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Employment Agreement - CEC Entertainment Inc. and Michael H. Magusiak

Employment Forms

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  • Sales Representative Contract. Independent sales representatives offer companies the potential to increase the sale of products or services without the burden of increasing headcount. Both parties should understand how commissions are calculated, when commissions will be paid, as well as how the representative will treat confidential information from the company and whether the representative may also sell a competing line of products or services.
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                            2001 EMPLOYMENT AGREEMENT


         This Employment Agreement (the "Agreement") is executed as of the 8th
day of May, 2001, by and between MICHAEL H. MAGUSIAK ("Employee") and CEC
ENTERTAINMENT, INC., a Kansas corporation ("Company").

                                    RECITALS:

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

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

         NOW, THEREFORE, in consideration of the mutual promises hereinafter
contained and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, it is agreed that any prior employment
agreements between the Company and the Employee be superceded by the terms and
conditions hereof, as follows:

         1.       Employment. The Company employs Employee and Employee accepts
employment from the Company upon the terms and conditions specified in this
Agreement.

         2.       Term. Subject to the provisions regarding termination set
forth in Sections 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:

         (a)      During the Term of Employee's employment under this Agreement,
         the Employee shall receive as minimum Basic Salary the amount of Four
         Hundred Thousand Dollars ($400,000.00) per year. The Basis 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.

         (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 Board of directors, including, but not limited to, the annual bonus
         opportunity available to home office employees and officers of the
         Company at a level commensurate with his position as President.

         4.       Stock Options. Employee has received from the Company on
January 5, 2001 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
<PAGE>   2
Plan. Of the Stock Options granted as described in this Section 4, thirty-three
percent (33%) shall vest on January 5, 2003, thirty-three percent (33%) shall
vest on January 5, 2004, and the remaining thirty-four percent (34%) of the
Stock Options shall vest on January 5, 2005.

         5.       Severance Pay. If 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 an
amount equal to the product of (a) the Employee's then Basic Salary, multiplied
by (b) the number two (2). Such severance pay shall be payable to Employee by
the Company in cash on or before the tenth (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 current Board of Directors not more than
five (5) business days following their respective election or appointment;
provided, however, that in no event shall a change in composition of the
Company's Board of Directors pursuant to an election of Board of Directors
members pursuant to Section 4.6 of the Company's Articles of Incorporation, as
amended through the date of this Agreement, constitute or result in a "Change of
Control" for purposes of this Section 5.

         6.       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.
<PAGE>   3
         (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
<PAGE>   4
         (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 proceedings taken in
         connection with such contest and, at its sole option, may pursue or
         forego any and all administrative appeals, proceedings, hearings and
         conferences with the taxing authority in respect of such claim and may,
         at its sole option, either direct the Employee to pay the tax claimed
         and sue for a refund, or contest the claim in any permissible manner,
         and the Employee agrees to prosecute such contest to a determination
         before any administrative tribunal, in a court of initial jurisdiction
         and in one or more appellate courts, as the Company shall determine;
         provided, however, that if the Company directs the Employee to pay such
         claim and sue for a refund, the Company shall advance the amount of
         such payment to the Employee, on an interest-free basis and shall
         indemnify and hold the Employee harmless, on an after-tax basis, from
         any Excise Tax or income tax, including interest or penalties with
         respect thereto, imposed with respect to such advance or with respect
         to any imputed income with respect to such advance; and further
         provided that any extension of the statute of limitations relating to
         payment of taxes for the taxable year of the Employee with respect to
         which such contested amount is claimed to be due is limited solely to
         such contested amount. Furthermore, the Company's control of the
         contest shall be limited to issues with respect to which a Gross-Up
         Payment would be payable hereunder and the Employee shall be entitled
         to settle or contest, as the case may be, any other issue raised by the
         Internal Revenue Service or any other taxing authority.

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

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

         8.       Automobile. Employer shall pay to Employee the sum of One
Thousand Dollars ($1,000.00) per month (subject to adjustment from time to time
in direct proportion to generally applicable adjustment by the Company to its
automobile allowances) to reimburse Employee for the use of Employee's
automobile in the performance of his duties under this Agreement, and Employer
shall further pay directly or by reimbursement to Employee (as Employer and
Employee may from time to time agree) the premiums upon a policy of collision
and liability insurance covering such automobile. All other costs and expenses
incurred in the operation and maintenance of Employee's automobile, including
but not limited to the cost of all fuel, oil, maintenance and repairs, shall be
paid solely by Employee.
<PAGE>   5
         9.       Duties of Employee. In accepting continued employment by the
Company, Employee agrees to undertake and assume the responsibility, subject to
the general direction and control of the Board of Directors and the Chief
Executive Officer, of performing for and on behalf of the Company the duties of
President of the Company, including formulation of the policies and
administration of the Company's affairs, and such other duties as are agreed to
by the Company and the Employee. In addition, if requested, Employee shall serve
as 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
take the necessary action to (a) include Employee under a Company sponsored
disability plan for executives, (b) adopt a specific plan for Employee or (c)
assist Employee in acquiring or paying for a plan or policy, which action
results in Employee having coverage providing total disability income benefits
of at least 50% of Employee's Basic Salary.

         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 consistent with those amounts
available for senior executive officers of the Company.

         Any policy of insurance or certificate of insurance under a group term
policy maintained by the Company under this Section 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.
<PAGE>   6
         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 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. 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 by the representative of
         his estate pursuant to the terms of his respective Stock Option
         agreements or certificates.

         (b)      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.
<PAGE>   7
         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. 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.

         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.
<PAGE>   8
         IN WITNESS WHEREOF, the parties have executed this Agreement, effective
as of the date and year first above written.


                                            COMPANY:
                                            CEC ENTERTAINMENT, INC.



                                            By:  /s/ Richard M. Frank
                                                 -------------------------------
                                                     Richard M. Frank
                                                     Chief Executive Officer



                                            EMPLOYEE:



                                                 /s/ Michael H. Magusiak
                                            ------------------------------------