jointly and severally, unconditionally, and irrevocably guarantees to Franchisor and its successors and assigns that all of Developer’s obligations under the Development Agreement will be punctually paid and performed. Upon default by Developer’s or upon notice from Franchisor, each will immediately make each payment and perform each obligation required of Developer’s under the Development Agreement.

(5) Without affecting the obligations of any of Developer’s Principals under this Guaranty, Franchisor may, without notice to the Developer’s Principals, waive, renew, extend, modify, amend, or release any indebtedness or obligation of Developer or settle, adjust, or compromise any claims that Franchisor may have against Developer.

(6) Each of the Developer’s Principals waives all demands and notices of every kind with respect to the enforcement of this Guaranty, including notices of presentment, demand for payment or performance by Developer, any default by Developer or any guarantor, and any release of any guarantor or other security for this Guaranty or the obligations of Developer.

(7) Franchisor may pursue its rights against any of Developer’s Principals without first exhausting its remedies against Developer and without joining any other guarantor and no delay on the part of Franchisor in the exercise of any right or remedy will operate as a waiver of the right or remedy, and no single or partial exercise by Franchisor of any right or remedy will preclude the further exercise of that or any other right or remedy.

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B–1	Domestic Development Agreement

(8) Upon receipt by Franchisor of notice of the death of any of Developer’s Principals, the estate of the deceased will be bound by the foregoing Guaranty, but only for defaults and obligations under the Development Agreement existing at the time of death, and in that event, the obligations of the remaining Developer’s Principals will continue in full force and effect.

ATTEST:	DEVELOPER’S PRINCIPALS
		Name:
		Name:
		Name:

STATE OF                             

COUNTY OF                             

Before me personally appeared the following persons                                          who are known to me to be the persons who executed the foregoing Agreement and Guaranty of Developer’s Principals and each acknowledged the same to be his or her free act and deed for the purpose s therein contained.

WITNESS my hand and official seal this        day of                     , 20    .

(SEAL) Notary Public

	CEC Entertainment, Inc.
B–2	Domestic Development Agreement

ATTACHMENT C

EMPLOYEE CONFIDENTIALITY AND NON-COMPETITION AGREEMENT

This Confidentiality and Non-Competition Agreement (“Agreement”) is made and entered into this        day of                     , 20    , by and between CEC Entertainment, Inc., a Kansas corporation (“Franchisor”),                      (“Developer”), and                              (“Covenantor”).

Recitals

WHEREAS, Franchisor and Developer have entered into a Development Agreement dated                      (the “Development Agreement”), pursuant to which Franchisor has granted Developer the right to establish and operate a family-oriented pizza restaurants (the “Franchised Restaurant”) and to use the Proprietary Marks and System solely in connection therewith; and

WHEREAS, Franchisor has provided, or will provide to Developer, a confidential operations manual and such other written or printed material to explain the operation of the System and aid in its use (the “Documentation”) and certain confidential information, knowledge, and know-how concerning the construction and methods of operation of the Franchised Restaurants relating to the System, including the Documentation, drawing, materials, equipment, techniques, products, recipes, and other data of Franchisor (“Trade Secrets”); and

WHEREAS, the Proprietary Marks and Trade Secrets provide economic advantages to Franchisor and the Trade Secrets are not generally known to, and are not readily ascertainable by proper means by, Franchisor’s competitors who could obtain economic value from knowledge and use of the Trade Secrets; and

WHEREAS, Covenantor acknowledges that receipt of and the right to use the Trade Secrets constitutes independent valuable consideration for the representations, promises and covenants made by Covenantor herein;

NOW, THEREFORE, in consideration of the mutual covenants and obligations contained herein, the parties agree as follows:

Confidentiality Agreement

1. Franchisor and Developer shall disclose to Covenantor some or all of the Trade Secrets. All information and materials, including, without limitation, the Documentation, which Franchisor provides to Developer and/or Covenantor shall be deemed confidential Trade Secrets for purposes of this Agreement.

2. Covenantor shall at all times treat as confidential, and shall not at any time disclose, distribute, copy, duplicate, record, or otherwise reproduce, in whole or in part, or otherwise make

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X–1	Domestic Development Agreement

available to any person or source or otherwise use in any manner except for the operation of the Franchised Restaurants, the contents of the Trade Secrets without the prior written consent of Franchisor.

3. Covenantor agrees that any goodwill that may arise from Covenantor’s use of the Trade Secrets shall at all times remain the sole and exclusive property of Franchisor and shall inure to the sole benefit of Franchisor.

4. Covenantor agrees to notify Franchisor and Developer promptly in writing of any loss, theft, or unauthorized disclosure or use of any of the Trade Secrets of which Covenantor has knowledge.

5. Covenantor shall surrender any material containing some or all of the Trade Secrets, including the Documentation, to Developer or Franchisor, upon request, or upon termination of employment by Developer, or upon conclusion of the use for which such information or material may have been furnished to Covenantor.

Covenants Not to Compete

1. Covenantor specifically acknowledges that, pursuant to Covenantor’s employment or association with Developer, Covenantor will receive valuable, specialized training and/or confidential information. In consideration for the disclosure of the Trade Secrets, Covenantor covenants that during Covenantor’s employment or association with Developer, and for one (1) year following the earlier of the expiration, termination or transfer of all of Developer’s interest in the Development Agreement or the termination of Covenantor’s association with or employment by Developer, except as otherwise approved in writing by Franchisor, Covenantor shall not, either directly or indirectly, for itself, or through, on behalf of, or in conjunction with, any person or legal entity:

2. Divert or attempt to divert any business or customer of the Franchised Restaurants to any competitor, by direct or indirect inducement or otherwise, or do or perform, directly or indirectly, any other act injurious or prejudicial to the goodwill associated with the Proprietary Marks, the Animated Entertainment or the System;

i. Employ or seek to employ any person who is at that time employed by Franchisor, Developer, or by any principal of Developer (other than                      ), or otherwise directly or indirectly induce such person to leave his or her employment; or

ii. Own, maintain, operate, engage in, be employed by, provide any assistance to, or have any interest in (as owner or otherwise) any business with entertainment by three dimensional computer-controlled animated characters or video display; provided, however, that this provision shall not apply to the

	CEC Entertainment, Inc.
X–2	Domestic Development Agreement

operation by Covenantor of any license which may be granted by Franchisor to Covenantor; and provided, further, that this provision shall not apply to any ownership by Covenantor, of less than five percent (5%) of the outstanding equity securities in any publicly-held corporation.

Miscellaneous

1. Developer and Covenantor agree that in the event of a breach of this Agreement, Franchisor and/or Developer shall be entitled to enforce the provisions of this Agreement and shall be entitled, in addition to any other remedies which are made available to it at law or in equity, to a temporary and/or permanent injunction and a decree for the specific performance of the terms of this Agreement, without the necessity of showing actual or threatened harm and without being required to furnish a bond or other security.

2. Covenantor agrees to pay all expenses (including court costs and reasonable attorneys’ fees) incurred by Franchisor and Developer in enforcing this Agreement.

3. THIS AGREEMENT SHALL BE INTERPRETED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF                     , WITHOUT REFERENCE TO                              CHOICE OF LAW PRINCIPLES.

4. This Agreement contains the entire agreement of the parties regarding the subject matter hereof. This Agreement may be modified only by a duly authorized writing executed by all parties.

5. Any and all notices required or permitted under this Agreement shall be in writing and shall be personally delivered or mailed by certified mail, return receipt requested, to the respective parties at the following addresses unless and until a different address has been designated by written notice to the other party:

Notices to Franchisor:	Director of Franchise
	CEC Entertainment, Inc.
	4441 W. Airport Freeway
	Irving, Texas 75062
Notices to Developer:

	CEC Entertainment, Inc.
X–3	Domestic Development Agreement

Notices to Covenantor:

Any notice by certified mail shall be deemed to have been given at the date and time of mailing.

IN WITNESS WHEREOF, the undersigned have entered into this Agreement as witnessed by their signatures below.

	FRANCHISOR:
	CEC ENTERTAINMENT, INC.,
	a Kansas corporation
	By:
	Name:
	Title:
DEVELOPER:	COVENANTOR:
By:	By:
Name:	Name:
Title:	Title:

	CEC Entertainment, Inc.
X–4	Domestic Development Agreement

ATTACHMENT D

GENERAL RELEASE

(UPON TRANSFER)

THIS GENERAL RELEASE (this “Release”) is made and entered into this        day of                     , 20    , by                              (“Developer”), and                              (the “Developer’s Principals”).

RECITALS

WHEREAS, on                     ,         , CEC Entertainment, Inc. (“Franchisor”) and Developer entered into that certain Development Agreement (the “Development Agreement”) for the establishment and operation of a Chuck E. Cheese’s restaurants;

WHEREAS, Developer and/or one or more of Developer’s Principals desire to effect a Transfer, as such term is defined in the Development Agreement; and

WHEREAS, the Development Agreement provides, as a condition to Franchisor’s approval of such Transfer, Developer and Developer’s Principals shall execute a release of certain claims.

NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged by each of the parties hereto, Developer and the Developer’s Principals agree as follows:

AGREEMENT

1. RELEASE. Developer, each of the Developer’s Principals, individually and collectively, jointly and severally, do hereby release and forever discharge Franchisor and its affiliates, and each of their respective successors, partners, and the shareholders, partners, representatives, assigns, agents, servants, employees, independent contractors, officers, and directors of each of them, in their corporate and individual capacities (“Designees”), of and from any claims, debts, liabilities, demands, obligations, costs, expenses, actions, and causes of action of every nature, character, and description, known or unknown, vested or contingent (“Claims”), which the Developer and the Developer’s Principals now own or hold, or have at any time heretofore owned or held, or may at any time own or hold against the Franchisor, or each of the respective Designees of the Franchisor, arising under or in connection with any agreement, law, rule, regulation ordinance, or any other context whatsoever, including, without limitation, the Development Agreement and any development agreement or the operation of a Chuck E. Cheese’s restaurant established thereunder, and any state or federal franchise or business opportunity law; provided, however, that this release shall not serve to terminate any agreement currently effective by an among Developer or any or all of the Developer’s Principals and Franchisor.

	CEC Entertainment, Inc.
D–1	Domestic Development Agreement

[The parties intend this paragraph 1 to cover, encompass, release, and extinguish all claims and matters that might otherwise be reserved by California Civil Code section 1542, which provides as follows:

“A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected the settlement with the debtor.”]

2. AUTHORITY. By executing this Release, the parties represent and warrant that each have the right and authority to enter into and to accept the terms and covenants of this Release, and that no third party has or claims an interest in any claim released hereby.

3. NO CONFLICTS. Each of the undersigned hereby represents and warrants that its execution of this Release does not violate any other agreement to which it is a party.

4. MISCELLANEOUS.

4.1 Counterparts. This Release may be executed simultaneously in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute but one and the same instrument.

4.2 Opportunity to Review. Developer and the Developer’s Principals represent and warrant that they: (i) have had an opportunity to review this Release; (ii) have had an opportunity to consult with an attorney; and (iii) fully understand the content and legal effect of this Release; and

4.3 Governing Law. This Release shall be governed by the laws of the State of             , which laws shall be controlling in the event of any conflict of law.

4.4 Section Headings. The section headings of this Release are for the convenience of the parties only shall have no force or effect.

4.5 Severability. The provisions of this release are severable, and, in the event that any of them is held void and unenforceable as a matter of law, the remainder shall continue in full force and effect.

IN WITNESS WHEREOF, Developer and the Developer’s Principals have executed and delivered this Release.

DEVELOPER:

By:

Title:

Date:

	CEC Entertainment, Inc.
D–2	Domestic Development Agreement

DEVELOPER’S PRINCIPALS:

Name:	Name:
Date:	Date:
Name:	Name:
Date:	Date:
Name:	Name:
Date:	Date:

	CEC Entertainment, Inc.
D–3	Domestic Development Agreement

EX-10.38

Exhibit 10.38

AMENDMENT TO CEC ENTERTAINMENT, INC.

DEVELOPMENT AGREEMENT

FOR THE STATE OF CALIFORNIA

The CEC Entertainment, Inc. Development Agreement between                                          (“Developer” or “You”) and CEC Entertainment, Inc. (“Franchisor”) dated                              (the “Agreement”) shall be amended by the addition of the following language, which shall be considered an integral part of the Agreement (the “Amendment”):

CALIFORNIA LAW MODIFICATIONS

1. The California Department of Corporations requires that certain provisions contained in franchise documents be amended to be consistent with California law, including the California Franchise Investment Law, CAL. CORPORATIONS CODE Section 31000 et seq., and the California Franchise Relations Act, CAL. BUS. & PROF. CODE Section 20000 et seq. To the extent that the Agreement contains provisions that are inconsistent with the following, such provisions are hereby amended:

a. California Business and Professions Code Sections 20000 through 20043 provide rights to You concerning termination of the Agreement. The Federal Bankruptcy Code also provides rights to You concerning termination of the Agreement upon certain bankruptcy-related events. To the extent the Agreement contains a provision that is inconsistent with these laws, these laws shall control.

b. If Developer is required in the Agreement to execute a release of claims, such release shall exclude claims arising under the California Franchise Investment Law and the California Franchise Relations Act.

c. If the Agreement requires payment of liquidated damages that is inconsistent with California Civil Code Section 1671, the liquidated damage clause may be unenforceable.

d. If the Agreement contains a covenant not to compete which extends beyond the expiration or termination of the Agreement, the covenant may be unenforceable under California law.

e. If the Agreement requires litigation, arbitration or mediation to be conducted in a forum other than the State of California, the requirement may be unenforceable under California law.

f. If the Agreement requires that it be governed by a state’s law, other than the State of California, such requirement may be unenforceable.

1

2. Each provision of this Amendment shall be effective only to the extent that the jurisdictional requirements of the California law applicable to the provision are met independent of this Amendment. This Amendment shall have no force or effect if such jurisdictional requirements are not met.

3. As to any state law described in this Amendment that declares void or unenforceable any provision contained in the Development Agreement, Franchisor reserves the right to challenge the enforceability of the state law by, among other things, bringing an appropriate legal action or by raising the claim in a legal action or arbitration that you have initiated.

IN WITNESS WHEREOF, the parties hereto have fully executed, sealed and delivered this Amendment to the Agreement on                             , 20    .

FRANCHISOR:	DEVELOPER:
CEC Entertainment, Inc.
By:	By:
Name:	Name:
Title:	Title:
Witness:	Witness:

2

EX-10.39

Exhibit 10.39

AMENDMENT TO CEC ENTERTAINMENT, INC.

DEVELOPMENT AGREEMENT

FOR THE STATE OF MINNESOTA

The CEC Entertainment, Inc. Development Agreement between                                          (“Developer” or “You”) and CEC Entertainment, Inc. (“Franchisor”) dated                              (the “Agreement”) shall be amended by the addition of the following language, which shall be considered an integral part of the Agreement (the “Amendment”):

MINNESOTA LAW MODIFICATIONS

1. The Commissioner of Commerce for the State of Minnesota requires that certain provisions contained in franchise documents be amended to be consistent with Minnesota Franchise Act, Minn. Stat. Section 80.01 et seq., and of the Rules and Regulations promulgated under the Act (collectively the “Franchise Act”). To the extent that the Agreement and Offering Circular contain provisions that are inconsistent with the following, such provisions are hereby amended:

a. Franchise Act, Sec. 80C.14, Subd. 4., requires, except in certain specified cases, that Developer be given written notice of Franchisor’s intention not to renew 180 days prior to expiration of the franchise and that Developer be given sufficient opportunity to operate the franchise in order to enable Developer the opportunity to recover the fair market value of the franchise as a going concern. If the Agreement contains a provision that is inconsistent with the Franchise Act, the provisions of the Agreement shall be superseded by the Act’s requirements and shall have no force or effect.

b. Franchise Act, Sec. 80C.14, Subd. 3., requires, except in certain specified cases, that Developer be given 90 days notice of termination (with 60 days to cure). If the Agreement contains a provision that is inconsistent with the Franchise Act, the provisions of the Agreement shall be superseded by the Act’s requirements and shall have no force or effect.

c. If the Agreement requires Developer to execute a release of claims or to acknowledge facts that would negate or remove from judicial review any statement, misrepresentation or action that would violate the Franchise Act, such release shall exclude claims arising under the Franchise Act, and such acknowledgments shall be void with respect to claims under the Act.

d. If the Agreement requires that it be governed by a state’s law, other than the State of Minnesota, those provisions shall not in any way abrogate or reduce any rights of Developer as provided for in the Franchise Act, including the right to submit matters to the jurisdiction of the courts of Minnesota.

1

e. If the Agreement requires Developer to sue Franchisor outside the State of Minnesota, those provisions shall not in any way abrogate or reduce any rights of Developer as provided for in the Franchise Act, including the right to submit matters to the jurisdiction of the courts of Minnesota.

f. Minn. Rule 2860.4400J. prohibits Franchisor from requiring You to consent to liquidated damages and prohibits waiver of a jury trial. If the Agreement contains a provision that is inconsistent with the Minn. Rule, the provisions of the Agreement shall be superseded by the Minn. Rule’s requirements and shall have no force or effect.

2. Each provision of this Agreement shall be effective only to the extent that the jurisdictional requirements of the Minnesota law applicable to the provision are met independent of this Amendment. This Amendment shall have no force or effect if such jurisdictional requirements are not met.

3. As to any state law described in this Amendment that declares void or unenforceable any provision contained in the Development Agreement, Franchisor reserves the right to challenge the enforceability of the state law by, among other things, bringing an appropriate legal action or by raising the claim in a legal action or arbitration that you have initiated.

IN WITNESS WHEREOF, the parties hereto have fully executed, sealed and delivered this Amendment to the Agreement on                             , 20    .

FRANCHISOR:	DEVELOPER:
CEC Entertainment, Inc.
By:	By:
Name:	Name:
Title:	Title:
Witness:	Witness:

2

EX-10.40

Exhibit 10.40

AMENDMENT TO CEC ENTERTAINMENT, INC.

DEVELOPMENT AGREEMENT

FOR THE STATE OF NORTH DAKOTA

The CEC Entertainment, Inc. Development Agreement between                                          (“Developer” or “You”) and CEC Entertainment, Inc. (“Franchisor”) dated                              (the “Agreement”) shall be amended by the addition of the following language, which shall be considered an integral part of the Agreement (the “Amendment”):

NORTH DAKOTA LAW MODIFICATIONS

1. The North Dakota Securities Commissioner requires that certain provisions contained in franchise documents be amended to be consistent with North Dakota law, including the North Dakota Franchise Investment Law, North Dakota Century Code Annotated Chapter 51-19, Sections 51-19-01 through 51-19-17 (1993). To the extent that the Agreement contains provisions that are inconsistent with the following, such provisions are hereby amended:

a. If Developer is required in the Agreement to execute a release of claims or to acknowledge facts that would negate or remove from judicial review any statement, misrepresentation or action that would violate the Law, or a rule or order under the Law, such release shall exclude claims arising under the North Dakota Franchise Investment Law, and such acknowledgments shall be void with respect to claims under the Law.

b. Covenants not to compete during the term of and upon termination or expiration of the Agreement are enforceable only under certain conditions according to North Dakota Law. If the Agreement contains a covenant not to compete that is inconsistent with North Dakota Law, the covenant may be unenforceable.

c. The Commissioner has held that requiring franchisees to consent to the jurisdiction of courts outside of North Dakota is unfair, unjust or inequitable within the intent of Section 51-19-09 of the North Dakota Franchise Investment Law.

d. If the Agreement requires that a state’s law, other than the State of North Dakota govern it, to the extent that such law conflicts with the North Dakota Law, North Dakota Law shall control.

e. If the Agreement requires mediation or arbitration to be conducted in a forum other than the State of North Dakota, the requirement may be unenforceable under the North Dakota Franchise Investment Law. Arbitration involving a franchise purchased in the State of North Dakota must be held either in a location mutually agreed upon prior to the arbitration or if the parties cannot agree on a location, the location shall be determined by the arbitrator.

1

f. If the Agreement requires payment of a termination penalty, the requirement may be unenforceable under the North Dakota Franchise Investment Law.

2. Each provision of this Amendment shall be effective only to the extent that the jurisdictional requirements of the North Dakota Franchise Investment Law, with respect to each such provision, are met independent of this Amendment. This Amendment shall have no force or effect if such jurisdictional requirements are not met.

3. As to any state law described in this Amendment that declares void or unenforceable any provision contained in the Development Agreement, Franchisor reserves the right to challenge the enforceability of the state law by, among other things, bringing an appropriate legal action or by raising the claim in a legal action or arbitration that you have initiated.

IN WITNESS WHEREOF, the parties hereto have fully executed, sealed and delivered this Amendment to the Agreement on                             , 20    .

FRANCHISOR:	DEVELOPER:
CEC Entertainment, Inc.
By:	By:
Name:	Name:
Title:	Title:
Witness:	Witness:

2

EX-10.41

Exhibit 10.41

AMENDMENT TO CEC ENTERTAINMENT, INC.

DEVELOPMENT AGREEMENT

FOR THE STATE OF NEW YORK

The CEC Entertainment, Inc. Development Agreement between                                          (“Developer” or “You”) and CEC Entertainment, Inc. (“Franchisor”) dated                              (the “Agreement”) shall be amended by the addition of the following language, which shall be considered an integral part of the Agreement (the “Amendment”):

NEW YORK LAW MODIFICATIONS

1. The New York Department of Law requires that certain provisions contained in franchise documents be amended to be consistent with New York law, including the General Business Law, Article 33, Sections 680 through 695 (1989). To the extent that the Agreement contains provisions that are inconsistent with the following, such provisions are hereby amended:

a. If the Agreement requires Developer to execute a release of claims or to acknowledge facts that would negate or remove from judicial review any statement, misrepresentation or action that would violate the General Business Law, or any regulation, rule or order under the Law, such release shall exclude claims arising under the New York General Business Law, Article 33, Section 680 through 695 and the regulations promulgated thereunder, and such acknowledgments shall be void. It is the intent of this provision that non-waiver provisions of Sections 687.4 and 687.5 of the General Business Law be satisfied.

b. If the Agreement requires that it be governed by a state’s law, other than the State of New York, the choice of law provision shall not be considered to waive any rights conferred upon Developer under the New York General Business Law, Article 33, Sections 680 through 695.

2. Each provision of this Amendment shall be effective only to the extent that the jurisdictional requirements of the New York General Business Law, with respect to each such provision, are met independent of this Amendment. This Amendment shall have no force or effect if such jurisdictional requirements are not met.

3. As to any state law described in this Amendment that declares void or unenforceable any provision contained in the Development Agreement, Franchisor reserves the right to challenge the enforceability of the state law by, among other things, bringing an appropriate legal action or by raising the claim in a legal action or arbitration that you have initiated.

1

IN WITNESS WHEREOF, the parties hereto have fully executed, sealed and delivered this Amendment to the Agreement on                             , 20    .

FRANCHISOR:	DEVELOPER:
CEC Entertainment, Inc.
By:	By:
Name:	Name:
Title:	Title:
Witness:	Witness:

2

EX-10.42

Exhibit 10.42

AMENDMENT TO CEC ENTERTAINMENT, INC.

DEVELOPMENT AGREEMENT

FOR THE STATE OF WASHINGTON

The CEC Entertainment, Inc. Development Agreement between                                          (“Developer” or “You”) and CEC Entertainment, Inc. (“Franchisor”) dated                              (the “Agreement”) shall be amended by the addition of the following language, which shall be considered an integral part of the Agreement (the “Amendment”):

WASHINGTON LAW MODIFICATIONS

1. The Director of the Washington Department of Financial Institutions requires that certain provisions contained in franchise documents be amended to be consistent with Washington law, including the Washington Franchise Investment Protection Act, WA Rev. Code §§ 19.100.010 to 19.100.940 (1991). To the extent that the Agreement contains provisions that are inconsistent with the following, such provisions are hereby amended:

a. Washington Franchise Investment Protection Act provides rights to You concerning termination of the Agreement. If the Agreement contains a provision that is inconsistent with the Act, the Act shall control.

b. If Developer is required in the Agreement to execute a release of claims, such release shall exclude claims arising under the Washington Franchise Investment Protection Act; except when the release is executed under a negotiated settlement after the Agreement is in effect and where the parties are represented by independent counsel. If there are provisions in the Agreement that unreasonably restrict or limit the statute of limitations period for claims brought under the Act, or other rights or remedies under the Act, those provisions may be unenforceable.

c. If the Agreement requires litigation, arbitration or mediation to be conducted in a forum other than the State of Washington, the requirement may be unenforceable under Washington law. Arbitration involving a franchise purchased in the State of Washington must either be held in the State of Washington or in a place mutually agreed upon at the time of the arbitration, or as determined by the arbitrator.

d. If the Agreement requires that it be governed by a state’s law, other than the State of Washington, and there is a conflict between the law and the Washington Franchise Investment Protection Act, the Washington Franchise Investment Protection Act shall control.

1

2. Each provision of this Amendment shall be effective only to the extent that the jurisdictional requirements of the Washington law applicable to the provision are met independent of this Amendment. This Amendment shall have no force or effect if such jurisdictional requirements are not met.

3. As to any state law described in this Amendment that declares void or unenforceable any provision contained in the Development Agreement, Franchisor reserves the right to challenge the enforceability of the state law by, among other things, bringing an appropriate legal action or by raising the claim in a legal action or arbitration that you have initiated.

IN WITNESS WHEREOF, the parties hereto have fully executed, sealed and delivered this Amendment to the Agreement on                             , 20    .

FRANCHISOR:	DEVELOPER:
CEC Entertainment, Inc.
By:	By:
Name:	Name:
Title:	Title:
Witness:	Witness:

2

EX-21.1

EXHIBIT 21.1

CEC ENTERTAINMENT, INC., A KANSAS CORPORATION

SUBSIDIARIES OF THE COMPANY

CEC ENTERTAINMENT HOLDINGS, LLC, a Nevada limited liability company

CEC ENTERTAINMENT CONCEPTS, L.P., a Texas limited partnership

CEC ENTERTAINMENT CANADA, INC., a Canadian Corporation

CEC OF GAITHERSBURG, INC., a Maryland corporation

CEC OF GLENN BURNIE, INC., a Maryland corporation

CEC OF HAGERSTOWN, INC., a Maryland corporation

CEC OF WALDORF, INC., a Maryland corporation

SHOWBIZ OF LAUREL, INC., a Maryland corporation

BHC ACQUISITION, INC., a Texas corporation

HOSPITALITY DISTRIBUTION, INC., a Texas corporation

CEC OF LANDOVER, INC., a Maryland corporation

SB HOSPITALITY CORPORATION, a Texas corporation

CEC FILM AND VIDEO, LLC, a Texas limited liability corporation

SPT DISRIBUTION COMPANY, INC., a Texas corporation

TJH RESTAURANT GROUP, INC., a Texas corporation

TJH ACQUISITION, INC., a Texas corporation

TJH DISTRIBUTION, INC., a Texas corporation

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-103572, 333-111175, 333-119218, 333-119225, 333-119232, 333-130142, and 333-145612 on Form S-8 of our report dated February 28, 2008, relating to the consolidated financial statements of CEC Entertainment Inc., and the effectiveness of CEC Entertainment Inc.’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of CEC Entertainment Inc. for the year ended December 30, 2007.

/s/ Deloitte & Touche LLP

Dallas, Texas

February 28, 2008

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO RULE 13a – 14(a)/15d-14(a)

(CHIEF EXECUTIVE OFFICER)

I, Richard M. Frank, certify that:

1. I have reviewed this annual report on Form 10-K of CEC Entertainment, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

February 28, 2008	/s/ Richard M. Frank
	Richard M. Frank
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO RULE 13a – 14(a)/15d-14(a)

(CHIEF FINANCIAL OFFICER)

I, Christopher D. Morris, certify that:

1. I have reviewed this annual report on Form 10-K of CEC Entertainment, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

February 28, 2008	/s/ Christopher D. Morris
	Christopher D. Morris
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of CEC Entertainment, Inc. (the “Company”) on Form 10-K for the year ended December 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in this Report.

/s/ Richard M. Frank

Richard M. Frank

Chief Executive Officer

February 28, 2008

A signed original of this written statement required by Section 906 has been provided to CEC Entertainment, Inc. and will be retained by CEC Entertainment, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of CEC Entertainment, Inc. (the “Company”) on Form 10-K for the year ended December 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in this Report.

/s/ Christopher D. Morris

Christopher D. Morris

Chief Financial Officer

February 28, 2008

A signed original of this written statement required by Section 906 has been provided to CEC Entertainment, Inc. and will be retained by CEC Entertainment, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.