Stock-Based Compensation Arrangements:

Predecessor Restricted Stock Plans

Prior to the Merger, our stock-based compensation plans permitted us to grant awards of restricted stock to our employees and non-employee directors. Certain of these awards were subject to performance-based criteria. Our stock-based compensation plans had provisions allowing for the automatic vesting of awards granted under those plans following a change of control, as defined in the applicable plan. The fair value of all stock-based awards, less estimated forfeitures, if any, and portions capitalized as described below, was recognized as stock-based compensation expense in "General and administrative expenses" in the Consolidated Financial Statements over the period that services were required to be provided in exchange for the award.

In connection with the Merger, all unvested restricted stock awards to our employees and non-employee directors became fully vested, and at the effective time of the Merger, each such share of restricted stock was canceled and converted into the right to receive an amount equal to the offer price of $54.00 per share, plus an amount in cash equal to all accrued but unpaid dividends relating to such shares, without interest and less any withholding required by applicable tax laws. We recorded $11.1 million in stock-based compensation expense related to the acceleration of restricted stock awards during the 47 day period ended February 14, 2014.

Successor Stock Options Plan

The Board of Directors of Parent adopted the 2014 Equity Incentive Plan, whereby Parent may grant equity incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonus awards or performance compensation awards to certain directors, officers or employees of CEC Entertainment, Inc.

On August 21, 2014, Parent granted options to purchase 2,061,927 shares of its common stock to certain directors, officers and employees of CEC Entertainment, Inc. The options are subject to certain service and performance based vesting criteria, and were split evenly between Tranches A, B and C, which have different vesting requirements. The options in Tranche A are service based and vest and become exercisable in equal installments on each of the first five anniversaries of February 14, 2014. The Black-Scholes model was used to estimate the fair value of Tranche A stock options. Tranche B and Tranche C options are performance based and vest and become exercisable when certain market conditions are met. The Monte Carlo simulation model was used to estimate the fair value of Tranches B and C stock options. Using these methodologies, the per option fair value of the A, B and C tranches was calculated as $2.75, $1.09, and $0.68, respectively. The options are also subject to accelerated vesting in the event of certain terminations of employment upon or within 12 months following a change in control of Queso Holdings Inc. Compensation costs related to options in the Parent were recorded by the Company.

The following table summarizes stock-based compensation expense and associated tax benefit recognized in the Consolidated Financial Statements:



	Successor			Predecessor
	Three Months Ended			Three Months Ended
	September 28, 2014			September 29, 2013
	(in thousands)
Stock-based compensation costs	$	197		$	2,288
Portion capitalized as property and equipment⁽¹⁾	(6		)	(44		)
Stock-based compensation expense recognized	$	191		$	2,244
Tax benefit recognized from stock-based compensation awards	$	—		$	77



	Successor			Predecessor
	For the 226 Day Period Ended			For the 47 Day Period Ended		Nine Months Ended
	September 28, 2014			February 14, 2014		September 29, 2013
	(in thousands)
Stock-based compensation costs	$	197		$	1,117	$	6,603
Portion capitalized as property and equipment⁽¹⁾	(6		)	—		(134		)
Stock-based compensation costs related to the accelerated vesting of restricted stock awards in connection with the Merger	—			11,108		—
Stock-based compensation expense recognized	$	191		$	12,225	$	6,469
Tax benefit recognized from stock-based compensation awards⁽²⁾	$	5,043		$	—	$	249

__________________

(1)

We capitalize the portion of stock-based compensation costs related to our design, construction, facilities and legal departments that are directly attributable to our store development projects, such as the design and construction of a new store and the remodeling and expansion of our existing stores. Capitalized stock-based compensation cost attributable to our store development projects is included in "Property and equipment, net" in the Consolidated Balance Sheets.


(2)	We recorded the $5.0 million tax benefit related to the accelerated vesting of restricted stock awards in the 226 day period ended September 28, 2014, as such tax benefit will be deductible for income tax purposes on the Successor tax return for fiscal year 2014.