CEC Entertainment, Inc., the parent of pizza and entertainment restaurant chain Chuck E. Cheese, said in an SEC filing that its Board of Directors approved a "Key Employee Retention Program" (KERP) to retain employees in their current roles through the earlier of either 12 months or 30 days following a restructuring. After most of its dine-in restaurants were closed due to impacts from the COVID-19 pandemic, the company said it was looking into options including bankruptcy, according to a Wall Street Journal report.
The bonuses include $1.3 million for CEO David McKillips. Bonuses ahead of a potential bankruptcy filing have grown, according to the report, because retention bonuses for top executives and insiders are illegal under bankruptcy law.
In its fiscal fourth-quarter and full-year 2019 earnings release on March 9, 2020, CEC said full-year comparable venue sales increased 2.7% over the prior year. But the COVID-19 pandemic forced it to close its restaurants, and as an experiential business popular for children's birthday parties, it wasn't able to materially replace that revenue with new channels such as pick-up or delivery. The report cited industry firm NPD Group Inc. as reporting overall sales at full-service restaurants such as Chuck E. Cheese fell 80% in April due to the pandemic.
CEC has almost $1 billion in debt, and though restaurants are starting to reopen, the business model could be at risk with social distancing requirements and people avoiding shared games, or gathering for children's parties. The report says the company had hired advisors to investigate strategic alternatives before announcing the retention bonus plan.