UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period
ended April 4, 1999
- Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition
period from _____________ to _______________.
Commission File Number 0-15782
CEC ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Kansas 48-0905805
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4441 West Airport Freeway
Irving, Texas 75062
(Address of principal executive offices,
including zip code)
(972) 258-8507
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No -
At April 4, 1999, an aggregate of 18,103,963 shares of the
registrant's Common Stock, par value of $.10 each (being the
registrant's only class of common stock), were outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CEC ENTERTAINMENT, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
---
Consolidated balance sheets. . . . . . . . . . . . . . . . 2
Consolidated statements of earnings and comprehensive
income. . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated statement of shareholders' equity . . . . . . 4
Consolidated statements of cash flows. . . . . . . . . . . 5
Notes to consolidated financial statements . . . . . . . . 6
Page 1
CEC ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(Thousands, except share data)
<TABLE>
ASSETS
April 4, January 3,
1999 1999
------- ---------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . $ 8,265 $ 3,210
Accounts receivable . . . . . . . . . . . . 3,966 4,299
Current portion of notes receivable . . . . 19 52
Inventories . . . . . . . . . . . . . . . . 6,357 5,842
Prepaid expenses. . . . . . . . . . . . . . 3,948 3,643
Current portion of deferred tax asset . . . 720 720
------- -------
Total current assets . . . . . . . . . . . 23,275 17,766
------- -------
Property and equipment, net . . . . . . . . 240,436 228,531
------- -------
Deferred tax asset . . . . . . . . . . . . . 610 1,036
------- -------
Notes receivable, less current portion,
including receivables from
related parties of $537 and
$361, respectively . . . . . . . . . . . 519 363
------- -------
Other assets . . . . . . . . . . . . . . . . 5,023 4,532
------- -------
$269,863 $252,228
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt . . . . . $ 9,385 $ 9,383
Accounts payable and accrued liabilities. . 39,619 32,453
------- -------
Total current liabilities. . . . . . . . . 49,004 41,836
------- -------
Long-term debt, less current portion . . . . 13,596 18,922
------- -------
Deferred rent. . . . . . . . . . . . . . . . 3,888 3,915
------- -------
Other liabilities. . . . . . . . . . . . . . 1,300 1,300
------- -------
Redeemable preferred stock, $60 par value,
redeemable for $2,974 in 2005. . . . . . . 2,331 2,306
------- -------
Shareholders' equity:
Common stock, $.10 par value; authorized
100,000,000 shares; 22,338,639 and
22,265,303 shares issued, respectively . 2,234 2,227
Capital in excess of par value. . . . . . . 164,403 163,105
Retained earnings . . . . . . . . . . . . . 90,453 76,157
Deferred compensation . . . . . . . . . . . (1,329) (1,520)
Accumulated other comprehensive income. . . 9 6
Less treasury shares of 4,234,676 at both
dates, at cost. . . . . . . . . . . . . . (56,026) (56,026)
------- -------
199,744 183,949
------- -------
$269,863 $252,228
======= =======
</TABLE>
See notes to consolidated financial statements.
Page 2
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE INCOME
(Unaudited)
(Thousands, except per share data)
<TABLE>
Three Months Ended
--------------------------------
April 4, 1999 April 3, 1998
------------ -------------
<S> <C> <C>
Food and beverage revenues . . . . . . . . $ 76,544 $ 70,306
Games and merchandise revenues . . . . . . 40,992 33,736
Franchise fees and royalties . . . . . . . 812 870
Interest income, including related party
income of $17 and $47,
respectively. . . . . . . . . . . . . . 49 137
------- -------
118,397 105,049
------- -------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . 51,610 47,163
Selling, general and administrative
expenses. . . . . . . . . . . . . . . . 17,087 14,975
Depreciation and amortization . . . . . . 7,467 6,643
Interest expense. . . . . . . . . . . . 695 699
Other operating expenses. . . . . . . . . 17,885 16,354
------- -------
94,744 85,834
------- -------
Income before income taxes . . . . . . . . 23,653 19,215
------- -------
Income taxes:
Current expense . . . . . . . . . . . . . 8,846 4,765
Deferred expense. . . . . . . . . . . . . 426 2,767
------- -------
9,272 7,532
------- -------
Net income . . . . . . . . . . . . . . . . 14,381 11,683
Other comprehensive income, net of tax:
Foreign currency translation. . . . . . . 3
------- -------
Comprehensive income . . . . . . . . . . . $14,384 $11,683
======= =======
Earnings per share:
Basic:
Net income. . . . . . . . . . . . . . . . $ .79 $ .64
======= =======
Weighted average shares outstanding . . . 17,986 18,046
======= =======
Diluted:
Net income . . . . . . . . . . . . . . . $ .78 $ .63
======= =======
Weighted average shares outstanding . . . 18,415 18,553
======= =======
</TABLE>
See notes to consolidated financial statements.
Page 3
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
(Thousands, except per share data)
<TABLE>
Amounts Shares
------ ------
<S> <C> <C>
Common stock and capital in excess of par value
Balance, beginning of year. . . . . . . . $ 165,332 22,265
Stock options exercised . . . . . . . . . 774 69
Net tax benefit from exercise of options
and stock grants . . . . . . . . . . . 393
Stock issued under 401(k) plan. . . . . . 138 5
------- -------
Balance, April 4, 1999. . . . . . . . . . 166,637 22,339
------- =======
Retained earnings:
Balance, beginning of year. . . . . . . . 76,157
Net income. . . . . . . . . . . . . . . . 14,381
Redeemable preferred stock accretion. . . (25)
Redeemable preferred stock dividend,
$1.20 per share . . . . . . . . . . . . (60)
-------
Balance, April 4, 1999. . . . . . . . . . 90,453
-------
Deferred compensation:
Balance, beginning of year. . . . . . . . (1,520)
Amortization of deferred compensation . . 191
-------
Balance, April 4, 1999. . . . . . . . . . (1,329)
-------
Accumulated other comprehensive income:
Balance, beginning of year. . . . . . . . 6
Foreign currency translation. . . . . . . 3
------
Balance, April 4, 1999. . . . . . . . . . 9
------
Treasury shares:
Balance, beginning of year. . . . . . . . (56,026) 4,235
------- -------
Balance, April 4, 1999. . . . . . . . . . (56,026) 4,235
------- =======
Total shareholder's equity . . . . . . . . $ 199,744
=======
</TABLE>
See notes to consolidated financial statements.
Page 4
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands)
<TABLE>
Three Months Ended
--------------------------------
April 4, 1999 April 3, 1998
------------ ------------
<S> <C> <C>
Operating activities:
Net income . . . . . . . . . . . . . . . . $14,381 $11,683
Adjustments to reconcile net income to
cash provided by operations:
Depreciation and amortization . . . . . . 7,467 6,643
Deferred tax expense. . . . . . . . . . . 426 2,767
Compensation expense under stock
grant plan . . . . . . . . . . . . . . . 191 190
Other . . . . . . . . . . . . . . . . . . (22) 46
Net change in receivables, inventory,
prepaids, payables and accrued liabilities. . 6,679 3,084
------- -------
Cash provided by operations. . . . . 29,122 24,413
------- -------
Investing activities:
Purchases of property and equipment. . . . (19,249) (13,348)
Additions to notes receivable. . . . . . . (876)
Payments received on notes receivable. . . 753 1,010
Net change in investments, deferred
charges and other assets. . . . . . . . . (618) (3,124)
------- -------
Cash used in investing activities. . . (19,990) (15,462)
------- -------
Financing activities:
Payments on debt and line of credit. . . . (10,845) (843)
Proceeds on debt and line of credit. . . . 5,521
Exercise of stock options . . . . . . . . 774 1,283
Redeemable preferred stock dividends . . . (60) (60)
Other. . . . . . . . . . . . . . . . . . . 533 (2)
------- -------
Cash provided by (used in) financing
activities. . . . . . . . . . . . . . (4,077) 378
------- -------
Increase in cash and cash equivalents . . . 5,055 9,329
Cash and cash equivalents, beginning of
period. . . . . . . . . . . . . . . . . . 3,210 7,275
------- -------
Cash and cash equivalents, end of period . . $ 8,265 $ 16,604
======= =======
</TABLE>
See notes to consolidated financial statements.
Page 5
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Interim financial statements:
In the opinion of management, the accompanying financial
statements for the periods ended April 4, 1999 and April 3, 1998
reflect all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the Company's financial
condition, results of operations and cash flows.
Certain information and footnote disclosures normally included
in the consolidated financial statements prepared in accordance
with generally accepted accounting principles have been omitted.
The unaudited consolidated financial statements referred to above
should be read in conjunction with the financial statements and
notes thereto included in the Company's Form 10-K filed with the
Securities and Exchange Commission for the year ended January 3,
1999. Results of operations for the periods ended April 4, 1999 and
April 3, 1998 are not necessarily indicative of the results for the
year.
2. Earnings per common share:
Earnings per common share were computed based on the weighted
average number of common and potential common shares outstanding
during the period. Net income available per common share has been
adjusted for the items indicated below, and earnings per common and
potential common share were computed as follows (thousands, except
per share data):
<TABLE>
Three Months Ended
------------------------
April 4, April 3,
1999 1998
------ ------
<S> <C> <C>
Net income . . . . . . . . . . . . . . . . . . $14,381 $11,683
Accretion of redeemable preferred stock. . . . (25) (26)
Redeemable preferred stock dividends . . . . . (60) (60)
------- -------
Adjusted income applicable to
common and potential common shares. . . . . . $14,296 $11,597
======= =======
Basic:
Weighted average common shares outstanding . 17,986 18,046
======= =======
Earnings per common share. . . . . . . . . . $ .79 $ .64
======= =======
Diluted:
Weighted average common shares outstanding . . 17,986 18,046
Potential common shares for stock
options and stock grants. . . . 429 507
------- -------
Weighted average shares outstanding. . . . . . 18,415 18,553
======= =======
Earnings per common and potential
common shares. . . . . . . . . . . . . . . $ .78 $ .63
======= =======
</TABLE>
Page 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
First Quarter 1999 Compared to First Quarter 1998
- -------------------------------------------------
A summary of the results of operations of the Company as a
percentage of revenues for the first quarters of 1999 and 1998 is
shown below.
<TABLE>
Three Months Ended
-----------------------------
April 4, 1999 April 3, 1998
------------ -----------
<S> <C> <C>
Revenue . . . . . . . . . . 100.0% 100.0%
----- -----
Costs and expenses:
Cost of sales. . . . . . 43.6 44.9
Selling, general and administrative 14.4 14.3
Depreciation and amortization 6.3 6.3
Interest expense. . . . . .6 .7
Other operating expenses 15.1 15.5
----- -----
80.0 81.7
----- -----
Income before income taxes 20.0 18.3
Income tax expense . . . 7.9 7.2
----- -----
Net income . . . . . . . 12.1% 11.1%
===== =====
</TABLE>
Revenues
-------
Revenues increased 12.7% to $118.4 million in the first quarter
of 1999 from $105.0 million in the first quarter of 1998 due to an
increase in the number of Company-operated stores and an increase
of 1.5% in comparable store sales of the Company's Chuck E.
Cheese's stores which were open during all of the first quarters of
both 1999 and 1998. During 1998, the Company added 25 stores
including new stores and existing stores acquired from franchisees
or joint venture partners. During the first quarter of 1999, the
Company opened five new stores. Management believes that several
factors contributed to the comparable store sales increase with the
primary factor being sales increases at stores upgraded with new
game packages. Menu prices increased approximately 1.0% between
the periods.
Costs and Expenses
------------------
Costs and expenses as a percentage of revenues decreased to 80.0%
in the first quarter of 1999 from 81.7% in the first quarter of
1998.
Cost of sales decreased as a percentage of revenues to 43.6% in
the first quarter of 1999 from 44.9% in the comparable period of
1998. Cost of food, beverage, prize and merchandise items as a
percentage of store sales decreased to 15.3% in the first quarter
of 1999 from 16.1% in the first quarter of 1998 primarily due to an
increase in game sales, reduced costs of certain beverage and prize
products and an increase in menu prices. Store labor expenses as
a percentage of store sales decreased to 25.4% during the first
quarter of 1999 compared to 25.8% in the first quarter of 1998
primarily due to the increase in comparable store sales and more
effective utilization of hourly employees.
Selling, general and administrative expenses as a percentage of
revenues increased to 14.4% in the first quarter of 1999 from 14.3%
in the first quarter of 1998 due primarily to a increase in
preopening expenses related to the opening of new stores.
Depreciation and amortization expenses as a percentage of
revenues were 6.3% in both the first quarter of 1999 and the first
quarter of 1998.
Interest expense as a percentage of revenues decreased to 0.6%
in the first quarter of 1999 from 0.7% in the first quarter of 1998
due primarily to a reduction in the amount of long-term debt
outstanding and lower interest rates.
The Company's effective income tax rate was 39.2% in both the
first quarter of 1999 and the first quarter of 1998.
Page 7
Other operating expenses decreased as a percentage of revenues
to 15.1% in the first quarter of 1999 from 15.5% in the first
quarter of 1998 primarily due the increase in comparable store
sales and the fact that a significant portion of operating costs
such as rent, property taxes and insurance are fixed.
Net Income
----------
The Company had net income of $14.4 million in the first quarter
of 1999 compared to $11.7 million in the first quarter of 1998 due
to the changes in revenues and expenses discussed above. The
Company's diluted earnings per share increased 23.8% to $.78 per
share in the first quarter of 1999 from $.63 per share in the first
quarter of 1998.
Financial Condition, Liquidity and Capital Resources
- ----------------------------------------------------
Cash provided by operations increased to $29.5 million in the
first three months of 1999 from $29.1 million in the comparable
period of 1998. Cash outflows from investing activities for the
first three months of 1999 were $20.0 million primarily related to
capital expenditures. Cash outflows from financing activities for
the first three months of 1999 were $4.1 million primarily related
to the repayment of debt. The Company's primary requirements for
cash relate to planned capital expenditures, the repurchase of the
Company's common stock and debt service. The Company expects that
it will satisfy such requirements from cash provided by operations
and, if necessary, funds available under its line of credit.
In 1999, the Company plans to add approximately 25 stores
including new stores and existing stores acquired from franchisees.
The Company currently anticipates its cost of opening such new
stores to average approximately $1.5 million per store which will
vary depending upon many factors including the size of the stores
and whether the store is an in-line or freestanding building. In
addition to such new store openings, the Company plans to expand
the customer area of 15 to 20 high sale volume stores in 1999. The
Company also plans to complete Phase II upgrades in 25 stores
during the first half of 1999 at an average cost of $150,000 to
$160,000 per store. A Phase II upgrade generally includes a new
game package, enhanced prize and merchandise offerings and improved
product presentation and service. During the first three months of
1999, the Company opened five new stores, expanded the customer
area of five stores and completed Phase II upgrades in 13 stores.
The Company currently estimates that capital expenditures in 1999,
including expenditures for remodeling existing stores, new store
openings, existing store expansions and equipment investments, will
be approximately $65 million. The Company plans to finance these
expenditures through cash flow from operations and, if necessary,
borrowings under the Company's line of credit.
In 1997, the Company announced that it planned to purchase shares
of the Company's common stock at an aggregate purchase price of up
to $20 million. In July 1998, the Company completed this plan and
announced an additional plan to purchase shares of the Company's
common stock at an aggregate purchase price of up to $15 million.
As of April 4, 1999, the Company has purchased shares of its common
stock under the $15 million plan at an aggregate purchase price of
approximately $5.8 million.
The Company's total credit facility of $52.2 million at April 4,
1999 consists of $22.2 million in term notes and a $30 million line
of credit. Term notes totaling $18 million with annual principal
payments of $6 million beginning in June 1999 and annual interest
of 10.02% mature in 2001. Term notes totaling $4.2 million with
quarterly principal payments of $833,000 and annual interest equal
to LIBOR plus 3.5% mature in 2000. Interest under the $30 million
line of credit is dependent on earnings and debt levels of the
Company and ranges from prime minus 0.5% to plus 0.5% or, at the
Company's option, LIBOR plus 1% to 2.5%. Currently, any borrowings
under this line of credit would be at prime rate minus 0.5% or
LIBOR plus 1%. The Company's line of credit agreement matures June
2000. As of April 4, 1999, there were no borrowings under this
line of credit. The Company is required to comply with certain
financial ratio tests during the terms of the loan agreements.
Page 8
In 1998, the Company purchased computer software which is Year
2000 compliant. The Year 2000 issue is the result of computer
programs being written using two digits rather than four to define
the applicable year. Current systems may be unable to accurately
process certain date-based information. The cost of the new
software will be recorded as an asset and amortized over its
estimated useful life. Other maintenance or modification costs
will be expensed as incurred. Accordingly, the Company does not
expect expenditures during 1999 to have a material effect on its
financial position, results of operations or cash flows. The
Company expects its Year 2000 date conversion project to be
completed in 1999. The Company has initiated formal communication
with significant vendors and suppliers to determine their efforts
to remediate the Year 2000 issues.
Forward-Looking Statements
- --------------------------
Certain statements in this report may constitute "forward looking statements"
which are subject to known and unknown risks and uncertainties including, among
other things, certain economic conditions, competition, development factors and
operating costs that may cause the actual results to differ materially from
results implied by such forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is subject to market risk in the form of interest
risk and foreign currency risk. Both interest risk and foreign
currency risk are immaterial to the Company.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
10(a) Employment Agreement, dated April 28, 1999, between
Michael H. Magusiak and the Company.
27 - Financial Data Schedule (included in electronic filing
only).
b) Reports on Form 8-K:
None filed during the quarter for which this report is filed.
Page 9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
C E C ENTERTAINMENT, INC.
Dated: May 13, 1999 By:----------------------
Larry G. Page
Executive Vice President
and Chief Financial Officer
Page 10
Exhibits
---------
Exhibit
Number Description
- ---------- -----------
10(a) Employment Agreement, dated April 28, 1999,
between Michael H. Magusiak and the Company.
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is executed as of the
28th day of April, 1999, 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
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 that any prior employment agreements between the Company and
the Employee be superceded by the terms and conditions hereof, as
follows:
1. Employment. The Company employs Employee and Employee
accepts employment from the Company upon the terms and conditions
specified in this Agreement.
2. Term. Subject to the provisions regarding termination
set forth in Sections 14, 15, and 16 hereof, the initial term of
this Agreement shall begin as of January 4, 1999 (the "Effective
Date") and shall terminate on the last day of the fiscal year of the
Company ending on or about December 31, 2003 (the "Initial 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) Employee shall receive as minimum Basic Salary the
amount of $25,000.00 per month.
(b) The Basic Salary may be adjusted in such amounts and on
such dates as the Compensation Committee of the Board of Directors
may determine from time to time.
(c) 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 Board of Directors, 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 January 8, 1999 options (the "Stock options")to purchase one
hundred thousand (100,000) 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, thirty percent (30%) shall vest on
January 8, 2001, thirty-five percent (35%) shall vest on January 8,
2002, and the remaining thirty-five (35%) of the Stock Options
shall vest on January 8, 2003.
5. Severance Pay. If Company terminates the employment of
Employee at any time (other than pursuant to Section 15 hereof), or
if a "Change of Control" (as defined below) occurs with respect to
Company and Employee voluntarily terminates his employment with
Company within one year after such a Change of Control, Company
shall be required to pay Employee severance pay in an amount equal
to the product of (a) the Employee's then Basic Salary, multiplied
by (b) the number twenty-four (24). Such severance pay shall be
payable to Employee by Company in cash on or before the thirtieth
(30th) day after the effective date of such termination.
For purposes of this Section 5, a "Change of Control" shall be
deemed to have occurred with respect to 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 current Board of Directors not
more than five (5) business days following their respective
election or appointment; provided, however, that in no event shall
a change in composition of the Company's Board of Directors
pursuant to an election of Board of Directors members pursuant to
Section 4.6 of the Company's Articles of Incorporation, as amended
through the date of this Agreement, constitute or result in a
"Change of Control" for purposes of this Section 5.
6. 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.
7. Automobile. Employer shall pay to Employee the sum of One
Thousand Dollars ($1,000.00) per month (subject to adjustment from
time to time in direct proportion to generally applicable
adjustment by the Company to its automobile allowances) to
reimburse Employee for the use of Employee's automobile in the
performance of his duties under this Agreement, and Employer shall
further pay directly or by reimbursement to Employee (as Employer
and Employee may from time to time agree) the premiums upon a
policy of collision and liability insurance covering such
automobile. All other costs and expenses incurred in the operation
and maintenance of Employee's automobile, including but not limited
to the cost of all fuel, oil, maintenance and repairs, shall be
paid solely by Employee.
8. 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 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 an officer and/or director of any affiliates of the
Company without additional compensation.
9. 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 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.
10. Health and Disability Insurance. The Company shall provide
Employee and his Family with health, medical, hospitalization and
dental insurance coverage and/or cost reimbursement benefits which
provide for one hundred percent (100%) of such costs and expenses
to be paid on behalf of and/or reimbursed to 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 only
include his spouse and dependent children. The Company shall also
provide disability insurance coverage to Employee under any Company
plan(s) for such coverage as in effect from time to time for that
category or class of the Company's employees which includes the
Company's senior executive officers, provided that if necessary to
provide Employee with monthly disability income benefits of at
least fifty percent (50%) of Employee's Basic Salary in the event
of Employee's permanent disability, the Company shall adopt a
special plan relating specifically to Employee which results in
Employee having coverage providing total benefits of at least 50%
of Employee's Basic Salary.
11. Continuation of Health Benefit Coverage. Upon the
termination of Employee's employment for any reason, including a
termination due to the expiration of the Initial Term of this
Agreement or any renewal thereof, the Company shall provide
Employee and his Family the health, medical, hospitalization and
dental insurance coverage and/or cost reimbursement benefits set
forth in Section 10 hereof, for a period not to exceed the earlier
of (i) five (5) years or (ii) the date on which 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 11 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 11 shall be provided in addition to any
other payments, benefits or compensation, if any, to which
Employee, his estate or his designated beneficiary is entitled due
to his termination of employment as set forth in this Agreement.
12. 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 from time to time by the Company for
its employees. The aggregate face amount(s) of such policy or
policies shall be consistent with those amounts available for
senior executive officers of the Company.
Any policy of insurance or certificate of insurance under a group
term policy maintained by the Company under this Section 12 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.
13. 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.
14. Termination After Notice. Either Employee or the Company may
terminate the employment of Employee at any time during the Initial
Tenn of this Agreement or any renewal thereof 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 16 hereof, and for the purposes of said Section
16, the "Termination Date" shall be the effective date of termination
pertaining to the ninety (90) days prior written notice referred to
in the preceding sentence.
15. Termination Upon Death or Disability.
(a) Upon the termination of Employee's employment due to the
death of Employee, the Company shall pay to the estate of Employee
(or the beneficiaries designated by Employee, if applicable)
certain compensation that would otherwise have been payable to
Employee, as provided in Section 16 hereof, and for the purposes
of said section, the "Termination Date" shall be the date of
Employee's death. If Employee dies during the Initial Term of
this Agreement or any renewal thereof 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 15(a)), are not vested at the time of his death, then
all of such Stock Options shall become immediately vested at
Employee's death and shall be exercisable by his estate or
beneficiary pursuant to the terms of his respective Stock Option
agreements or certificates.
(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
Basic Salary payable under this Agreement.
Employee's employment under this Agreement may be
terminated as provided below upon Employee's
permanent disability (as defined below).
(ii) 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 of the Company 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
16, 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.
16. Payment Due Upon Termination of Employee's Employment. In
the event of termination of Employee's employment under this
Agreement, pursuant to Sections 14 or 15 hereof, the Company shall
pay Employee, his estate, or his designated beneficiaries, 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 14 or 15 hereof, whichever is
applicable:
(a) Basic Salary that would otherwise have been payable to
Employee under Section 3(a) hereof through the Termination Date;
(b) all payments, if any, payable pursuant to Section 5
hereof.
17. 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.
18. 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.
19. 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 or 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.
20. Performance. This Agreement shall be performed in Dallas
County, Texas.
21. Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Texas.
22. 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. 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.
23. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
24. 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.
25. 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.
26. Successors. This Agreement shall be binding upon the
successors and assigns of the Company but not of Employee.
IN WITNESS WHEREOF, the parties have executed this Agreement,
effective as of the date and year first above written.
COMPANY:
CEC ENTERTAINMENT, INC.
By:_______________________
Richard M. Frank
Chief Executive Officer
EMPLOYEE:
________________________
Michael H. Magusiak
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