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Employment Agreement - CEC Entertainment Inc. and Richard M. Frank

Employment Forms

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                            2001 EMPLOYMENT AGREEMENT


This 2001 Employment Agreement (the "Agreement") is executed as of the 13th day
of November, 2000, by and between RICHARD M. FRANK ("Employee") and CEC
ENTERTAINMENT, INC.., a Kansas corporation ("Company").

                                    RECITALS:

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

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

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

         1. Current Employment Agreement. The Company and Employee heretofore
entered into an employment agreement dated March 3, 1997 (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,
2000. 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, 2000.

         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 January 1, 2001 (the "Effective Date")
and shall terminate on the last day of the fiscal year of the Company ending on
or about December 31, 2005 (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:

            (1)   During the Term of Employee's employment under this Agreement,
                  the Employee shall receive as minimum Basic Salary the amount
                  of One Million Dollars ($1,000,000.00) per year. The Basic
                  Salary may be increased in such amounts and on such dates as
                  the Compensation Committee of the Board of Directors may
                  determine from time to time.

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

         4. Stock Options. Employee has received from the Company on March 7,
2000 options (the "Stock Options") to purchase two hundred fifty thousand
(250,000) 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 percent
(20%) shall vest on March 7, 2001, forty percent (40%) shall vest on March 7,
2002, sixty percent (60%) shall vest on March 7, 2003,eighty percent (80%) shall
vest on March 7, 2004 and one hundred percent (100%) shall vest on March 7,
2005.


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<PAGE>   3

         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 a 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
theTermination 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 of
appointment and by written notice of his opposition to their election or
appointment given by Employee to the current directors of the Company not more
than five (5) business days following their respective election or appointment;
provided, however, that in no event shall a change in composition of the
Company's Board of Directors pursuant to an election of Board of Directors
members pursuant to Section 4.6 of the Company's Articles of Incorporation, as
amended through the date of this Agreement, constitute or result in a "Change of
Control" for purposes of this Section 5.

         6. 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



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<PAGE>   4


         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
                  provisions of this Section 6(c), the Company shall control all
                  proceeding taken in connection with such contest and, at its
                  sole option, may pursue or forego any and all administrative
                  appeals, proceedings, hearings and conferences with the taxing
                  authority in respect of such claim and may, at its sole
                  option, either direct the Employee to pay the tax claimed and
                  sue for a refund, or contest the claim in any permissible
                  manner, and the Employee agrees to prosecute such contest to a
                  determination before any administrative tribunal, in a court
                  of initial jurisdiction and in one or more appellate courts,
                  as the Company shall determine; provided, however, that if the
                  Company directs the Employee to pay such claim and sue for a
                  refund, the Company shall advance the amount of such payment
                  to the Employee, on an interest-free basis and shall indemnify
                  and hold the Employee harmless, on an after-tax basis, from
                  any Excise Tax or income tax, including interest or penalties
                  with respect thereto, imposed with respect to such advance or
                  with respect to any imputed income with respect to such
                  advance; and further provided that any extension of the
                  statute of limitations relating to payment of taxes for the
                  taxable year of the Employee with respect to which such
                  contested amount is claimed to be due is limited solely to
                  such contested amount. Furthermore, the Company's control of
                  the contest shall be limited to issues with respect to which a
                  Gross-Up Payment would be payable hereunder and the Employee
                  shall be entitled to settle or contest, as the case may be,
                  any other issue raised by the Internal Revenue Service or any
                  other taxing authority.


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<PAGE>   5

         (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 adjustment by the Company to
its automobile allowances) to reimburse Employee for the use of Employee's
automobile in the performance of his duties under this Agreement, and 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 costs and
expenses incurred in the operation and maintenance of Employee's automobile,
including but not limited to the cost of all fuel, oil, maintenance and repairs,
shall be paid solely by Employee.

         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 Chairman of the Board of Directors
and 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 an officer and/or director of
any affiliates of the Company without additional compensation.

         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 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. Health and Disability Insurance. The Company shall provide Employee
and his family with health, medical, hospitalization and dental insurance
coverage and/or cost reimbursement benefits which provide for 100% of such costs
and expenses to be paid on behalf of and/or reimbursed to Employee and his
family, whether through existing insurance and/or reimbursement plans covering
the Company's employees or through special plans relating specifically to
Employee, or a combination thereof. For purposes of this Section 11, the
Employee's family shall include his spouse and children. The Company shall also
provide disability insurance coverage to Employee under any Company plan(s) for
such coverage as in effect from time to time for that category or class of the
Company's employees which includes the Company's senior executive officers,
provided that if necessary to provide Employee with monthly disability income
benefits of at least fifty percent (50%) of Employee's Basic Salary in the event
of Employee's permanent disability, the Company shall adopt a special plan
relating specifically to Employee which results in Employee having coverage
providing total disability income benefits of at least 50% of Employee's Basic
Salary.




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<PAGE>   6

         12. Continuation of Health 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 or any renewal thereof; the Company
shall provide Employee and his family the health, medical, hospitalization and
dental insurance coverage and/or cost reimbursement benefits set forth in
Section 11 hereof, for a period not to exceed the earlier of (i) five (5) years
or (ii) the date on which Employee and his family become covered under a policy
or plan paid for by a new employer of Employee providing substantially similar
coverage and benefits. In the event Employee's employment terminates and this
Section 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
from 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 under 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 or any renewal thereof upon at least ninety (90) days' prior written
notice. In the event of such termination, the Company shall pay to Employee the
severance pay provided for under Section 5 hereof, if applicable, together with
all other compensation that would otherwise have been payable to Employee, as
provided in Section 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 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. If events
         had occurred prior to Employee's death entitling him to payments under
         Section 17 but the payments had not yet been made, such payments shall
         be made to his estate. 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 only by the representative of
         his estate pursuant to the terms of his respective Stock Option
         agreements or certificates.

         (b) (i) During any period of disability, illness or incapacity during
         the Term of this Agreement, which renders Employee temporarily unable
         to perform the services required under this Agreement, Employee shall
         continue to receive the 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).



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<PAGE>   7



         (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.

         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 been 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 this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.



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<PAGE>   8

         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:
                                       ----------------------------------------
                                           Michael H. Magusiak
                                           President



                                    EMPLOYEE:



                                    -------------------------------------------
                                    Richard M. Frank






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