CEC ENTERTAINMENT, INC.
4441 West Airport Freeway
Irving, Texas 75062
(972) 258-8507
May 18, 2000
Dear Stockholder:
You are cordially invited to attend the annual meeting of
stockholders of CEC Entertainment, Inc. (the "Company")
to be held at 9:00 a.m. local time, Thursday, June 22,
2000, at the D/FW Airport Marriott South located at 4151
Centreport Drive, Fort Worth, Texas.
At the meeting you will be asked to re-elect three
current directors, to authorize the amendment of the
Company's Non-Employee Directors Stock Option Plan, to
authorize the amendment of the Company's 1997 Non-
Statutory Stock Option Plan, to authorize the adoption of
an incentive bonus program, and to transact such other
business as may properly come before the meeting.
The formal Notice of the Annual Meeting of Stockholders
and Proxy Statement accompanying this letter provide
detailed information concerning matters to be considered
and acted upon at the meeting.
It is important that your shares be represented at the
meeting, whether or not you attend personally. I urge
you to sign, date and return the enclosed proxy at your
earliest convenience.
Sincerely,
RICHARD M. FRANK
Chairman and Chief
Executive Officer
CEC ENTERTAINMENT, INC.
4441 West Airport Freeway
Irving, Texas 75062
(972) 258-8507
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 22, 2000
To the Stockholders of
CEC Entertainment, Inc.:
Notice is hereby given that the annual meeting of stockholders of
CEC Entertainment, Inc., a Kansas corporation, will be held at the
D/FW Airport Marriott South located at 4151 Centreport Drive, Fort
Worth, Texas on June 22, 2000, at 9:00 a.m. local time, for the
following purposes:
1. To re-elect three Class III directors to serve for
a term of three years or until their successors are
elected and qualified or until their earlier
resignation or removal;
2. To authorize the amendment of the Company's Non-
Employee Directors Stock Option Plan by extending
the term thereof for an additional ten (10) years;
3. To authorize the amendment of the Company's Non-
Employee Directors Stock Option Plan by allowing
for an adjustment in the number of shares which
would be distributable if a dividend or stock split
shall be declared upon the Common Stock of the
Company;
4. To authorize the amendment of the Company's 1997
Non-Statutory Stock Option Plan by adding 350,000
shares thereto and prohibiting certain material changes thereto
without stockholder approval;
5. To authorize the adoption of an incentive bonus
program; and
6. To transact such other business as may properly come
before the meeting.
It is desirable that as large a proportion as possible of the
stockholders' interests be represented at the meeting. Whether or
not you plan to be present at the meeting, you are requested to
sign and return the enclosed proxy in the envelope provided so that
your stock will be represented. The giving of such proxy will not
affect your right to vote in person, should you later decide to
attend the meeting. Please date and sign the enclosed proxy and
return it promptly in the enclosed envelope.
Only stockholders of record at the close of business on May 4, 2000
are entitled to notice of, and to vote at, the meeting or any
adjournment thereof.
By Order of the Board of Directors,
MARSHALL R. FISCO, JR.
Secretary
Irving, Texas
May 18, 2000
CEC ENTERTAINMENT, INC.
4441 WEST AIRPORT FREEWAY
IRVING, TEXAS 75062
(972) 258-8507
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 22, 2000
This proxy statement is furnished to stockholders of CEC
Entertainment, Inc., a Kansas corporation (the "Company"), in
connection with the solicitation of proxies by the Board of
Directors of the Company (the "Board of Directors") for use at the
annual meeting of stockholders (the "Annual Meeting") to be held at
9:00 a.m. local time, on June 22, 2000 at the D/FW Airport Marriott
South located at 4151 Centreport Drive, Fort Worth, Texas. Proxies
in the form enclosed will be voted at the Annual Meeting, if
properly executed, returned to the Company prior to the Annual
Meeting and not revoked. A proxy may be revoked at any time before
it is voted either in person at the Annual Meeting or by giving
prior written notice to the Secretary of the Company. This proxy
statement was first sent or given to the Company's stockholders on
or about May 18, 2000.
OUTSTANDING CAPITAL STOCK
The record date for stockholders entitled to notice of, and to vote
at, the Annual Meeting is May 4, 2000. At the close of business on
that date, the Company had issued and outstanding and entitled to
receive notice of and vote at the Annual Meeting 26,812,857 shares
of Common Stock, $0.10 par value (the "Common Stock"), and 48,202
shares of Class A Preferred Stock, $60 par value (the "Preferred
Stock"). No other class of securities of the Company is entitled
to notice of, or to vote at, the Annual Meeting.
ACTION TO BE TAKEN AT THE ANNUAL MEETING
The accompanying proxy, unless the stockholder otherwise specifies
in the proxy, will be voted:
1. To re-elect three Class III directors to serve for
a term of three years or until their successors are
elected and qualified or until their earlier
resignation or removal;
2. To authorize the amendment of the Company's Non-
Employee Directors Stock Option Plan by extending
the term thereof for an additional ten (10) years;
3. To authorize the amendment of the Company's Non-
Employee Directors Stock Option Plan by allowing
for an adjustment in the number of shares which
would be distributable if a dividend or stock split
shall be declared upon the Common Stock of the
Company;
4. To authorize the amendment of the Company's 1997
Non-Statutory Stock Option Plan by adding 350,000
shares thereto and prohibiting certain material changes
thereto without stockholder approval;
5. To authorize the adoption of an incentive bonus
program; and
6. To transact such other business as may properly come
before the meeting.
Where stockholders have appropriately specified how their proxies
are to be voted, they will be voted accordingly. Unless
authorization to vote for a proposal pending at the Annual Meeting
is withheld, if no direction is made for a vote cast by proxy, the
proxy shall be voted for such proposal. If any other matter or
business is brought before the Annual Meeting, the proxyholders may
vote the proxies in their discretion. The Board of Directors is
not presently aware of any other matters or business to be brought
before the Annual Meeting.
QUORUM AND VOTING
Each stockholder of record on the Record Date is entitled to one
vote for each share of Common Stock and/or Preferred Stock held by
them. A majority of the outstanding shares of Common Stock and
Preferred Stock, represented in person or by proxy, will constitute
a quorum at the Annual Meeting; provided, however, if a quorum is
not present or represented at the Annual Meeting, the stockholders
entitled to vote at the Annual Meeting, present in person or
represented by proxy, have the power to adjourn the Annual Meeting
from time to time, without notice, other than by announcement at
the Annual Meeting, until a quorum is present or represented. At
any such adjourned Annual Meeting at which a quorum is present or
represented, any business may be transacted that might have been
transacted at the original date of the Annual Meeting.
Votes cast by proxy or in person shall be counted by a person or
persons appointed by the Company to act as inspector of election
for the Annual Meeting. The inspector of election will treat
shares presented by proxies that reflect abstentions as shares that
are present and entitled to vote for the purpose of determining the
presence of a quorum. Abstentions will have no effect on other
proposals to be voted on at the Annual Meeting. Unless
authorization to vote for a proposal pending at the Annual Meeting
is withheld, if no direction is made for a vote cast by proxy, the
proxy shall be voted for such proposals.
Broker non-votes occur where a broker holding shares in street name
votes the shares on some proposals but not others. Brokers are
permitted to vote on routine, non-controversial proposals in
instances where they have not received voting instructions from the
beneficial owner of the shares, but are not permitted to vote on
non-routine proposals. The missing votes on non-routine proposals
are deemed to be "broker non-votes." The inspector of election
shall treat broker non-votes as shares that are present and
entitled to vote for the purpose of determining the presence of a
quorum. However, for the purpose of determining the outcome of any
proposal as to which the broker has indicated on the proxy that it
does not have discretionary authority to vote, those shares will be
treated as not present and not entitled to vote with respect to
that proposal (even though those shares are considered entitled to
vote for quorum purposes and may be entitled to vote on other
proposals). Except for the purpose of determining the presence of
a quorum, broker non-votes will have no effect on the outcome of
the proposal to be voted on at the Meeting.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the
power to revoke it at any time before it is voted at the Annual
Meeting. It may be revoked by filing with the Secretary of the
Company, Marshall R. Fisco, Jr., CEC Entertainment, Inc., 4441 West
Airport Freeway, Irving, Texas 75062, a written notice of
revocation or duly executed proxy bearing a later date, or it may
be revoked by attending the Annual Meeting and voting in person.
Attendance at the Annual Meeting will not, by itself, revoke a
proxy.
Page 2
PRINCIPAL HOLDERS OF CAPITAL STOCK
The following table sets forth information, as of May 4, 2000,
relating to the beneficial ownership of the Company's Common Stock
and Preferred Stock by: (i) each director and executive officer (as
hereinafter defined) of the Company as of such date, (ii) the
directors and the executive officers of the Company as a group (10
persons) as of such date, and (iii) each person, as that term is
used in the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), known to the Company to own beneficially 5% or
more of the outstanding shares of Common Stock or Preferred Stock.
Except as otherwise indicated, each of the persons named in the
table is believed by the Company to possess sole voting and
investment power with respect to the shares of Common Stock or
Preferred Stock beneficially owned by such person. Information as
to the beneficial ownership of Common Stock and Preferred Stock by
directors and executive officers of the Company has been furnished
by the respective directors and executive officers.
Percentage of Class Outstanding
-------------------------------
Number of Number of
Shares of Shares of
Name (and address for Common Preferred Common Preferred
5% beneicial owners Stock Stock Stock Stock
-------- --------- ------- ----------
Richard M. Frank 1,369,969(A) 0 5.1% 0.0%
Michael H. Magusiak 235,557(B) 0 (C) 0.0%
J. Roger Cardinale 31,015(D) 0 (C) 0.0%
Gene F. Cramm, Jr. 15,875(E) 0 (C) 0.0%
Mark A. Flores 12,235(F) 0 (C) 0.0%
Richard T. Huston 115,343(G) 0 (C) 0.0%
Thomas W. Oliver 0(H) 0 (C) 0.0%
Tim T. Morris 7,500(I) 0 (C) 0.0%
Louis P. Neeb 1,875(J) 0 (C) 0.0%
Cynthia I. Pharr 11,400(K) 0 (C) 0.0%
Walter Tyree 13,125(L) 0 (C) 0.0%
Raymond Wooldridge 25,125(L) 0 (C) 0.0%
Directors and Executive
Officers as a Group 1,844,834 0 6.9% 0.0%
AMVESCAP PLC
11 Devonshire Square
London EC2M 4YR
England 1,127,550(M) 0 4.2% 0.0%
FMR Corp.
82 Devonshire Street
Boston, MA 02109-3614 2,905,830(N) 0 10.8% 0.0%
Massachusetts Financial
Services Company
500 Boylston Street
Boston, MA 02116 1,638,907(O) 0 6.1% 0.0%
Time Warner, Inc.
75 Rockefeller Plaza
New York, NY 10019 0 16,011(P) 0.0% 33.2%
River Forest State Bank & Trust Co.
7727 West Lake Street
River Forest, IL 60305 0 3,139(Q) 0.0% 6.5%
(Footnotes appear on the following pages)
Page 3
(A) Includes 48,192 shares which are subject to forfeiture
pursuant to the terms of Mr. Frank's employment agreement.
See "Employment Agreements." Includes 772,500 shares
purchasable pursuant to options issued under the Company's
Non-Statutory Stock Option Plan which are exercisable within
60 days of the date hereof, but excludes 347,500 shares
purchasable pursuant to options issued under the Company's
Non-Statutory Stock Option Plan which are not exercisable
within 60 days of the date hereof.
(B) Includes 186,235 shares purchasable pursuant to options issued
under the Company's Non-Statutory Stock Option Plan which are
exercisable within 60 days of the date hereof, but excludes
237,500 shares purchasable pursuant to options issued under
the Company's Non-Statutory Stock Option Plan which are not
exercisable within 60 days of the date hereof.
(C) Constitutes less than 1% of the Company's outstanding Common
Stock.
(D) Includes 31,015 shares purchasable pursuant to options issued
under the Company's Non-Statutory Stock Option Plan which are
exercisable within 60 days of the date hereof, but excludes
45,353 shares purchasable pursuant to options issued under the
Company's Non-Statutory Stock Option plan which are not
exercisable within 60 days of the date hereof.
(E) Includes 15,875 shares purchasable pursuant to options issued
under the Company's Non-Statutory Stock Option Plan which are
exercisable within 60 days of the date hereof, but excludes
57,219 shares purchasable pursuant to options issued under the
Company's Non-Statutory Stock Option plan which are not
exercisable within 60 days of the date hereof.
(F) Includes 12,235 shares purchasable pursuant to options issued
under the Company's Non-Statutory Stock Option Plan which are
exercisable within 60 days of the date hereof, but excludes
52,828 shares purchasable pursuant to options issued under the
Company's Non-Statutory Stock Option Plan which are not
exercisable within 60 days of the date hereof.
(G) Includes 55,755 shares purchasable pursuant to options issued
under the Company's Non-Statutory Stock Option Plan which are
exercisable within 60 days of the date hereof, but excludes
87,462 shares purchasable pursuant to options issued under the
Company's Non-Statutory Stock Option Plan which are not
exercisable within 60 days of the date hereof.
(H) Includes 0 shares purchasable pursuant to options issued under
the Company's Non-Statutory Stock Option Plan which are
exercisable within 60 days of the date hereof, but excludes
64,191 shares purchasable pursuant to options issued under the
Company's Non-Statutory Stock Option Plan which are not
exercisable within 60 days of the date hereof.
(I) Includes 7,500 shares purchasable pursuant to options issued
under the Non-Employee Directors Stock Option Plan which are
exercisable within 60 days of the date hereof, but excludes
8,075 shares purchasable pursuant to options issued under the
Company's Non-Employee Directors Stock Option Plan which are
not exercisable within 60 days of the date hereof.
(J) Includes 1,875 shares purchasable pursuant to options issued
under the Non-Employee Directors Stock Option Plan which are exercisable
within 60 days of the date hereof, but excludes 8,125 shares
purchasable pursuant to options issued under the Company's Non-
Employee Directors Stock Option Plan which are not exercisable within
60 days of the date hereof.
(K) Includes 11,250 shares purchasable pursuant to options issued
under the Non-Employee Directors Stock Option Plan which are
exercisable within 60 days of the date hereof, but excludes
8,125 shares purchasable pursuant to options issued under the
Company's Non-Employee Directors Stock Option Plan which are
not exercisable within 60 days of the date hereof.
(L) Includes 13,125 shares purchasable pursuant to options issued
under the Non-Employee Directors Stock Option Plan which are
exercisable within 60 days of the date hereof, but excludes
8,125 shares purchasable pursuant to options issued under the
Company's Non-Employee Directors Stock Option Plan which are
not exercisable within 60 days of the date hereof.
(M) Based upon information in Schedule 13G dated February 8, 1999.
This number includes 1,127,550 shares beneficially owned by
AMVESCAP PLC, as a parent company to various companies. Of
its total shares, AMVESCAP PLC has shared voting and
dispositive power over 1,127,550 shares.
(N) Based upon information in Schedule 13G dated January 10, 2000.
This number includes 2,339,500 shares beneficially owned by
Fidelity Management & Research Company, as an investment
adviser to various investment companies and certain other
funds; 454,400 shares beneficially owned by Fidelity
Management Trust Company, as a trustee or managing agent for
various private investment accounts; and 111,930 shares
beneficially owned by Fidelity International Limited, as an
investment advisor to various non-U.S. investment companies.
Of its total shares, FMR Corp. has sole voting power over
566,330 shares and sole dispositive power over 2,905,830
shares. Fidelity International Limited has sole voting and
dispositive power over 111,930 shares.
(O) Based on information in Schedule 13G dated February 11, 2000.
This number includes 1,583,100 shares beneficially owned by
MFS Series Trust II - MFS Emerging Growth Fund; and 55,807
shares beneficially owned by certain non-reporting entities as
well as Massachusetts Financial Services. Of its total
shares, Massachusetts Financial Services Company has sole
voting and dispositive power over 1,638,907 shares.
(P) Based on information in Amendment No. 2 to Schedule 13D dated
July 1, 1994, and the Company's Transfer Agent on May 4, 2000.
Of its total shares, Time Warner, Inc. has shared voting and
dispositive power over 16,011 shares.
(Q) Based on information obtained from the Company's Transfer
Agent on May 4, 2000.
Page 4
PROPOSAL 1:
ELECTION OF DIRECTORS
The terms of the Class III directors expire at the Annual Meeting
of the stockholders in 2000. The Board of Directors has nominated
Richard M. Frank, Tim T. Morris, and Louis P. Neeb for re-election
at the Annual Meeting, to serve for a term of three years. Messrs.
Frank, Morris, and Neeb have expressed their intention to serve the
entire term for which re-election is sought.
Directors will be elected by cumulative voting. To be elected as
a director, a candidate must be among the three candidates who
receive the most votes out of all votes cast at the Annual Meeting
for the election of directors. See "Quorum and Voting."
The following table lists the names and ages (as of May 4, 2000) of
the three director nominees and the five directors whose terms of
office will continue after the Annual Meeting, the year in which
each director was first elected as a director of the Company, the
class to which each director has been or will be elected, and the
Annual Meeting at which the term of each director will expire.
Term Director
Nominee Directors Age Since Class Expires
- ----------------- ----- ------------ ----- -------
Richard M. Frank ......... 52 1985 III 2000
Tim T. Morris............. 53 1997 III 2000
Louis P. Neeb ............ 61 1994 III 2000
Continuing Directors
- --------------------
Michael H. Magusiak....... 44 1988 I 2001
Walter Tyree.............. 48 1997 I 2001
Richard T. Huston ........ 54 1999 II 2002
Cynthia I. Pharr.......... 51 1994 II 2002
Raymond E. Wooldridge..... 61 1997 II 2002
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
NAMED NOMINEES.
Page 5
ADDITIONAL INFORMATION ABOUT THE EXECUTIVE OFFICERS, BOARD OF
DIRECTORS AND COMMITTEES OF THE BOARD OF DIRECTORS
EXECUTIVE OFFICERS
The following table sets forth the names and certain other
information regarding the executive officers of the Company as of
May 4, 2000.
Year First Elected
Name Age Position as Executive Officer
- ---- ----- -------- --------------------
Richard M. Frank... 52 Chairman of the Board and 1985
Chief Executive Officer
Michael H. Magusiak... 44 President 1988
J. Roger Cardinale.... 40 Executive Vice President, 1999
Development and Purchasing
Gene F. Cramm, Jr..... 42 Executive Vice President, 1997
Games, Entertainment and
Concept Evolution
Mark A. Flores........ 42 Executive Vice President, 1999
Director of Operations
Richard T. Huston..... 54 Executive Vice President, 1986
Marketing
Thomas W. Oliver...... 60 Executive Vice President, 2000
General Counsel
BUSINESS HISTORY OF EXECUTIVE OFFICERS AND DIRECTORS
A brief description of the business history of the directors and
executive officers of the Company is provided below.
RICHARD M. FRANK has been Chairman of the Board and Chief Executive
Officer of the Company since March 1986 and has been a Director of
the Company since June 1985. He served as President and Chief
Operating Officer from June 1985 until October 1988. He joined the
Company in 1985.
MICHAEL H. MAGUSIAK was elected President of the Company in June
1994. He had previously served as Executive Vice President, Chief
Financial Officer and Treasurer since June 1988. He has also
served as a Director of the Company since 1988. He was Vice
President of the Company from October 1987 to June 1988 and
Controller of the Company from October 1987 to January 1989. He
joined the Company in July 1987.
J. ROGER CARDINALE has served as Executive Vice President of the
Company since December 1999. He assumed the duties of Director of
Development in April 2000, Director of Real Estate in January 1999,
and has served as Director of Purchasing since September 1990.
Mr. Cardinale has held various positions with the Company since
November 1986, including Staff Accountant and Cash Manager.
GENE F. CRAMM, JR. has served as Executive Vice President of the
Company since September 1997. Prior to that time he had served as
a Senior Vice President since September 1989. He has also served
as a Director of Construction from June 1994 until April 2000. Mr.
Cramm has held various positions with the Company since 1980,
including Director of Entertainment and Games, Senior Vice
President, International Development and Special Projects, Senior
Vice President, Operational Support, and Director of Purchasing.
Page 6
MARK A. FLORES has served as Executive Vice President of the
Company since May 1999. Prior to that he served as Senior Vice
President of the Company since 1995 and Regional Manager of the
Western Region since 1992. He joined the company in 1982.
RICHARD T. HUSTON has served as Executive Vice President of the
Company since July 1986 and as Director of Marketing and Strategic
Development since January 1993. He has also served as a Director
of the Company since 1999. His responsibilities as an officer of
the Company were expanded from June 1994 to March 1997 to include
Entertainment as well as Marketing. He served as Director of
Marketing and Development from October 1988 to January 1993. He
served as Vice President from October 1985 to July 1986, and as
Director of Marketing from October 1985 to October 1988. He joined
the Company in 1985.
THOMAS W. OLIVER has served as Executive Vice President and General
Counsel of the Company since March 2000. Prior to joining the
Company, Mr. Oliver was a shareholder for 23 years in the Dallas
office of the law firm of Winstead, Sechrest and Minick.
TIM T. MORRIS was elected as a Director of the Company in June
1997. Mr. Morris is currently the President of River Associates,
LLC, an investment firm; he has been a Partner in that firm since
1990. From 1981 through 1990 Mr. Morris was an Office Managing
Partner of Deloitte & Touche, an accounting firm. From 1977
through 1981 Mr. Morris was a Partner of Rogers, Morris, Millsaps
& Underwood, CPA's, an accounting firm. From 1968 through 1977 Mr.
Morris was a Partner of Hazlett, Lewis & Bieter, CPA's, an
accounting firm.
LOUIS P. NEEB was elected as a Director of the Company in August
1994. Mr. Neeb has served as Chairman of the Board and Chief
Executive Officer of Casa Ole' Restaurants, Inc. from October 1995
to the present. From August 1982 to present, Mr. Neeb has been
President of Neeb Enterprises, Inc., a management consulting firm
specializing in consulting to restaurant companies. From July 1991
through January 1994, Mr. Neeb was President and Chief Executive
Officer of Spaghetti Warehouse, Inc. Mr. Neeb has also had other
extensive experience in the restaurant industry including serving
as Chairman of the Board of Burger King Corporation. Mr. Neeb is
a member of the Board of Directors of the Franchise Finance
Corporation of America, a publicly-traded real estate trust which
provides real estate for restaurants, and Silver Diner, Inc., a
publicly-traded restaurant company.
CYNTHIA I. PHARR was elected as a Director of the Company in August
1994. She is currently President and owner of C. Pharr & Company,
a communications management consulting firm. She has served in that
position since March 1993. From May 1989 through February 1993,
Ms. Pharr was President and Chief Executive Officer of Tracy -
Locke/Pharr P R, a public relations firm. From August 1986 through
April 1989, she was President and owner of C. Pharr & Company, Inc.
a public relations agency. Ms. Pharr had served as a member of the
Board of Directors of Spaghetti Warehouse, Inc. from August 1991
until January 1999, and as as Chairman of the Board of GuestCare,
Inc., a privately held technology company, from February 1994 until
June 1999.
WALTER TYREE was elected as a Director of the Company in June 1997.
Mr. Tyree is currently Division President of Boston Chicken, Inc.
Mr. Tyree has served in that position since October 1999. He
previously held the position of Vice President of Operations for
Boston Chicken from October 1998 until October 1999. Mr. Tyree had
served as Chief Operating Officer of BCBM Southwest, Inc., a Boston
Market franchisee, from January 1993 until October 1998. From 1980
through 1992, Mr. Tyree served in various positions with Steak and
Ale, a restaurant company, most recently as a Regional Director.
RAYMOND E. WOOLDRIDGE was elected as a Director of the Company in
June 1997. Mr. Wooldridge currently serves as a member of the
National Adjudicatory Committee of the National Securities Dealers
Association - Regulation and as a member of the Board of Trustees
of the University of Dallas. Mr. Wooldridge previously served as
Vice Chairman and Chairman of the Executive Committee of Southwest
Securities Group, Inc., a publicly owned holding firm. Mr.
Wooldridge is also a Director of Dadco, Inc., a subsidiary of D. A.
Davidson & Company, a member of NASD and the Pacific Stock
Exchange. Mr. Wooldridge had served in these positions from 1986
until 1996. From 1964 through 1986, Mr. Wooldridge served in
various positions with Eppler, Guerin and Turner, Inc., a regional
brokerage and investment banking firm, most recently as the firm's
President and Chief Executive Officer.
Except as set forth above, none of the Directors of the Company
hold directorships in any company with a class of securities
registered pursuant to Section 12 of the Securities Exchange Act of
1934 (the "Exchange Act") or subject to the requirements of Section
15(d) of the Exchange Act or any company registered as an
investment company under the Investment Company Act of 1940.
Page 7
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
Four (4) regularly scheduled and six (6) special meetings of the
Board of Directors were held during 1999. Each of the directors
attended at least 75% of the meetings held by the Board of
Directors, and by each committee on which he or she served in 1999.
The Board of Directors has established an Executive Committee, an
Audit Committee, a Compensation Committee, and a Stock Option
Committee. The responsibilities and composition of each of these
committees are described below.
The Executive Committee currently consists of four directors. The
Executive Committee is responsible for assisting the Board of Directors
in carrying out its duties and acts in the place of the Board of
Directors when the Board of Directors is not in session and may
exercise substantially all of the powers of the Board of Directors
other than those powers specifically required by law or by the
Company's Bylaws to be exercised by the full Board of Directors.
The Executive Committee (comprised of Messrs. Frank, Magusiak, Neeb
and Ms. Pharr in 1999) held a number of informal meetings in person
and by telephone in 1999.
The Audit Committee currently consists of three directors. The Audit
Committee is responsible for carrying out various responsibilities
relating to accounting, reporting practices, and the quality and
integrity of the financial reports of the Company, as more completely
described in the Audit Committee Charter. The Audit Committee
(comprised of Messrs. Morris, Tyree and Wooldridge in 1999) held two
(2) meetings in 1999. Effective February 1, 2000, the Audit Committee
was comprised of Messrs. Morris and Tyree, and Ms. Pharr.
The Compensation Committee currently consists of two directors. The
Compensation Committee is responsible for (i) recommending the
compensation, including performance bonuses, payable to the
Company's executive officers, and (ii) recommending the performance
bonuses for other employees of the Company. The Compensation
Committee (comprised of Messrs. Frank, Neeb and Wooldridge until
April 4, 1999, and thereafter comprised of Ms. Pharr and Messrs.
Neeb and Wooldridge) held two (2) meetings in 1999. Effective February
1, 2000, the Compensation Committee was comprised of Messrs. Neeb and
Wooldridge.
The Stock Option Committee currently consists of two directors who are
responsible for administering the 1997 Non-Statutory Stock Option Plan.
The Stock Option Committee (comprised of Messrs. Neeb and Wooldridge in
1999) held six (6) meetings in 1999.
AUDIT COMMITTEE CHARTER
The Company has adopted an Audit Committee Charter which is
designed to assist the Audit Committee in carrying out its
responsibilities relating to accounting, reporting practices, and
the quality and integrity of the financial reports of the Company.
The Audit Committee Charter provides as follows:
Organization
There shall be a committee of the Board of Directors to be known as
the Audit Committee. The Audit Committee shall be composed of
Directors who are independent of the management of the Company
and are free of any relationship that, in the opinion of the Board
of Directors, would interfere with their exercise of independent
judgment as a committee member.
Statement of Policy
The Audit Committee shall provide assistance to the corporate
directors in fulfilling their responsibility to the shareholders,
potential shareholders, and investment community relating to
corporate accounting, reporting practices of the Company, and
the quality and integrity of the financial reports of the
Company. In so doing, it is the responsibility of the Audit
Committee to maintain free and open means of communication between
the directors, the independent auditors, the internal auditors, and
the financial management of the Company.
Composition
The Audit Committee shall be comprised of three or more directors
as determined by the Board, each of whom shall be independent
directors, and free from any relationship that, in the opinion of
the Board, would interfere with the exercise of his or her
independent judgement as a member of the committee. All members of
the Audit Committee shall have a working familiarity with basic
finance and accounting practices, and at least one member of the
Audit Committee shall have accounting or related financial
management expertise.
Page 8
Meetings
The Audit Committee shall meet at least twice annually, or more
frequently as circumstances dictate. As part of its job to foster
open communications, the Audit Committee should meet at least
annually with management, the director of the internal auditing
department and the independent auditors in separate executive
sessions to discuss any matters that the Audit Committee or each of
these groups believe should be discussed privately.
Responsibilities
In carrying out its responsibilities the Audit Committee believes
its policies and procedures should remain flexible, in order to
best react to changing conditions and to ensure to the directors
and shareholders that the corporate accounting and reporting
practices of the Company are in accordance with all
requirements and are of the highest quality. In carrying out these
responsibilities, the Audit Committee will:
Recommend to the Board of Directors the selection of the
independent auditors, considering the independence and
effectiveness and approve the fees and other compensation
to be paid to the independent auditors. On an annual
basis, the Audit Committee should review and discuss with
the auditors all significant relationships the auditors
have with the Company to determine the auditors'
independence. Also, the Audit Committee should obtain
formal written affirmation of independence from the
independent auditors.
Meet with the independent auditors and financial
management of the Company to review the scope of the
proposed audit for the current year and at the conclusion
thereof review such audit, including any comments or
recommendations of the independent auditors.
Review with the independent auditors, the company's
internal auditors, and financial and accounting
personnel, the quality of accounting principles as well
as the adequacy and effectiveness of the accounting and
financial controls of the Company, and elicit any
recommendations for the improvement of such accounting
principles, internal control procedures or particular
areas where new or more detailed controls or procedures
are desirable. Particular emphasis should be given to
the adequacy of such internal controls to expose any
payments, transactions, or procedures that might be
deemed illegal or otherwise improper.
Review and update this Charter periodically, at least
annually, as conditions dictate.
Review the company's annual audited financial statements
and recommend that such statements be filed in Form 10K
with the SEC and New York Stock Exchange.
Review with financial management the quarterly 10Q prior
to its filing and review earnings releases to the public
prior to their release. The chairman of the Audit
Committee may represent the entire Audit Committee for
purposes of these reviews. In instances when the
Chairman of the Audit Committee is not available then
another independent member of the Board of Directors, as
designated by the Chairman of the Audit Committee, may
conduct the reviews.
Review the regular internal reports to management
prepared by the internal auditing department.
Submit the minutes of all meetings of the Audit Committee
to, or discuss the matters discussed at each Audit
Committee meeting with, the Board of Directors.
Investigate any matter brought to its attention within
the scope of its duties, with the power to retain outside
counsel for this purpose if, in its judgment, that is
appropriate.
Page 9
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid to the Chief
Executive Officer and to each of the other most highly paid
executive officers of the Company (the "Named Executive Officers")
for the fiscal years ended January 2, 1998, January 3, 1999, and
January 2, 2000 (designated herein as fiscal years 1997, 1998 and
1999, respectively.)
Long Term
Annual Compensation Compensation Awards
---------------------------------------------------
Other Restricted Securities
Annual Stock Underlying
Name (and Fiscal Compensation Awards Options
Principal Position) Year Salary($) Bonus($) ($)(A) ($) (#)(B)
- ------------------ ------ --------- ------- ------------ ------ --------
Richard M.Frank 1999 1,000,000 380,800(C) 41,681 -- 97,500
(Chief Executive 1998 1,000,000 433,700(D) 39,988 -- 0
Officer) 1997 1,000,000 0 29,841 -- 750,000
Michael H. 1999 300,000 99,960(C) 22,426 -- 150,000
Magusiak (President) 1998 250,000 194,873(D) 18,194 -- 0
1997 250,000 94,879(E) 17,874 -- 187,500
Richard T. Huston 1999 175,000 49,949(C) 17,866 -- 45,000
(Executive Vice 1998 167,600 54,521(D) 16,771 -- 26,460
President) 1997 160,000 52,003(E) 15,672 -- 25,200
Larry G. Page 1999 139,400 39,786(C) 18,516 -- 21,956
(Executive Vice 1998 136,519 44,524(D) 17,650 -- 21,578
President) 1997 134,500 43,789(E) 14,923 -- 21,184
Gene F. Cramm, Jr. 1999 142,500 40,665(C) 15,452 -- 22,444
(Executive Vice 1998 135,000 43,912(D) 14,930 -- 21,262
President) 1997 120,593 34,699(E) 9,191 -- 20,976
- -------------
(A) Includes annual car allowances for (i) Mr. Frank of $15,600
(in 1997, 1998 and 1999); (ii) Mr. Magusiak of $9,000 (in
1997), and $12,000 (in 1998 and 1999); (iii) Messrs. Huston
and Page of $9,000 (in 1997), and $10,200 (in 1998 and
1999); and (iv) Mr. Cramm of $6,000 (in 1997), and $10,200
(in 1998 and 1999).
(B) On July 23, 1999, the Common Stock of the Company split 3-
for-2, resulting in an additional amount of shares of
Common Stock underlying options for the Named Executive
Officers for fiscal year 1999. The amounts listed above
have been adjusted to reflect the stock split.
(C) Includes bonus compensation earned in 1999 and paid in
2000.
(D) Includes bonus compensation earned in 1998 and paid in
1999.
(E) Includes bonus compensation earned in 1997 and paid in
1998.
(F) Mr. Page resigned his position as Executive Vice President
and Chief Financial Officer of the Company effective April
28, 2000.
Page 10
EMPLOYMENT AGREEMENTS
On March 3, 1997, Richard M. Frank entered an employment
agreement with the Company providing for a three-year term
commencing on January 1, 1998. Pursuant to the terms of the
employment agreement, Mr. Frank receives an annual base salary of
$1,000,000, 105,000 shares of the Company's Common Stock issued
under the Company's Stock Grant Plan (subsequently adjusted in
1999 as the result of a 3-for-2 stock split),a cash bonus,
payable annually, if earned, based upon the achievement of corporate
objectives, and such additional benefits and/or compensation as may
be determined by the Compensation Committee or the Board of Directors.
On April 28, 1999, Michael H. Magusiak entered into an employment
agreement with the Company providing for a five-year term
commencing on January 4, 1999. Pursuant to the terms of the
employment agreement, Mr. Magusiak receives an annual base salary
of $400,000 (increased from $300,000 by the Compensation
Committee effective January 1, 2000), 100,000 shares of the
Company's Common Stock issued under the Company's 1997 Non-
Statutory Stock Option Plan (subsequently adjusted in 1999 as the
result of a 3-for-2 stock split), a cash bonus, payable annually, if
earned, based upon the achievement of corporate objectives, and
such additional benefits and/or compensation as may be determined by
the Compensation Committee or the Board of Directors.
Under the terms of the respective employment agreements (the
"Employment Agreements"), if Mr. Frank's or Mr. Magusiak's (the
"Covered Executive(s)") employment with the Company is terminated
by the Company (other than as a result of death or "permanent
disability" (as defined in the Employment Agreements)), then Mr.
Frank will be entitled to receive a severance amount equal to
$3,000,000, and Mr. Magusiak will be entitled to receive a
severance amount equal to twenty-four times his then current
monthly base salary (together, the "Severance Amounts"). In the
event of the Covered Executive's death, his estate is entitled to
receive his base salary through the date of his death.
The Employment Agreements also provide that each of Messrs. Frank
and Magusiak will receive his respective Severance Amount in the
event there is a Change of Control (as defined below) of the
Company and the Covered Executive voluntarily terminates his
employment within one year after such a Change of Control. A
"Change of Control" is deemed to have occurred with respect to
the Company if (i) any person or group of persons acting in
concert in which the Covered Executive is not an investor, partner,
officer, director or member, shall acquire, directly or
indirectly, the power to vote, or direct the voting of, more than
33% of the then outstanding voting securities of the Company or
(ii) during any consecutive 18 month period a majority of the
Board of Directors is elected or appointed and consists of
persons who were not directors of the Company as of the date of
the respective Employment Agreement and whose election or
appointment as directors of the Company is actively opposed by
the Covered Executive.
Page 11
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock
options granted to each of the Named Executive Officers in the
fiscal year ended January 2, 2000.
Potential Realizable
Value at
Assumed Annual
Number of % of Total Rates of Stock
Securities Options Price Appreciation
Underlying Granted to Exercise for Option Term ($)
Options Employees in Price Expiration -------------------
Granted(#) Fiscal Year ($/Share) Date 5% 10%
---------- ---------- ------ -------- ------- ----------
Richard M.
Frank (A) 97,500 12.50% 17.5009 01/08/06 694,650 1,618,803
Michael H.
Magusiak (B) 150,000 19.23% 17.5009 01/08/06 1,068,692 2,490,466
Richard T.
Huston (C) 45,000 5.77% 17.5009 01/08/06 320,608 747,140
Larry G.
Page (C) 21,956 2.81% 17.5009 01/08/06 156,428 364,538
Gene F.
Cramm, Jr.(C) 22,444 2,88% 17.5009 01/08/06 159,905 372,640
(A) Options to acquire these shares are exercisable as follows:
(i) thirty-three percent (33%) of the option after January
8, 2001, (ii) an aggregate of sixty-six percent (66%) of
the option after January 8, 2002, and (iii) an aggregate of
one hundred percent (100%) of the option after January 8,
2003.
(B) Options to acquire these shares are exercisable as follows:
(i) thirty percent (30%) of the option after January 8,
2001, and (ii) an aggregate of sixty-five percent (65%) of
the option after January 8, 2002, and (iii) an aggregate of
one hundred percent (100%) of the option after January 8,
2003.
(C) Options to acquire these shares are exercisable as follows:
(i) fifty percent (50%) of the option after January 8,
2001, and (ii) an aggregate of seventy-five percent (75%)
of the option after January 8, 2002, and (iii) an aggregate
of one hundred percent (100%) of the option after January
8, 2003.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth, for each of the Named Executive
Officers, information regarding his exercise of stock options
during the fiscal year ended January 2, 2000 and the value of his
unexercised stock options as of January 2, 2000. The closing
price for the Company's Common Stock, as reported by the New York
Stock Exchange, on December 31, 1999 (the last trading day of the
fiscal year) was $28.25.
Value of
Number of Unexercised
Unexercised In-the-Money
Shares Options at Options at
Acquired January 2, 2000 January 2, 2000
on Value exerciseable exerciseable
Exercise Realized /unexerciseable) /unexerciseable)
(#) ($) (A) (#) ($) (B)
-------- --------- ------------- ----------------
Richard M. Frank 0 0 772,500(E) 12,753,908(E)
97,500(U) 1,048,037(U)
Michael H. Magusiak 0 1,404,416 186,235(E) 3,335,948(E)
187,500(U) 2,159,216(U)
Richard T. Huston 0 0 36,225(E) 747,984(E)
84,060(U) 573,738(U)
Larry G. Page 0 775,962 31,382(E) 649,919(E)
54,126(U) 709,193(U)
Gene F. Cramm, Jr. 0 449,813 5,244(E) 83,791(E)
48,950(U) 616,488(U)
- -----------------
Page 12
(A) Calculated by determining the difference between the fair
market value of the securities underlying the options and
the exercise price of the options at the time of exercise.
(B) Calculated by determining the difference between the
exercise price of the options and the fair market value of
the securities underlying the options at fiscal year-end.
(E) Options which are exercisable at January 2, 2000.
(U) Options which are not exercisable at January 2, 2000.
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The executive compensation program of the Company is designed as
a tool to reinforce the Company's strategic principles to be a
premier and progressive growth company, with an objective of
enhancing long term stockholder value. To this end, the
following principles have guided the development of the executive
compensation program:
Provide competitive levels of compensation to attract
and retain the best qualified executive talent. The
Compensation Committee strongly believes that the
caliber of the Company's management group makes a
significant difference in the Company's success over
the long term.
Embrace a "pay-for-performance" philosophy by placing
significant amounts of compensation "at risk" that is,
a significant component of the compensation payouts to
executives must vary according to the overall
performance of the Company.
Directly link executives' interests with those of
stockholders by providing opportunities for long term
incentive compensation based on changes in stockholder
value.
The executive compensation program is intended to appropriately
balance the Company's short term operating goals with its long
term strategy through a careful mix of base salary, annual
bonuses (payable upon the achievement of corporate objectives pursuant to
the Incentive Bonus Program) and long term performance compensation
through the issuance of stock options under the 1997 Non-
Statutory Stock Option Plan.
The compensation of the executive officers of the Company
(including Messrs. Frank and Magusiak, except for those items
that are fixed per their respective employment agreements) is
reviewed and determined annually by the Compensation Committee.
The compensation of such executive officers in 1999 was based on
individual and corporate performances as well as assigned
responsibilities. In establishing and reviewing executive
compensation, consideration is also given to executive salary
ranges of comparable companies. Individual performance is
reflected in the executive officer's salary. Corporate
performance is reflected in a bonus, payable annually, if earned,
to each executive officer, based on the achievement of targets
for corporate objectives. Although no bonus compensation was
paid in 1999 based upon performances in 1999, Messrs. Frank and
the four most highly compensated executive officers (Magusiak,
Huston, Page and Cramm) as a group received $380,800, $99,960,
$49,949, $39,786, and $40,665, respectively, and $611,160
(collectively), of bonus compensation in 2000 for services
rendered in 1999.
The Stock Option Committee is made up of the members of the
Compensation Committee, all of whom are non-employee directors.
The Stock Option Committee ratifies and approves option
recommendations made by the Chief Executive Officer. In 1999,
the Compensation Committee determined the number of options to
issue in accordance with the 1997 Non-Statutory Stock Option Plan
based upon base salaries and levels of responsibility.
Page 13
CEO Performance Evaluation
Although Mr. Frank's salary is established by the terms of his
Employment Agreement (see "Employment Agreements"), the
Compensation Committee nevertheless annually evaluates his
performance based on the same criteria as is applied to the other
executive officers of the Company. Stock option issuances to Mr.
Frank, and any increase in his annual base salary or the granting
of a bonus, are based on individual and corporate performance,
applying the same factors for him as described above for the
Company's other executives.
The Compensation Committee has also considered the potential
impact of Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), adopted under the Omnibus Budget
Reconciliation Act of 1993. This section disallows a tax
deduction for any publicly-held corporation for individual
compensation to certain executives of such corporation exceeding
$1,000,000 in any taxable year, unless compensation is
performance-based. As discussed above, Mr. Frank's annual base
salary is $1,000,000. It is the intent of the Company and the
Compensation Committee to qualify to the maximum extent possible
its executives' compensation for deductibility under applicable
tax laws. The Compensation Committee will continue to monitor
the impact of such limitations on tax deductions and will take
other appropriate actions if warranted in the future.
The Compensation Committee was comprised of Messrs. Frank, Neeb
and Wooldridge until April 4, 1999. Thereafter, the Compensation
Committee was comprised of Ms. Pharr, and Messrs. Neeb and
Wooldridge for the remainder of 1999. Effective February 1,
2000, the Compensation Committee was comprised of Messrs. Neeb
and Wooldridge. The Stock Option Committee was comprised of
Messrs. Neeb and Wooldridge in 1999.
Louis P. Neeb
Raymond E. Wooldridge
COMPENSATION OF DIRECTORS
Non-employee directors of the Company or its affiliates, receive
a retainer from the Company at the rate of $10,000 per year, plus
$750 for each meeting of the Board of Directors attended. In
addition thereto, on the day a non-employee Director is first
elected or appointed to the Board, such non-employee Director
shall be granted an option to purchase 7,500 shares of the Common
Stock of the Company. Each January thereafter, a non-employee
Director who was previously elected to the Board and who
continues to serve in such capacity shall be granted an option to
purchase 2,500 shares of the Common Stock of the Company. Other
directors, who are either officers or employees of the Company or
its affiliates, do not receive separate compensation for their
services as directors of the Company.
Page 14
PROPOSAL 2:
AMENDMENT OF THE COMPANY'S NON-EMPLOYEE DIRECTORS
STOCK OPTION PLAN
EXTENDING THE TERM OF THE PLAN
The Non-Employee Directors Stock Option Plan ("Directors Plan")
became effective in June 1995. Options to purchase up to 225,000
shares of the Company's Common Stock may be granted under the
Directors Plan. The Directors Plan provides for the granting of
nonqualified stock options to non-employee directors of the
Company or its Affiliates (as defined in the Directors Plan).
The goal of the Directors Plan is to provide a means of retaining
and attracting competent non-employee personnel to serve on the
Board of Directors by extending to such individuals long-term
incentives for high levels of performance and to award for
unusual efforts designed to improve the financial performance of
the Company. The Directors Plan is administered by a committee
comprised of the President and the Chief Financial Officer of the
Company.
In April 2000, the Board of Directors adopted, subject to the
approval of the Company's stockholders, an amendment to the
Directors Plan that extends the term thereof for an additional
ten (10) years. The description of the Directors Plan contained
herein is not intended to be complete and is qualified in its entirety
by reference to Exhibit "A" attached hereto, which contains the
complete text of the Directors Plan, as amended.
The Board of Directors believes that the proposed amendment to
the Directors Plan will enable the Company and its stockholders,
through future grants and stock options, to continue to secure
the benefits of the incentive inherent in stock ownership by its
non-employee Directors.
THE BOARD OF DIRECTORS HAS APPROVED THE ABOVE DESCRIBED
AMENDMENT AND UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENT
TO THE COMPANY'S NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN.
PROPOSAL 3:
AMENDMENT OF THE COMPANY'S NON-EMPLOYEE DIRECTORS
STOCK OPTION PLAN
ALLOWING FOR ADJUSTMENTS IN SHARES SUBJECT TO AWARD
The Non-Employee Directors Stock Option Plan ("Directors Plan") became
effective in June 1995. Options to purchase up to 225,000 shares of the
Company's Common Stock may be granted under the Directors Plan. The Directors
Plan provides for the granting of non-qualified stock options to non-
employee directors of the Company or its Affiliates (as defined in the
Directors Plan). The goal of the Directors Plan is to provide a means of
retaining and attracting competent non-employee personnel to serve on the
Board of Directors by extending to such individuals long-term incentives for
high levels of performance and to award for unusual efforts designed to
improve the financial performance of the Company. The Directors Plan is
administered by a committee comprised of the President and the Chief
Financial Officer of the Company.
In April 2000, the Board of Directors adopted, subject to the approval of
the Company's stockholders, an amendment to the Director's Plan that
allows for an adjustment in the number of shares that are subject to options
issued each year and initially to new non-employee Directors if a dividend
or stock split shall be declared upon the Common Stock of the Company. The
description of the Directors Plan contained herein is not intended to be
complete and is qualified in its entirety by reference to Exhibit "A"
attached hereto, which contains the complete text of the Directors Plan,
as amended.
The Board of Directors believes that the proposed amendment to the Directors
Plan will enable the Company and its stockholders, through future grants and
stock options, to continue to secure the benefits of the incentive inherent
in stock ownership by its non-employee directors.
THE BOARD OF DIRECTORS HAS APPROVED THE ABOVE DESCRIBED AMENDMENT AND
UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE COMPANY'S NON-
EMPLOYEE DIRECTORS STOCK OPTION PLAN.
PROPOSAL 4:
AMENDMENTS OF THE COMPANY'S 1997 NON-STATUTORY STOCK OPTION PLAN
The 1997 Non-Statutory Stock Option Plan ("Employee Plan") became
effective in September, 1997. The purpose of the Employee Plan
is to secure for the Company and its shareholders the benefits of
the incentives inherent in stock ownership by key employees of
the Company and its subsidiaries. The Employee Plan terminates
on July 31, 2007, and no option may be granted after such date
pursuant to the Employee Plan. The Employee Plan is currently
administered by the Stock Option Committee. The Stock Option
Committee determines, in its discretion but subject to the
limitations set forth in the Employee Plan, the persons to whom
options are granted, the number of shares covered by options and
the exercise price of options. The Stock Option Committee also
determines the conditions, if any, imposed upon the granting of
options under the Employee Plan. To date, the Stock Option
Committee has issued options under the Employee Plan to eligible
employees in proportion to their respective responsibilities to
the Company. The Stock Option Committee provides for various
periods of time to pass before options become exercisable
according to the Company's long term strategic plans. In April
2000, the Board of Directors adopted, subject to the approval of
the Company's stockholders, amendments to the Employee Plan
providing that (1) the number of shares of Common Stock which may be
issued under the Employee Plan would be increased from 2,737,500
to 3,087,500, and (2) any amendment to the Employee Plan must be
approved by the stockholders of the Company if the amendment would
(a) materially increase the aggregate number of shares of stock which
may be issued pursuant to options granted under the Employee Plan, (b)
materially modify the requirements as to eligibility for participation
in the Employee Plan, or (c) materially increase the benefits accuring
to holders of options under the Employee Plan. The description of the
Employee Plan contained herein is not intended to be complete and is
qualified in its entirety by reference to Exhibit "B" attached hereto,
which contains the complete text of the Employee Plan, as amended.
The Board of Directors believes that the proposed amendments to
the Employee Plan will enable the Company and its stockholders,
through future stock options, to continue to secure the benefits
of the incentive inherent in stock ownership by certain of its
employees.
THE BOARD OF DIRECTORS HAS APPROVED THE ABOVE DESCRIBED AMENDMENTS
AND UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENTS TO
COMPANY'S 1997 NON-STATUTORY STOCK OPTION PLAN.
Page 15
PROPOSAL 5:
THE COMPANY'S INCENTIVE BONUS PROGRAM
The Compensation Committee has established an Incentive Bonus
Program for all employees of the Company. Individuals (excluding
Field Operators, and Training and Recruiting managers) are
eligible to receive a bonus as a percentage of their gross base
salary during a particular fiscal year ranging from a high of one hundred
percent (100%) for the Chief Executive Officer to a low of two
percent (2%) for new management salaried and hourly employees
with less than five (5) years tenure with the Company. For the Chief
Executive Officer and the four highest compensated officers other
than the Chief Executive Officer, the term "gross base salary during a
particular fiscal year" shall mean the gross base salary in effect on
the first day of the fiscal year. The term "four highest compensated
officers other than the Chief Executive Officer" shall mean any employee
for whom total compensation is required to be reported to stockholders
under the Securities Exchange Act of 1934 by reason of such employee
being among the four highest compensated officers for the fiscal year.
Bonuses are paid within six (6) weeks of the Company's fiscal year end
and an individual must be employed on a full-time status at the
time bonuses are paid to be eligible for the bonus.
An employee is eligible to receive one hundred percent (100%) of
his or her bonus potential if the Company achieves a thirty
percent (30%) cash on cash return on capital expenditures. The
cash on cash return is equal to the fiscal year's cash flow
(income before taxes plus depreciation, amortization, and pre-
opening expenses) minus the prior fiscal year's cash flow divided
by the weighted average increase in capital expenditures. The
bonus potential for employees will increase or decrease four
percent (4%) for each one percent (1%) change from a thirty
percent (30%) cash on cash return. However, no bonuses will be
paid if the cash on cash return is less than twenty percent
(20%).
New management level employees of the Company (those whose salary
is below $42,000 per year) must be full-time and employed by
April the 1st of a particular year to be eligible for a bonus for
such year. New hires or management level and above will have
their bonus prorated based on their hire date. If an individual
is promoted during the year, his or her bonus will be prorated
based upon the time and salary at each level.
The Board of Directors believes that the proposed Incentive Bonus
Program will enable the Company and its stockholders, through
future awards, to continue to secure the benefits of the
incentive inherent in performance based awards by certain of its
employees.
Although already established by the Compensation Committee, the
Incentive Bonus Program is being submitted to the stockholders
because approval by stockholders every five years is required to satisfy
the conditions necessary for the Company to exclude the bonuses
under the Incentive Bonus Program from the $1,000,000 limit on
deductiblility of compensation for certain executives according to
Code Section 162(m).
THE BOARD OF DIRECTORS HAS APPROVED THE ABOVE DESCRIBED INCENTIVE
BONUS PROGRAM AND UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE COMPANY'S
INCENTIVE BONUS PROGRAM.
Page 16
INDEMNIFICATION
The Bylaws of the Company provide for each director and officer
of the Company to be indemnified by the Company, as of right, to
the full extent permitted or authorized by the laws of the State
of Kansas against any liability, judgment, fine, amount paid in
settlement, cost and expense asserted or threatened against or
incurred by such person in his capacity, or arising out of his
status, as a director or officer. The Company's Restated
Articles of Incorporation include a provision which eliminates
director liability for monetary damages for breach of the
director's duty of due care, as permitted under Kansas law.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION;
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Board of Directors intends that transactions with officers,
directors and affiliates will be entered into on terms no less
favorable to the Company than could be obtained from unrelated
third parties and will be approved by at least a simple majority
of the uninterested directors of the Company.
Page 17
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative yearly total
stockholder return (change in share price plus reinvestment of
any dividends) on the Company's Common Stock since January 3,
1989 (the date the Company's Common Stock first traded on the
NASDAQ system), versus two indexes. The graph assumes $100 was
invested on January 3, 1989. The Company has not paid any cash
dividends on its Common Stock during the applicable period. The
share price of the Company's Common Stock has been adjusted for
three-for-two stock splits in the form of stock dividends
distributed on March 26, 1991, March 20, 1992, May 22, 1996, and
July 23, 1999.
The Company's Common Stock is labeled on the graph as "CEC
Entertainment, Inc." The index labeled "NYSE Stocks," which was
prepared by the Center for Research in Securities Prices ("CRSP")
at The University of Chicago, Graduate School of Business, 1101
East 58th Street, Chicago, Illinois 60637 (telephone
312-702-7467) measures the total return (weighted for the market
capitalization of the component companies) on the approximately
35 domestic and foreign companies which operate restaurants or
other eating and drinking places (SIC Code 58) and whose equity
securities are traded on the New York Stock Exchange. The
identities of the companies included in the "NYSE Stocks" index
will be made available in a prompt manner to any stockholder upon
written request addressed to Investor Relations at the Company's
Irving address. The index labeled "NYSE Stock Market," also
prepared by CRSP, measures the total return on the approximately
3,100 United States companies whose common stock is traded on the
New York Stock Exchange.
(Graph Data follows)
LEGEND
--------------
CRSP
Total Returns
Symbol Index for: 01/1989 12/1991 12/1993 12/1995 01/1998 01/2000
- ------ ------------- ------- ------- ------- ------- ------- -------
_____ CEC Entertain-
ment, Inc. 100.0 872.7 542.0 496.0 1411.4 2416.2
NYSE Stock Market
(US Companies) 100.0 160.0 197.0 267.0 430.8 556.3
NYSE Stocks (SIC
5800-5899 US
Companies)Eating 100.0 134.3 207.0 257.6 312.5 435.9
and drinking places
Notes:
A. These lines represent monthly index levels derived from compounded
daily returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on
the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The index level for all series wa set to $100.00 onn 01/03/1989.
Page 18
COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors and the persons who
own more than ten percent of the Company's Common Stock to file
initial reports of ownership of Common Stock and reports of
changes of ownership with the Securities and Exchange Commission
and the National Association of Securities Dealers, Inc. and to
furnish the Company with copies of such reports. Based on review
of such copies and other records of the Company, the Company has
no reason to believe that any reports were untimely filed or that
any Form 5 filings were made by any executive officers, directors
or persons owning more than ten percent of the Company's Common
Stock.
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Deloitte & Touche LLP served as the Company's
independent public accountants for the fiscal year ending January
2, 2000. A representative of Deloitte & Touche LLP is expected
to be present and available at the Annual Meeting of stockholders
to respond to appropriate questions and will be given an
opportunity to make a statement, if desired.
SUBMISSION OF STOCKHOLDER PROPOSALS
Any stockholder who wishes to present a proposal for action at
the 2001 annual meeting of stockholders and who wishes to have it
set forth in the proxy statement and identified in the form of
proxy prepared by the Company, must deliver such proposal to the
Company at its principal executive offices, not less than 60 days
nor more than 90 days prior to the date of the applicable annual
meeting of stockholders; provided, however, that in the event
that less than 70 days' notice or prior public disclosure of the
date of the meeting is given or made, notice by the stockholder
to be timely must be so received not later than the close of
business on the tenth (10th) day following the day on which such
notice of the date of the applicable annual meeting was mailed or
such public disclosure of the date of such annual meeting was
made, whichever first occurs. For purposes of this section, the
date of a public disclosure shall include, but not be limited to,
the date on which such disclosure is made in a press release
reported by the Dow Jones News Services, the Associated Press or
any comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange
Commission pursuant to Sections 13, 14, or 15(d) (or the rules
and regulations thereunder) of the Securities Exchange Act of
1934, as amended (the "Exchange Act").
To be in proper written form, a stockholder's notice to the
Secretary of the Company must set forth (a) as to each person
whom the stockholder proposes to nominate for election as a
director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or
employment of the person, (iii) the class or series and number of
shares of capital stock of the corporation that are owned
beneficially or of record by the person and (iv) any other
information relating to the person that would be required to be
disclosed in a proxy statement or other filing required to be
made in connection with solicitations of proxies for election of
directors pursuant to Section 14 of the Exchange Act and (b) as
to the stockholder giving the notice (i) the name and record
address of such stockholder, (ii) the class or series and number
of shares of capital stock of the corporation that are owned
beneficially or of record by such stockholder, (iii) a
description of all arrangements or understandings between such
stockholder and each proposed nominee and any other person or
persons (including their names) pursuant to which the
nomination(s) are to be made by such stockholders, (iv) a
representation that such stockholder intends to appear in person
or by proxy at the meeting to nominate the persons named in its
notice and (v) any other information relating to such stockholder
that would be required to be disclosed in a proxy statement or
other filing required to be made in connection with solicitations
of proxies for election of directors pursuant to Section 14 of
the Exchange Act and the rules and regulations promulgated
thereunder. Such notice must be accompanied by a written consent
of each proposed nominee to being named as a nominee and to serve
as a director if elected.
Page 19
MISCELLANEOUS
The accompanying proxy is being solicited on behalf of the Board
of Directors of the Company. The expense of preparing, printing
and mailing the proxy and the material used in the solicitation
thereof will be borne by the Company. In addition to the use of
the mails, proxies may be solicited by directors and officers and
employees of the Company by means of personal interview,
telephone or telegram. Arrangements may also be made with
brokerage houses and other custodians, nominees and fiduciaries
for the forwarding of solicitation materials to the beneficial
owners of stock held of record by such persons, and the Company
may reimburse them for reasonable out-of-pocket expenses of such
solicitation.
By Order of the Board of Directors,
MARSHALL R. FISCO, JR.
Corporate Secretary
Irving, Texas
May 18, 2000
Page 20
Exhibit A
PROPOSAL 2:
AMENDMENT OF THE COMPANY'S NON-EMPLOYEE
DIRECTORS STOCK OPTION PLAN
CEC ENTERTAINMENT, INC.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
ARTICLE I
PURPOSE AND ADMINISTRATION
1.1 Purpose. The purpose of the CEC Entertainment, Inc.
Non-Employee Directors Stock Option Plan (the "Plan") is to
strengthen CEC Entertainment, Inc. (the "Company") by providing a
means of retaining and attracting competent non-employee
personnel to serve on its board of directors by extending such
individuals added long-term incentives for high levels of
performance and for unusual efforts designed to improve the
financial performance of the Company. In order to effectuate
this intent, the Company will, pursuant to this Plan, grant to
each non-employee director the herein specified options to
acquire shares of common stock of the Company ("Common Stock"),
which options shall vest over a specified period of time.
1.2 Administration. The Plan shall be administered by a
committee (the "Committee") which shall be comprised of the
President of the Company and the Chief Financial Officer of the
Company.
Subject to the express provisions of the Plan, the Committee
shall have powers and authorities which are exclusively
ministerial in nature, including the authority to construe and
interpret the Plan, to define the terms used in the Plan, to
prescribe, amend and rescind rules and regulations relating to
the administration of the Plan, and to make all other
determinations necessary or advisable for the administration of
the Plan. The determinations of the Committee on all such
matters referred to in this Plan shall be conclusive. No member
of the Committee shall be liable for any action, failure to act,
determination or interpretation made in good faith with respect
to the Plan or any transaction under the Plan.
1.3 Participation. Each member of the Board of Directors
of the Company (the "Board") who is not employed by the Company
or any Affiliate (collectively, the "Non-Employee Directors")
shall be eligible and shall participate in the Plan. For
purposes of the Plan, the term "Affiliate" shall mean any entity
in which the Company directly or through intervening subsidiaries
owns twenty-five percent (25%) or more of the total combined
vetoing power or value of all classes of stock or, in the case of
an unincorporated entity, a twenty-five percent (25%) or more
interest in the capital and profits.
1.4 Stock Subject to the Plan. Subject to adjustment as
provided in Section 3.1 hereof, the stock to be offered under the
Plan shall be treasury shares or shares of the Company's
authorized but unissued Common Stock (hereinafter collectively
called "Stock"). The aggregate number of shares of Stock to be
issued upon exercise of all options granted under the Plan shall
not exceed 225,000 shares, subject to adjustments as set forth in
Section 3.1 hereof. If any option granted hereunder shall lapse
or terminate for any reason without having been fully exercised,
the shares subject thereto shall again be available for purposes
of the Plan.
1.5 Restrictions on Exercise. No option granted hereunder
may be exercised until a registration statement under the
Securities Act of 1933, as amended (the "Act"), relating to the
Stock issuable upon exercise of such option has been filed with,
and declared effective by, the Securities and Exchange Commission
(the "Commission"), and there is available for delivery a
prospectus meeting the requirements of Section 10 of the Act, or
until the Committee has determined that the issuance of Stock
upon such exercise is exempt from the registration and prospectus
requirements of the Act.
ARTICLE II
STOCK OPTIONS
2.1 Grant and Option Price. (a) On the day a Non-Employee
Director is first elected or appointed to the Board, such Non-
Employee Director shall be granted an option to purchase 7,500
shares of Stock.
(b) On the fifth Business Day in January of the year
following the effective date of the Plan, each Non-Employee
Director who was previously elected to the Board and who
continues to serve in such capacity at such time shall be granted
an option to purchase 2,500 shares of Stock. For purposes of the
Plan, the term "Business Day" shall mean a day on which the New
York Stock Exchange is open for business and is conducting normal
trading activity.
(c) The purchase of the Stock covered by each option
granted under the Plan shall be equal to the Fair Market Value of
such Stock on the grant date. For purposes of the Plan, the term
"Fair Market Value" shall mean the average of the closing prices
of the Common Stock as reported by the New York Stock Exchange
for the five trading-day period ending on and including the date
of grant.
(d) The total grant under both paragraphs (a) and (b) above
shall be limited accordingly to the greatest number of whole
shares of Stock which may thus be granted thereunder.
2.2 Stock Option Agreement. Each option granted pursuant
to the Plan shall be evidenced by a Stock Option Agreement
("Option Agreement"), in such form as the Committee shall
require, between the Company and the Non-Employee Director to
whom the option has been granted (the "Optionee").
2.3 Option Period. Each option and all rights or obligations
thereunder shall expire on the fifth anniversary of the grant date
(the "Expiration Date"); provided, however, the option shall be
subject to earlier termination as hereinafter provided.
2.4 Vesting and Exercise of Options. (a) Subject to
Section 3.2 hereof, an option granted pursuant to Sections 2.1(a)
or (b) hereof shall be exercisable only to the extent of shares
that have vested in accordance with the following schedule:
(b) The purchase price of the stock purchased upon exercise
of an option shall be paid in full in cash or by check at the
time of each exercise of an option; provided, however, that if
the Option Agreement so provides and upon receipt of all
regulatory approvals, the person exercising the option may
deliver in payment of a portion or all of the purchase price
certificates for Common Stock of the Company, which shall be
valued at the Fair Market Value of such Stock on the date of
exercise of the option.
2.5 Non-Transferability of Options. An option granted
under the Plan shall, by its terms, be non-transferable by the
Optionee other than by will or by the laws of descent and
distribution or pursuant to a qualified domestics relations
order. During the Optionee's lifetime, the option shall be
exercisable only by the Optionee or by the Optionee's duly
appointed guardian or personal representative.
2.6 Termination of Directorship. (a) If the directorship
of the Optionee is terminated for any reason other than (i) death
of the Optionee, or (ii) on account of any act of fraud or
intentional misrepresentation or embezzlement, misappropriation
or conversion of assets or opportunities of the Company or any
Affiliate, an option (to the extent otherwise exercisable on the
date of such termination) shall be exercisable by the Optionee at
any time prior to the Expiration Date of the option or within
thirty (30) days after the date of such termination of the
directorship, whichever is the shorter period.
(b) If an Optionee dies while serving as a member of the
Board, the option shall be exercisable (whether or not
exercisable on the date of the death of such Optionee) by the
person or persons entitled to do so under the Optionee's will,
or, if the Optionee shall fail to make testamentary disposition
of said option or shall die intestate, by the Optionee's legal
representative or representatives, at any time prior to the
Expiration Date of the option or within ninety (90) days after
the date of such death, whichever is the shorter period. If an
Optionee dies during the thirty (30) day period described in
subsection (a) above, the option shall be exercisable (but only
to the extent exercisable on the date of death of such Optionee)
by the person or persons described above at any time within the
thirty (30) day period described in subsection (a) above or
within ninety (90) days after the date of such death, whichever
is the longer period, but in no event after the Expiration Date
of the option.
(c) The option of a Non-Employee Director shall
automatically terminate as of the date his or her directorship is
terminated, if the directorship is terminated on account of any
act of (a) fraud or intentional misrepresentation, or (b)
embezzlement, misappropriation or conversion of assets or
opportunities of the Company or any Affiliate.
2.7 Issuance of Stock Certificates. Upon exercise of an
option, but subject to the provisions of Section 3.5 of the Plan,
the person exercising the option shall be entitled to one stock
certificate evidencing the shares acquired upon such exercise;
provided, however, that any person who tenders Common Stock in
payment of a portion or all of the purchase price of Stock
purchased upon exercise of the option shall be entitled to
receive a separate certificate representing the number of shares
purchased in consideration of the tender of such Common Stock.
ARTICLE III
OTHER PROVISIONS
3.1 Adjustments Upon Changes in Capitalization. (a) If a
dividend or stock split shall be hereinafter declared upon the
Common Stock of the Company payable in shares of Common Stock of
the Company, the number of shares of Common Stock (i) then
subject to grant under Section 2.1 (a) and (b), (ii) then subject
to any option which has been granted, and (iii) then reserved for
issuance pursuant to the Plan but not yet covered by an option
shall be adjusted by adding to each such share the numbers of
shares which would be distributable thereon if such share had
been outstanding on the date fixed for determining the
stockholders entitled to receive such stock dividend or stock
split.
(b) If the outstanding shares of the Common Stock of the
Company shall be changed into or exchanged for a different number
or kind of shares of stock or other securities of the Company or
of another corporation, whether through reorganization,
recapitalization, stock split, combination of shares, merger or
consolidation, and the Company continues thereafter as the
surviving entity, then there shall be substituted for each share
of Stock subject to any such option and for each share of Stock
reserved for issuance pursuant to the Plan but not yet covered by
an option, the number and kind of shares of stock or other
securities into which each outstanding share of Common Stock
shall be changed or for which each such share shall be exchanged.
(c) If there shall be any change, other than as specified
above in subsection (a) and (b), in the number or kind or
outstanding shares of Common Stock of the Company or of any stock
or other securities into which Common Stock shall have been
changed or for which it shall have been exchanged, then if the
Committee shall in its sole discretion determine that such change
equitably requires an adjustment in the number or kind of shares
theretofore reserved for issuance pursuant to the Plan but not
yet covered by an option and of the shares then subject to an
option or options, such adjustment shall be made by the Committee
and shall be effective and binding for all purposes of the Plan
and of each Option Agreement.
(d) In the case of any such substitution or adjustment as
provided for in this Section 3.1, the option price in each Option
Agreement for each share covered thereby prior to such
substitution or adjustment will be the option price for all
shares of stock or other securities which shall have been
substituted for such share or to which such adjustment provided
for in this Section 3.1 shall be made. No adjustment or
substitution provided for in this Section 3.1 shall require the
Company pursuant to any Option Agreement to sell a fractional
share, and the total substitution or adjustment with respect to
each Option Agreement shall be limited accordingly.
3.2 Continuation of Directorship. Nothing contained in
this Plan (nor in any option granted pursuant to this Plan) shall
confer upon any Non-Employee Director any right to continue as a
member of the Board or constitute any contract or agreement or
interfere in any way with the right of the Company to remove such
Non-Employee Director from the Board. Nothing contained herein
or in any Option Agreement shall affect any other contractual
rights of a Non-Employee Director.
3.25 Change of Control. If while any unexercised options
remain outstanding under the Plan, a Change of Control (as
hereinafter defined) shall have occurred, then all such options
shall be exercisable in full, notwithstanding Section 2.4 hereof
or any other provision in the Plan or Option Agreement to the
contrary. For purposes of the Plan, a "Change of Control" shall
be deemed to have occurred with respect to the Company: (A) on
the date in which the Company executes an agreement or an
agreement in principle (i) with respect to any merger,
consolidation or other business combination by the Company with
or into another entity and the Company is not the surviving
entity, or (ii) to sell or otherwise dispose of all or
substantially all of its assets, or (iii) to adopt a plan of
liquidation; or (B) on the date in which public announcement is
made that the "beneficial ownership" [as defined in Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")], of securities representing more than 50% of the
combined voting power of the Company is being acquired by a
"person" within the meaning of sections 13(d) and 14(d) of the
Exchange Act; or (C) if, during any period of eighteen (18)
consecutive months, individuals who at the beginning of such
period were members of the Board of Directors cease for any
reason to constitute at least a majority thereof (unless the
appointment or election, or the nomination for election by the
Company's stockholders, of each new director was approved by a
vote of at least a majority of the directors then still in office
who were directors at the beginning of such period); provided,
however, that in no event shall a change in the composition of
the Company's Board of Directors pursuant to an election of Board
members pursuant to Section 4.6 of the Company's Articles of
Incorporation, as amended, constitute or result in a Change of
Control for purposes of this Section 3.25.
3.3 Amendment and Termination. The Board may at any time
suspend or terminate the Plan. No option may be granted during
any suspension of the Plan or after such termination. The
amendment, suspension or termination of the Plan shall not,
without the consent of the Optionee, alter or impair any rights
or obligations under any option theretofore granted under the
Plan.
The Board may at any time amend the Plan as it shall deem
advisable without further action on the part of the stockholders
of the Company, provided, that the Board may not amend any
provision of the Plan relating to the amount and price of Stock
subject to the options granted hereunder or the timing of grants
hereunder more than once every six months, other than to comport
with changes in the Internal Revenue Code of 1986, as amended,
the Employee Retirement Income Security Act, or the rules
thereunder, and provided further, that any amendment to the Plan
must be approved by the stockholders of the Company if the
amendment would (a) materially increase the aggregate number of
shares of Stock which may be issued pursuant to options granted
under the Plan, (b) materially modify the requirements as to
eligibility for participation in the Plan, or (c) materially
increase the benefits accruing to holders of options under the
Plan.
3.4 Time of Exercise. An option shall be deemed to be
exercised when the Secretary of the Company receives written
notice of such exercise from the person entitled to exercise the
option together with payment of the purchase price made in
accordance with Section 2.4 of the Plan.
3.5 Privileges of Stock Ownership and Non-Distributive
Intent. The holder of an option shall not be entitled to the
privilege of stock ownership as to any shares of Stock not
actually issued and delivered to the holder. Subject to the
provisions of Section 1.5 above, upon exercise of an option for
Stock at a time when there is not in effect under the Act a
registration statement relating to the Stock issuable upon
exercise thereof or not available for delivery a prospectus
meeting the requirements of Section 10 of the Act, the holder of
the option shall execute a stock purchase agreement in which he
shall represent and warrant in writing to the Company that, inter
alia, the shares of Stock purchased are being acquired for
investment and not with a view to the resale or distribution
thereof. No shares of Stock shall be issued upon the exercise of
any option unless and until there shall have been compliance with
any then applicable requirements of the Commission, other
regulatory agencies having jurisdiction and any exchanges upon
which securities subject to the option may be listed.
3.6 Effective Date of the Plan. The Plan shall be
effective upon approval by the affirmative vote of the holders of
a majority of the outstanding shares of Common Stock and the
Company's outstanding shares of preferred stock, voting as one
class, present and entitled to vote at a meeting duly held or by
the written consent of the holders of a majority of the Common
Stock and the Company's outstanding shares of preferred stock,
voting as one class, entitled to vote.
3.7 Expiration. Unless previously terminated or extended
by the Board, the Plan shall expire at the close of business on
the date which is the last day of the fifteen (15) year period
beginning on the date on which the stockholders approve the Plan,
and no option shall be granted under it thereafter, but such
expiration shall not affect any option theretofore granted.
3.8 Governing Law. The Plan and the options issued
hereunder shall be governed by, and construed and enforced in
accordance with, the laws of the State of Texas applicable to
contracts made and performed within that State.
3.9 Applications of Funds. The proceeds received by the
Company from the sale of shares pursuant to options shall be used
for general corporate purposes.
3.10 No Liability for Good Faith Determinations. Neither
the members of the Board not any member of the Committee shall be
liable for any act, omission or determination taken or made in
good faith with respect to the Plan or any option granted under
it.
3.11 Information Confidential. As partial consideration
for the granting of each option hereunder, the Optionee shall
agree with the Company that he will keep confidential all
information and knowledge which he has relating to the manner and
amount of his participation in the Plan; provided, however, that
such information may be given in confidence to the Optionee's
spouse or to a financial institution to the extent that such
information is necessary.
3.12 Execution of Receipts and Releases. Any payment or
any issuance or transfer of shares of Stock to the Optionee, or
to his legal representative, heir, legatee or distributee, in
accordance with the provisions hereof, shall, to the extent
thereof, be in full satisfaction of all claims of such persons
hereunder. The Board may required any Optionee, legal
representative, heir, legatee or distributee, as a condition
precedent to such payment, to execute a release and receipt
therefor in such form as it shall determine.
3.13 No Guarantee of Interests. Neither the Board nor the
Company guarantees the Stock from loss or depreciation.
3.14 Payment of Expenses. All expenses incident to the
administration, termination or protection of the Plan, including,
but not limited to, legal and accounting fees, shall be paid by
the Company.
3.15 Company Records. Records of the Company and any
Affiliate regarding the Optionee's period of service, termination
of service and the reason therefor, leaves of absence, and other
matters shall be conclusive for all purposes hereunder, unless
determined by the Board to be incorrect.
3.16 Information. The Company and any Affiliate shall,
upon request or as may be specifically required hereunder,
furnish or cause to be furnished all of the information or
documentation which is necessary or required by the Committee to
perform its duties and functions under the Plan.
3.17 No Liability of Company. The Company assumes no
obligation or responsibility to the Optionee or his or her
personal representatives, heirs, legatees or distributees for any
act of, or failure to act on the part of , the Board or the
Committee.
3.18 Company Action. Any action required of the Company
shall be by resolution of the Board or by a person authorized to
act by Board resolution.
3.19 Severability. If any provision of this Plan shall be
held to be illegal or invalid for any reason, the illegality or
invalidity shall not affect the remaining provisions hereof, but
shall be fully severable and the Plan shall be construed and
enforced as if the illegal or invalid provision had never been
included herein.
3.20 Notice. Whenever any notice is required or permitted
hereunder, such notice must be in writing and personally
delivered or sent by mail. Except as otherwise provided in
Section 3.4 of this Plan, any notice required or permitted to be
delivered hereunder shall be deemed to be delivered on the date
on which it is personally delivered or, whether actually received
or not, on the third (3rd) business day after it is deposited in
the United States mail, certified or registered, postage prepaid,
addressed to the person who is to receive it at the address which
such person has theretofore specified by written notice delivered
in accordance herewith. The Company or an Optionee may change,
at any time and from time to time, by written notice to the
other, the address which it or he had theretofore specified for
receiving notice. Until it is changed in accordance herewith,
the Company and each Optionee shall specify as its and his
address for receiving notice the address set forth in the Option
Agreement pertaining to the shares to which such notice relates.
3.21 Waiver of Notices. Any person entitled to notice
hereunder may waive such notice.
3.22 Successors. The Plan shall be binding upon the
Optionee, his or her heirs, legatees and legal representatives,
upon the Company, its successors and assigns and upon the Board
and its successors.
3.23 Headings. The titles and headings of sections and
paragraphs are included for convenience of reference only and are
not to be considered in construction of the provisions hereof.
3.24 Word Usage. Words used in the masculine shall apply
to the feminine where applicable and, wherever the context of
this Plan dictates, the plural shall be read as the singular and
the singular as the plural.
Exhibit B
PROPOSAL 3:
AMENDMENT OF THE COMPANY'S 1997 NON-STATUTORY STOCK OPTION PLAN
CEC ENTERTAINMENT, INC.
1997 NON-STATUTORY STOCK OPTION PLAN
CEC ENTERTAINMENT, INC., a corporation organized and existing
under the laws of the state of Kansas (the "Company"), hereby
formulates and adopts, with respect to the shares of common stock
of the Company ("Common Stock"), a non-statutory stock option plan
for certain individuals who are key employees of the Company or its
subsidiaries, as follows:
1. Purpose of Plan. The purpose of this 1997 Non-Statutory
Option Plan (the "Plan") is to encourage certain individuals who
are directors or key employees to participate in the ownership of
the Company, and to provide additional incentive for such
individuals to promote the success of its business through sharing
in the future growth of such business.
2. Effective Date of the Plan. The provisions of this Plan
became effective on August 1, 1997.
3. Administration. This Plan shall be administered by the
Stock Option Committee of the Board of Directors of the Company
(the "Committee"), which shall be comprised of two (2) or more
directors, each of whom shall be "Non-Employee Directors," as
defined in Rule 16b-3(c), promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and who are also
"Outside Directors," as defined in Section 162(m) of the Internal
Revenue Code of 1986, as amended from time to time (the "Code"),
and any Treasury Regulations that may be promulgated thereunder.
The Committee shall have full power and authority to construe,
interpret and administer this Plan, and may from time to time adopt
such rules and regulations for carrying out this Plan as it may
deem proper and in the best interests of the Company. Subject to
the terms, provisions and conditions of this Plan, the Committee
shall have the authority to select the individuals to whom options
shall be granted, to determine the number of shares subject to each
option, to determine the time or times when options will be
granted, to determine the option price of the shares subject to
each option, to determine the time when each option may be
exercised, to fix such other provisions of each option agreement as
the Committee may deem necessary or desirable, consistent with the
terms of this Plan, and to determine all other questions relating
to the administration of this Plan. The interpretation and
construction of this Plan by the Committee shall be final,
conclusive and binding upon all persons.
4. Eligibility. Options to purchase shares of Common Stock
shall be granted under this Plan only to those individuals selected
by the Committee from time to time who, in the sole discretion of
the Committee, are key employees at the time of the grant and who
have made material contributions in the past, or who are expected
to make material contributions in the future, to the successful
performance of the Company.
5. Shares Subject to the Plan. Options granted under this
Plan shall be granted solely with respect to shares of Common
Stock. Subject to any adjustments made pursuant to the provisions
of Section 12, the aggregate number of shares of Common Stock which
may be issued upon exercise of all the options which may be granted
under this Plan shall not exceed 3,087,500. If any option granted
under this Plan shall expire or terminate for any reason without
having been exercised in full, the unpurchased shares subject to
such options shall be added to the number of shares otherwise
available for options which may be granted in accordance with the
terms of this Plan. The shares to be delivered upon exercise of
the options granted under this Plan shall be made available, at the
discretion of the Committee, from either the authorized but
unissued shares of Common Stock or any treasury shares of Common
Stock held by the Company.
6. Option Certificate or Contract. Each option granted
under this Plan shall be evidenced by either a certificate or a
non-statutory stock option contract which shall be signed by an
officer of the Company, and by the individual to whom the option
is granted (the "Optionee"), in the event a contract has been
issued. The terms of said contract shall be in accordance with the
provisions of this Plan, but it may include such other provisions
as may be approved by the Committee. The grant of an option under
this Plan shall be deemed to occur on the date on which the
certificate or contract evidencing such option is executed by the
Company, and every Optionee shall be bound by the terms and
restrictions of this Plan and such certificate or contract.
7. Option Price. The price at which shares of Common Stock
may be purchased under an option granted pursuant to this Plan
shall be determined by the Committee, but in no event shall the
price be less than 100 percent (100%) of the fair market value of
such shares on the date that the option is granted. The fair
market value of shares of Common Stock for purposes of this Plan
shall be determined by the Committee, in it sole discretion.
8. Period and Exercise of Option.
(a) Period -- Subject to the provisions of Section 9 and
10 hereof with respect to the death or termination of employment of
an Optionee, the period during which each option granted under this
Plan may be exercised shall be fixed by the Committee at the time
such option is granted, provided that such period shall expire no
later than seven (7) years from the date on which the option is
granted (the "Grant Date").
(b) Employment -- The option may not be exercised to any
extent until the Optionee has been continuously, for a period of at
least one (1) year after the Grant Date, employed by the Company or
a subsidiary of the Company.
(c) Exercise -- Any option granted under this Plan may
be exercised by the Optionee only by delivering to the Company, or
its agent, written or verbal notice, as may be specified by the
Company from time to time, of the number of shares with respect to
which he is exercising his option right, paying in full the option
price of the purchased shares, and furnishing to the Company, or
its agent, a representation in writing signed by the Optionee that
he is familiar with the business and financial condition of the
Company, is purchasing the shares of stock in good faith for
himself for investment purposes and not with a view towards the
sale or distribution thereof, and will not effect any sale in
violation of any laws or regulations of the United States or any
state. Subject to the limitations of this Plan and the terms and
conditions of the respective stock option certificate or contract,
each option granted under this Plan shall be exercisable in whole
or in part at such time or times as the Committee may specify in
such stock option certificate or contract.
(d) Payment for Shares -- Payment for shares of Common
Stock purchased pursuant to an option granted under this Plan may
be made in either cash or in shares of Common Stock.
(e) Delivery of Certificates -- As soon as practicable
after receipt by the Company of the notice and representation
described in Subsection (c), and of payment in full of the option
price for all of the shares being purchased pursuant to an option
granted under this Plan, a certificate or certificates, or book
entry with the Company's transfer agent, representing such shares
of stock shall be registered in the name of the Optionee and any
such certificate(s) shall be delivered to the Optionee. However,
no certificate or book entry for fractional shares of stock shall
be issued or recorded by the Company notwithstanding any request
therefor. Neither any Optionee, nor the legal representative,
legatee or distributee of any Optionee, shall be deemed to be a
holder of any shares of stock subject to an option granted under
this Plan unless and until the certificate or certificates, or book
entry with the Company's transfer agent, for such shares have been
issued or recorded, respectively. All stock certificates issued
upon the exercise of any options granted pursuant to this Plan may
bear such legend as the Committee shall deem appropriate regarding
restrictions upon the transfer or sale of the shares evidenced
thereby.
(f) Withholding -- The Company shall have the right to
deduct any sums that the Committee reasonably determines that
Federal, state or local tax law requires to be withheld with
respect to the exercise of any option or as otherwise may be
required by those laws. The Company may require as a condition to
issuing shares of Common Stock upon exercise of the option that the
Optionee or other person exercising the option pay any sums that
Federal, state or local tax law required to be withheld with
respect to the exercise. The Company shall not be obligated to
advise any Optionee of the existence of the tax or the amount which
the Company will be so required to withhold. Upon exercise of an
option, if tax withholding is required, an Optionee may, with the
consent of the Committee, have shares of Common Stock withheld
("Share Withholding") by the Company from the shares otherwise to
be received; provided, however, that if the Optionee is subject to
the provisions of Section 16 under the Exchange Act, no Share
Withholding shall be permitted unless such transaction complies
with the requirements of Rule 16b-3(e) promulgated under the
Exchange Act. The number of shares so withheld should have an
aggregate fair market value (as determined in accordance with the
terms of this Plan) on the date of exercise sufficient to satisfy
the applicable withholding taxes.
9. Termination of Employment. If an Optionee shall cease to
be an employee of the Company or subsidiary of the Company for any
reason other than death after he shall have served in such capacity
continuously for at least one (1) year from the Grant Date, he may,
but only within ten (10) business days next succeeding such
cessation, exercise his option to the extent that he was entitled
to exercise it at the date of such cessation. Nothing in this Plan
or any stock option certificate or contract shall be construed as
an obligation on the part of the Company or of any of its
subsidiary corporations to continue the Optionee as an employee.
10. Death of Optionee. In the event of the death of an
Optionee while serving as an employee of the Company or its
subsidiary, any option or unexercised portion thereof granted to
him under this Plan which is otherwise exercisable may be exercised
by the person or persons to whom such Optionee's rights under the
option pass by operation of the Optionee's will or the laws of
descent and distribution, at any time within a period of three (3)
months following the death of the Optionee (even though such period
is later than the expiration date of the option as specified in
Section 8(a) and in the respective stock option certificate or
contract). Such option shall be exercisable even though the
Optionee's death occurs before he has continuously served as an
employee of the Company or its subsidiary for a period of one (1)
year after the date of grant.
11. Non-Transferability of Options. Each option granted
under this Plan shall not be transferable or assignable by the
Optionee other than by will or the laws of descent and
distribution, and during the lifetime of the Optionee may otherwise
be exercised only by him.
12. Adjustments upon Changes in Capitalization. In the event
of any change in the capital structure of the Company, including
but not limited to a change resulting from a stock dividend, stock
split, reorganization, merger, consolidation, liquidation or any
combination or exchange of shares, and the Company continues
thereafter as the surviving entity, then the number of shares of
Common Stock subject to this Plan and the number of such shares
subject to each option granted hereunder shall be correspondingly
adjusted by the Committee. The option price for which shares of
Common Stock may be purchased pursuant to an option granted under
this Plan shall be adjusted so that there will be no change in the
aggregate purchase price payable upon the exercise of any option.
13. Amendment and Termination of Plan. No option shall be
granted pursuant to this Plan after July 31, 2007, on which date
this Plan shall expire except as to options then outstanding under
this Plan, which options shall remain in effect until they have
been exercised or have expired. The Committee may at any time
before such date, amend, modify or terminate this Plan; provided,
however, that any amendment to the Plan must be approved by the
stockholders of the Company if the amendment would (a) materially
increase the aggregate number of shares of Stock which may be
issued pursuant to options granted under the Plan, (b) materially
modify the requirements as to eligibility for participation in the
Plan, or (c) materially increase the benefits accruing to holders of
options under the Plan. No amendment, modification or termination of
this Plan may adversely affect the rights of any Optionee under any
then outstanding option granted hereunder without the consent of
such Optionee.
14. Grant of New Option and Re-pricing. An option may be
granted under this Plan which may be conditioned upon the
termination of a non-statutory stock option certificate or contract
previously granted to the Optionee which has not yet been
terminated or been exercised; provided, however, (a) the price for
which shares of Common Stock may be purchased under the new option
may not be less than the price of shares of Common Stock that were
subject to purchase under the terminated option unless the
shareholders of the Company approve the issuance at a lower price and (b)
the Committee may not, without prior shareholder approval, re-price
underwater stock options by either lowering the exercise price of
outstanding options or canceling outstanding options and granting new
replacement options with a lower exercise price.
15. Change of Control. If while unexercised options remain
outstanding under this Plan, a Change of Control (as hereinafter
defined) shall have occurred, then all such options shall be
exercisable in full, notwithstanding Section 8(b) hereof or any
other provision in this Plan or option certificate or contract to
the contrary. For purposes of this Plan, a "Change of Control"
shall be deemed to have occurred with respect to the Company: (A)
on the date in which the Company executes an agreement or an
agreement in principle (i) with respect to any merger,
consolidation or other business combination by the Company with or
into another entity and the Company is not the surviving entity, or
(ii) to sell or otherwise dispose of all or substantially all of
its assets, or (iii) to adopt a plan of liquidation; or (B) on the
date in which public announcement is made that the "beneficial
ownership" (as defined in Rule 13d-3 under the Exchange Act) of
securities representing more than 50% of the combined voting power
of the Company is being acquired by a "person" within the meaning
of sections 13(d) and 14(d) of the Exchange Act; or (C) if, during
any period of eighteen (18) consecutive months, individuals who at
the beginning of such period were members of the Board of Directors
cease for any reason to constitute at least a majority thereof
(unless the appointment or election, or the nomination for election
by the Company's shareholders, of each new director was approved by
a vote of at least a majority of the directors then still in office
who were directors at the beginning of such period); provided,
however, that in no event shall a change in the composition of the
Company's Board of Directors pursuant to an election of Board
members pursuant to Section 4.6 of the Company's Articles of
Incorporation, as amended, constitute or result in a Change of
Control for purposes of this Section 15.
The Committee shall have the right, at the time of grant or
subsequently, in its sole discretion, to establish conditions under
which a specific employee may cease to be a full-time employee of
the Company or any of its subsidiaries but not be deemed to have
terminated his employment with the Company or any of its
subsidiaries for purposes of this Plan, including but not limited
to conditions involving part-time employment or consulting
services. Unless otherwise specifically provided for in an
employee's stock option certificate or contract or in an amendment
or supplement thereto, an employee's employment with the Company or
any of its subsidiaries shall be deemed to terminate when he ceases
to be a full-time employee of the Company or any of its
subsidiaries.
In the event of a merger, consolidation, reorganization or
recapitalization of the Company, the Committee shall have the right
to accelerate the vesting schedule with respect to all or any
portion of the shares of Common Stock granted to any or all of the
employees under this Plan, if and to the extent it deems
appropriate in its sole discretion.
16. Restrictions Applicable to Executive Officers. The
provisions of this Section 16 shall apply only to those executive
officers whose compensation is required to be reported in the
Company's proxy statement pursuant to Item 402(a)(3)(i) (or any
successor thereto) and of Regulation S-K (or any successor thereto)
under the general rules and regulations under the Exchange Act
("Executive Officers"). In the event of any inconsistencies
between this Section 16 and the other provisions of this Plan, as
they pertain Executive Officers, the provisions of this Section
shall control.
No amendment of this Plan with respect to any Executive
Officer may be made which would (i) increase the maximum amount
that can be paid to any one Executive Officer pursuant to this Plan
or (ii) modify the requirements as to the Executive Officer's
eligibility for participation in this Plan, unless the Company's
shareholders have first approved such amendment in a manner which
would permit the deduction under Section 162(m) (or any successor
thereto) of the Code of such payment in the fiscal year it is paid.
The Committee shall amend this Section 16 and such other provisions
as it deems appropriate, to cause amounts payable to certain
Executive Officers to satisfy the requirements of Section 162(m)
(or any successor thereto) and the Treasury Regulations that may be
promulgated thereunder.
The maximum number of shares of Common Stock with respect to
which options may be granted hereunder to any Executive Officer
during any calendar year may not exceed two hundred and fifty
thousand (250,000) shares, subject to any adjustments made pursuant
to the provisions of Section 12.
