EXHIBIT 10(a)
XXXXXXX X. XXXXX
2005 EMPLOYMENT AGREEMENT
This Xxxxxxx X. Xxxxx 2005 Employment Agreement (the "Agreement") is
executed as of the 29th day of March, 2005, by and between XXXXXXX X. XXXXX
("Employee") and CEC ENTERTAINMENT, INC., a Kansas corporation ("Company").
RECITALS:
WHEREAS, the Employee and the Company have heretofore entered into an
agreement whereby Employee is employed by the Company as Chief Executive Officer
pursuant to certain terms and conditions; and
WHEREAS, the Board of Directors of the Company (the "Board of Directors")
has offered Employee continued employment in consideration for the compensation
and the other benefits hereinafter set forth, and Employee is willing to
continue in the employ of the Company on these terms;
NOW, THEREFORE, in consideration of the mutual promises hereinafter
contained and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, it is agreed:
1. Current Employment Agreement. The Company and Employee heretofore
entered into an employment agreement dated November 13, 2000, (the "Current
Employment Agreement"). The term of the Current Employment Agreement expires on
the last day of the fiscal year of the Company ending on or about December 31,
2005. Company and Employee hereby agree and affirm that the Current Employment
Agreement is and shall be in full force and effect through the last day of the
fiscal year of the Company ending on or about December 31, 2005.
2. Term. Following the expiration of the Current Employment Agreement, the
Company employs Employee and Employee accepts employment from the Company upon
the terms and conditions specified in this Agreement. Subject to the provisions
regarding termination set forth in Sections 15 and 16 hereof, the term of this
Agreement shall begin as of the first day of the fiscal year of the Company
beginning on or about January 1, 2006 (the "Effective Date") and shall terminate
on the last day of the fiscal year of the Company ending on or about December
31, 2010 (the "Term").
3. Basic Salary. For services rendered by Employee under this Agreement,
the Company shall pay Employee the "Basic Salary," provided for in this Section
3, as follows:
(a) During the Term of Employee's employment under this Agreement, the
Employee shall receive as Basic Salary the amount of One Million Two
Hundred Thousand Dollars ($1,200,000.00) per year. The Basic Salary may be
increased in such amounts and on such dates as the Compensation Committee
of the Board of Directors (the "Compensation Committee") may determine from
time to time.
(b) The Basic Salary provided for in this Section 3 shall be in
addition to any other compensation and/or benefits provided to Employee (i)
pursuant to this Agreement or (ii) otherwise at the discretion of the
Compensation Committee, including, but not limited to, the annual bonus
opportunity available to home office employees and officers of the Company
at a level commensurate with his position as Chief Executive Officer.
4. Stock Options. Employee has received from the Company on March 4, 2005
options (the "Stock Options") to purchase one hundred fifty thousand (150,000)
shares of the Company's Common Stock, par value $ .10 per share (Common Stock)
pursuant to the Company's 1997 Non-Statutory Stock Option Plan. Of the Stock
Options granted as described in this Section 4, twenty-five percent (25%) shall
vest on March 4, 2006, fifty percent (50%) shall vest on March 4, 2007,
seventy-five percent (75%) shall vest on March 4, 2008 and one hundred percent
(100%) shall vest on March 4, 2009. During the Term of this Agreement, Employee
shall be entitled to receive additional options to purchase shares of Common
Stock in such amounts and at such prices as may be determined by the
Compensation Committee, and he shall also be entitled to receive Common Stock
pursuant to restricted stock awards according to the Company's 2004 Restricted
Stock Plan in such amounts and under such terms as may be determined by the
Compensation Committee.
5. Severance Pay. If the Company terminates the employment of Employee at
any time (other than pursuant to Section 16 hereof), or if a "Change of Control"
occurs with respect to the Company and Employee voluntarily terminates his
employment with the Company within one year after such Change of Control, the
Company shall be required to pay Employee severance pay in the amount of Three
Million Dollars ($3,000,000.00). Such severance pay shall be payable to Employee
by the Company in cash on or before the tenth (10th) day after the Termination
Date, as defined in Section 15.
For purposes of this Section 5, a "Change of Control" shall be deemed to
have occurred with respect to the Company if: (a) any person or group of persons
acting in concert, in which person or group of persons the Employee is not an
investor, partner, officer, director or member, shall acquire, directly or
indirectly, the power to vote, or direct the voting of, more than thirty-three
percent (33%) of the then outstanding voting securities of the Company; or (b)
during any consecutive eighteen (18) month period a majority of the Company's
Board of Directors is elected or appointed and consists of persons who are not
directors of the Company as of the Effective Date, and whose election or
appointment as directors of the Company was actively opposed by Employee, as
evidenced by Employee's vote (in his capacity or capacities, if any, as a
director and/or stockholder of the Company) against their election or
appointment and by written notice of his opposition to their election or
appointment given by Employee to the then current directors of the Company not
more than five (5) business day following their respective election or
appointment.
6. Additional Payments.
(a) In the event that any payment or benefit (within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"))
to the Employee or for his benefit paid or payable or distributed or
distributable (at any time or from time to time) pursuant to the terms of
this Agreement or otherwise in connection with, or arising out of, his
employment with the Company or a change in ownership or effective control
of the Company or of a substantial portion of its assets ( a "Payment" or
"Payments"), would be subject to the excise tax imposed by Section 4999 of
the Code, or any interest or penalties are incurred by the Employee with
respect to such excise tax (such excise tax, together with any such
interest and penalties, being hereinafter collectively referred to as the
"Excise Tax"), then the Employee will be entitled to receive an additional
payment or payments, as the case may be (referred to individually or
collectively as a "Gross-Up Payment"), in an amount such that after payment
by the Employee of all taxes (including any interest or penalties imposed
with respect to such taxes and the Excise Tax, other than interest and
penalties imposed by reason of the Employee's failure to file timely a tax
return or pay taxes shown due on his return), including any Excise Tax
imposed upon the Gross-Up Payment, the Employee retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) An initial determination as to whether a Gross-Up Payment is
required pursuant to this Agreement and the amount of such Gross-Up Payment
shall be made at the Company's expense by an accounting firm selected by
the Company, and reasonably acceptable to the Employee, which is designated
as one of the largest national accounting firms in the United States (the
"Accounting Firm"). The Accounting Firm shall provide its determination
(the "Determination"), together with detailed supporting calculations and
documentation to the Company and the Employee within ten (10) days of the
Termination Date, as defined in Section 15, or such other time as requested
by the Company or by the Employee (provided the Employee reasonably
believes that any of the Payments may be subject to the Excise Tax) and if
the Accounting Firm determines that no Excise Tax is payable by the
Employee with respect to a Payment or Payments, it shall furnish the
Employee with an opinion reasonably acceptable to the Employee that he has
substantial authority not to report any Excise Tax on his federal tax
return with respect to any such Payment or Payments. Within ten (10) days
of the delivery of the Determination to the Employee, the Employee shall
have the right to dispute the Determination. The Gross-Up Payment, if any,
as determined pursuant to this Section 6(b) shall be paid by the Company to
the Employee within five (5) days of the receipt of the Determination. The
existence of the dispute shall not in any way affect the Employee's right
to receive the Gross-Up Payment in accordance with the Determination. Upon
the final resolution of a dispute, the Company shall promptly pay to the
Employee any additional amount required by such resolution. If there is no
dispute, the Determination shall be binding, final and conclusive upon the
Company and the Employee.
(c) The Employee shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than ten (10) business days after the
Employee knows of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Employee shall not pay such claim prior to the expiration of the thirty
(30) day period following the date on which he gives such notice to the
Company (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company notifies the
Employee in writing prior to the expiration of such period that it desires
to contest such claim, the Employee shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company.
(iii) cooperate with the Company in good faith in order to
effectively contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim, provided, however, that the Company shall bear
and pay directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and shall
indemnify and hold the Employee harmless, on an after-tax basis, for
any Excise Tax or income tax, including interest and penalties with
respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limitation of the foregoing
provision of this Section 6(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole
option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the
Employee to pay the tax claimed and xxx for a refund, or contest the
claim in any permissible manner, and the Employee agrees to prosecute
such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts,
as the Company shall determine; provided, however, that if the Company
directs the Employee to pay such claim and xxx for a refund, the
Company shall advance the amount of such payment to the Employee, on
an interest-free basis and shall indemnify and hold the Employee
harmless, on an after-tax basis, from any Excise Tax or income tax,
including interest or penalties with respect thereto, imposed with
respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of
the statute of limitations relating to payment of taxes for the
taxable year of the Employee with respect to which such contested
amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Employee shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(d) If, after the receipt by the Employee of an amount advanced by the
Company pursuant to Section 6(c), the Employee becomes entitled to receive
any refund with respect to such claim, the Employee shall (subject to the
Company's complying with the requirements of Section 6(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by
the Employee of an amount advanced by the Company pursuant to Section 6(c),
a determination is made that the Employee shall not be entitled to any
refund with respect to such claim and the Company does not notify the
Employee in writing of its intent to contest such denial of refund prior to
the expiration of thirty (30) days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
7. Expenses. Subject to the rules and procedures the Company may specify
from time to time, the Company shall reimburse Employee for all reasonable
expenses incurred by Employee on behalf of the Company.
8. Automobile. Employer shall pay to Employee the sum of One Thousand Three
Hundred Dollars ($1,300.00) per month (subject to adjustment from time to time
in direct proportion to generally applicable adjustments by the Company to its
automobile allowances) to reimburse Employee for the use of Employee's
automobile in the performance of his duties under this Agreement, and the
Company shall further pay directly or by reimbursement to Employee (as the
Company and Employee may from time to time agree) the premiums upon a policy of
collision and liability insurance covering such automobile. All other cost and
expenses incurred in the operation and maintenance of Employee's automobile,
including but not limited to the cost of all fuel, oil, maintenance and repairs,
shall be paid solely by Employee.
9. Duties of Employee. In accepting continued employment by the Company,
Employee agrees to undertake and assume the responsibility, subject to the
general direction and control of the Board of Directors, of performing for and
on behalf of the Company the duties of Chief Executive Officer of the Company,
including formulation of the policies and administration of the Company's
affairs, and such other duties as are normally associated with and inherent in
such capacity. Employee shall have authority to hire the staff necessary to
accomplish the Company's goals. In addition, if requested, Employee shall serve
as Chairman of the Board of Directors, without additional compensation, and, if
requested, serve as an employee, officer and/or director of any affiliates of
the Company without additional compensation, although such affiliates may assume
some or all of the payments due to Employee hereunder.
10. Exclusive Service. Employee shall devote substantially his full time
and attention to rendering services to the Company and in furtherance of the
Company's best interests, provided that Employee may make and manage his
personal passive investments. During the Term of this Agreement, other than as
an employee, officer and/or director of an affiliate of the Company, Employee
shall not be employed by any other person or engage in any other business or
occupation; provided that Employee may engage in the business of making and
managing his personal passive investments.
11. Medical and Disability Insurance. The Company shall provide Employee
and his family with insurance coverage and/or cost reimbursement benefits which
provide for 100% of the health, medical, hospitalization, prescription drug and
dental costs and expenses incurred by or on behalf of Employee and his Family,
whether through existing insurance and/or reimbursement plans covering the
Company's employees or through special plans relating specifically to Employee,
or a combination thereof. For purposes of this Agreement, the Employee's
"Family" shall include his spouse, as well as his children and step children
until such time that his children and step children are no longer eligible for
coverage under the health insurance plans covering the Company's employees or
until they become covered under a policy or plan provided by their employer
which provides substantially similar coverage and benefits. The Company shall
also take the necessary action to (a) include Employee under a Company sponsored
disability plan for executives, (b) acquire a specific disability insurance
policy for Employee and/or (c) assist Employee in acquiring or paying for a
disability plan or insurance policy, which action results in Employee having
coverage providing total disability income benefits of at least 50% of
Employee's Basic Salary which benefits will be payable if Employee became
disabled until he attains age 65. If only a portion of the disability income
benefits described above can be provided by insurance policies or plans, the
company shall have the obligation to provide the remaining portion.
12. Continuation of Medical Benefit Coverage. Upon the termination of
Employee's employment for any reason, including a termination due to the
expiration of the Term of this Agreement, the Company shall provide Employee and
his Family the health, medical, hospitalization, prescription drug and dental
insurance coverage and/or cost reimbursement benefits set forth in Section 11
hereof, for a period not to exceed the earlier of (a) five (5) years or (b) the
date on which the Employee and his Family become covered under a policy or plan
paid for by a new employer of Employee providing substantially similar coverage
and benefits. In the event Employee's employment terminates and this Section 12
becomes effective, and thereafter Employee dies while the benefits provided
herein are still in effect, such benefits shall continue for Employee's Family
until five (5) years have passed following his termination of employment. The
benefits set forth under this Section 12 shall be provided in addition to any
other payments, benefits or compensation, if any, to which Employee, his estate
of his designated beneficiary is entitled due to his termination of employment
as set forth in this Agreement.
13. Life Insurance. The Company shall maintain and pay the premiums on one
or more life insurance policies on Employee's life, which may include insurance
on Employee's life under any group term life insurance plan maintained form time
to time by the Company for its employees. The aggregate face amount(s) of such
policy or policies shall be at least Five Hundred Thousand Dollars
($500,000.00).
Any policy of insurance or certificate of insurance under a group term
policy maintained by the Company to provide the death benefits described
pursuant to this Section 13 shall be owned by the Company, and the Employee (or
his assignee) shall have the sole right to designate the beneficiary or
beneficiaries of the proceeds payable thereunder upon the death of the Employee.
14. Vacation and Days Off. Employee may take reasonable vacations and days
off agreeable to the Company and Employee; provided, however, that Employee
shall be entitled to at least five (5) weeks of paid vacation per year, which
Employee may use at any time during each year, and to the extent not used,
during a subsequent year.
15. Termination After Notice. Either Employee or the Company may terminate
the employment of Employee at any time during the Term of this Agreement upon at
least ninety (90) days' prior written notice. In the event of such termination,
the Company shall pay to Employee the severance pay provided for under Section 5
hereof, if applicable, together with all other compensation that would otherwise
have been payable to Employee, as provided in Section 17 hereof, and for the
purposes of said Section 17, the "Termination Date" shall be the effective date
of termination set forth in the ninety (90) days prior written notice referred
to in the preceding sentence.
16. Termination Upon Death or Disability.
(a) Upon the termination of the Employee's employment due to the death
of Employee, the Company shall pay to the estate of Employee certain
compensation that would otherwise have been payable to Employee, as
provided in Section 17 hereof, and for the purposes of said section, the
"Termination Date" shall be the date of Employee's death. Employee shall
not be entitled to the severance payment described in Section 5 if his
employment is terminated by death; provided, however, if the ninety (90)
days prior written notice of termination had been given by either the
Company or Employee, as described in section 15, but Employee dies prior to
the effective date of termination set forth in said notice and Employee
would have been entitled to the severance payment in Section 5 had he
survived, then his estate shall be paid such severance payment. If Employee
dies during the Term of this Agreement and all of the Stock Options listed
in Section 4, as well as any other stock options issued to Employee by the
Company that are not listed in Section 4 (such other stock options being
defined as "Stock Options" for purposes of this Section 16(a)), are not
vested at the time of his death, then all such Stock Options that have been
outstanding for at least one year shall become immediately vested at
Employee's death and shall be exercisable by the representative of his
estate pursuant to the terms of his respective Stock Option agreements or
certificates. Furthermore, if Employee dies during the Term of this
Agreement, any restricted stock awards granted to Employee pursuant to the
Company's 2004 Restricted Stock Plan that are not vested shall become
immediately vested at Employee's death if they were granted at least one
year prior to Employee's death.
(b) (i) During any period of disability, illness or incapacity during
the Term of this Agreement, which renders Employee temporarily unable to
perform the services required under this Agreement, Employee shall continue
to receive the compensation payable under this Agreement. Employee's
employment under this Agreement may be terminated as provided below upon
Employee's permanent disability (as defined below).
(ii) Employee shall be deemed to have suffered "permanent disability"
if Employee is unable by reason of any medically determined physical or
mental impairment to perform the duties required of him under this
Agreement for a period of one hundred eighty (180) consecutive days in any
twelve-month period. Periods of disability arising from unrelated causes
shall not be combined. Upon a determination of permanent disability, the
Board of Directors may terminate Employee's employment upon thirty (30)
days' prior written notice. In the event of such termination, the Company
shall pay to Employee certain compensation that would otherwise have been
payable to Employee, as provided in Section 17, and for the purposes of
said Section, the "Termination Date" shall be the effective date of
termination following the Company's notice under the preceding sentence,
but Employee shall not be entitled to the severance payment described in
Section 5 in such event of termination.
17. Payments Due Upon Termination of Employee's Employment. In the event of
termination of Employee's employment under this Agreement pursuant to Sections
15 or 16 hereof, the Company shall pay Employee or his estate, as the case may
be, the following payments or other items of compensation, for which purpose the
"Termination Date" shall be the Termination Date specified in Sections 15 or 16
hereof, whichever is applicable:
(a) Basic Salary that would otherwise have payable to Employee under
Section 3(a) hereof through the Termination Date;
(b) all payments, if any, payable pursuant to Section 5 hereof.
18. Waiver of Breach. The waiver by the Company of a breach of any of the
provisions of this Agreement by Employee shall not be construed as a waiver of
any subsequent breach of Employee.
19. Binding Effect: Assignment. The rights and obligations of the Company
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company, whether by reason of merger,
consolidation, acquisition or other business combination, or otherwise. This
Agreement is a personal employment contract that may not be sold, assigned,
transferred or pledged as collateral by the Employee.
20. Invalid Provisions. It is understood and agreed that in the event any
paragraph, provision or clause of this Agreement or any combination thereof is
found to be unenforceable at law, in equity, or under any presently existing or
hereafter enacted legislation, regulation or order of the United States, any
state of subdivision thereof or any municipality, those findings shall not in
any way affect the other paragraphs, provisions or clauses in this Agreement,
which shall continue in full force and effect.
21. Performance. This Agreement shall be performed in Dallas, County,
Texas.
22. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Texas.
23. Entire Agreement. This Agreement contains the entire agreement of the
parties and supersedes all prior agreements and understandings, oral or written,
with respect to the subject matter hereof, except to the extent that provisions
of the Current Employment Agreement are expressly stated herein to be effective.
This Agreement may be changed only by an agreement in writing signed by the
party against whom any waiver, change, amendment, modification or discharge is
sought.
24. Headings. The headings contained in the Agreement are for reference
purposed only and shall not affect the meaning or interpretation of this
Agreement.
25. Notice. Any notice required or permitted to be given under this
Agreement to the Company shall be sufficient if in writing and if sent by
certified or registered mail, first class, return receipt requested, to the
registered office of the Company. Any notice required or permitted to be given
under this Agreement to Employee shall be sufficient if in writing and if sent
by certified or registered mail, first class, return receipt requested to
Employee at his last known address. Employee shall be solely responsible for
notifying the Company of his address on the date of this Agreement and all
subsequent changes of address.
26. Gender. When the context in which words are used in this Agreement
indicate that such is the intent, words in the singular number shall include the
plural and vice versa and words in the masculine gender shall include the
feminine and neuter genders and vice versa.
In WITNESS WHEREOF, the parties have executed this Agreement, effective as
of the date and year first above written.
COMPANY:
CEC ENTERTAINMENT, INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
------------------------------
Xxxxxxx X. Xxxxxxxx
President
EMPLOYEE:
/s/ Xxxxxxx X. Xxxxx
-----------------------------------
Xxxxxxx X. Xxxxx
