SHOWBIZ PIZZA TIME INC, S-3/A, 1997-03-20

SHOWBIZ PIZZA TIME INC
S-3/A, 1997-03-20
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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 1997

REGISTRATION NO. 333-22229

================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------

AMENDMENT NO. 1

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------

SHOWBIZ PIZZA TIME, INC.
(Exact name of Registrant as specified in its charter)

---------------------

<TABLE>
<C> <C> <C>
KANSAS 5812 48-0905805
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification Number)
</TABLE>

4441 WEST AIRPORT FREEWAY
IRVING, TEXAS 75062
972/258-8507
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

RICHARD M. FRANK
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
SHOWBIZ PIZZA TIME, INC.
4441 WEST AIRPORT FREEWAY
IRVING, TEXAS 75062
972/258-8507
(Name, address including zip code, and telephone number, including area code, of
agent for service)

COPIES OF ALL COMMUNICATIONS TO:

<TABLE>
<C> <C> <C>
DARREL A. RICE, ESQ. RICHARD M. FRANK KENNETH L. STEWART, ESQ.
WINSTEAD SECHREST & MINICK P.C. SHOWBIZ PIZZA TIME, INC. FULBRIGHT & JAWORSKI L.L.P.
5400 RENAISSANCE TOWER 4441 WEST AIRPORT FREEWAY 2200 ROSS AVENUE, SUITE 2800
DALLAS, TEXAS 75270 IRVING, TEXAS 75062 DALLAS, TEXAS 75201
214/745-5400 972/258-8507 214/855-8000
</TABLE>

Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

================================================================================
<PAGE> 2

[NAME AND LOGO]

3,200,000 Shares
Common Stock
($.10 par value)
------------------

All of the 3,200,000 shares of common stock, par value $.10 per share ("Common
Stock"), of ShowBiz Pizza Time, Inc. ("ShowBiz" or the "Company") being
offered hereby (the "Shares") are being sold by The Hallwood Group
Incorporated and its affiliates (collectively, the "Selling
Stockholders"). See "Selling Stockholders." The Company will not
receive any of the proceeds from the sale of the Shares. The
Common Stock is traded on The Nasdaq Stock Market's National
Market ("NNM") under the symbol "SHBZ." On March 19, 1997,
the last reported sale price of the Common Stock on
the NNM was $17.875 per share. See "Price Range of Common Stock
and Dividend Policy."

FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" BEGINNING ON PAGE 6.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS.

ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Selling
Public Commissions Stockholders(1)
-------- ------------- ---------------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total (2)............................................ $ $ $
</TABLE>

(1) Before deduction of expenses payable by the Company and the Selling
Stockholders, estimated at $ .

(2) The Selling Stockholders have granted the Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to purchase a
maximum of 454,746 additional shares of Common Stock from the Selling
Stockholders to cover over-allotments of shares. If the option is exercised
in full, the total Price to Public will be $ , Underwriting
Discounts and Commissions will be $ , and Proceeds to Selling
Stockholders will be $ .

The Shares are offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to their right to
reject orders in whole or in part. It is expected that the Shares will be ready
for delivery on or about March , 1997 against payment in immediately available
funds.

CREDIT SUISSE FIRST BOSTON PRINCIPAL FINANCIAL SECURITIES, INC.

Prospectus dated March , 1997

<PAGE> 3

[Picture of costumed characters in front of a typical Chuck E. Cheese's
restaurant.]

---------------------

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS, PENALTY BIDS AND PASSIVE MARKET MAKING. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

2
<PAGE> 4

SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and Consolidated Financial
Statements, including the notes thereto, appearing elsewhere in this Prospectus.
Unless otherwise indicated, all information in this Prospectus (i) assumes that
there will be no exercise of the over-allotment option and (ii) reflects a
three-for-two stock split with respect to the Common Stock effected on May 22,
1996. Unless otherwise indicated, all references herein to "ShowBiz" and the
"Company" mean ShowBiz Pizza Time, Inc. and its wholly-owned subsidiaries. All
references herein to the Company's "restaurant/entertainment centers,"
"restaurants," "stores" and "locations" shall have the same meanings. References
herein to "comparable store sales" shall mean sales for Company-owned
restaurants that were open during all of the relevant comparable prior period.

THE COMPANY

The Company is engaged in developing, operating and franchising a system of
family-oriented restaurant/entertainment centers under the name Chuck E.
Cheese's Pizza ("Chuck E. Cheese's"). Management believes that the Company is
one of the leading operators of family-oriented restaurant/entertainment centers
in the United States. According to independent national research, Chuck E.
Cheese's restaurants and the Company's namesake character, Chuck E. Cheese, are
widely known by families with young children. In two recent national surveys of
children between the ages of six and eight, the Chuck E. Cheese character placed
in the top 10% of approximately 400 characters and the top 7.5% of approximately
640 characters included in the surveys in terms of image recognition and
popularity. As of December 27, 1996, the Company and its franchisees operated
314 locations in 44 states in the United States, Canada, Chile and Guatemala,
including 244 Company-operated locations in the United States. The Company
estimates that in 1996 Company-operated and franchised stores had over 50
million customer visits, including 30 million by children.

Chuck E. Cheese's restaurants typically occupy 8,000 to 14,000 square feet
and are divided into three areas: a kitchen and related areas occupying
approximately 35% of the premises, a dining area and showroom occupying
approximately 25% of the premises, and an activity area occupying approximately
40% of the premises. All food is prepared fresh daily in the kitchen. The menu
includes a variety of pizzas, a salad bar, sandwiches, desserts and other items.
Customers order from a central cashier and food is delivered to them at their
table. The dining area, which typically seats 250 to 375 customers, is also the
setting for a robotic musical stage show featuring Chuck E. Cheese and other
life-sized characters. The activity area offers games and rides which can be
used with tokens purchased in the restaurant, as well as ceiling-suspended tubes
and tunnels (SkyTubes) and other free activities. Most games dispense tickets
which may be redeemed for prize merchandise such as toys and dolls.

Following a period of steady growth from 1987 to 1992, the Company began
experiencing declining comparable store sales in 1993. In response to this
decline, the Company began implementing a number of strategic initiatives in
1994 designed to increase the Company's competitive position in the industry and
improve the financial performance of its restaurants. The key element of these
strategic initiatives has been the remodeling and repositioning of the Company's
existing store locations. From March 1994 to December 1996, the Company
remodeled 223 of its 244 Company-operated stores at an average cost of $315,000
per store. The remodeling program has resulted in significant sales growth in
the remodeled stores, with these stores experiencing average sales growth of
approximately 18% during the first year after the remodeling and approximately
3% sales growth the following year. Based upon the sales growth experienced to
date in its remodeled stores, management believes that the remodeled stores,
including the 68 stores completed in the last six months of 1996, will have a
positive impact on the Company's revenues in 1997.
3
<PAGE> 5

THE OFFERING

Common Stock Offered by the
Selling Stockholders.......... 3,200,000 shares

Common Stock Outstanding
before and after the
Offering...................... 18,518,867 shares(1)

Use of Proceeds............... The Company will not receive any proceeds from
the sale of Shares by the Selling Stockholders.

Nasdaq National Market
Symbol........................ SHBZ

Risk Factors.................. Prospective investors should carefully consider
all the information set forth in this
Prospectus and, in particular, should evaluate
the specific factors set forth under "Risk
Factors" before purchasing any of the Shares.
- ---------------

(1) Excludes 1,010,511 shares of Common Stock issuable upon exercise of options
outstanding at December 27, 1996.

SUMMARY FINANCIAL AND OPERATING DATA

<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
DECEMBER 30, DECEMBER 29, DECEMBER 27,
1994 1995 1996
------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................. $268,515 $263,783 $293,990
Costs and expenses........................................ 265,402 263,408 271,769
Income before income taxes................................ 3,113 375 22,221
Income taxes.............................................. 2,437 312 9,000
Net income................................................ 676 63 13,221
Net income (loss) per share(1)............................ .02 (.02) .70
OTHER DATA:
EBITDA(2)................................................. $ 27,721 $ 25,941 $ 49,966
Capital expenditures...................................... 29,421 28,277 51,719
BALANCE SHEET DATA (AT PERIOD END):
Total assets.............................................. $188,308 $199,010 $216,580
Long-term obligations(3).................................. 33,223 39,244 39,571
Stockholders' equity...................................... 125,515 126,487 141,476
STORE DATA:
Stores open at period end:
Company-operated(4)..................................... 226 226 244
Franchised.............................................. 106 93 70
-------- -------- --------
Total.............................................. 332 319 314
Comparable store sales increase (decrease)(5)............. (5.8)% (1.4)% 9.8%
</TABLE>

- ---------------

(1) Per share information is calculated after the payment of dividends on shares
of redeemable preferred stock and reflects a three-for-two stock split in
the form of a 50% stock dividend of shares of Common Stock effected on May
22, 1996.

(2) Earnings before interest income, interest expense, (gain) loss on property
transactions, depreciation, amortization and income taxes.

(3) Includes current and long-term portions of long-term debt, redeemable
preferred stock and other long-term liabilities.

(4) Does not include 27 Monterey's Tex-Mex Cafe restaurants that were sold by
the Company effective May 4, 1994.

(5) Comparable store sales are calculated using sales of Company-owned stores
which were open for the full prior period.
4
<PAGE> 6

RECENT DEVELOPMENTS

OPERATING RESULTS FOR THE FOURTH QUARTER AND FISCAL YEAR ENDED DECEMBER 27, 1996

Revenues increased by 15.5% to $70.9 million for the fourth quarter ended
December 27, 1996 from $61.4 million for the fourth quarter ended December 29,
1995 due to a 9.9% increase in comparable store sales for the fourth quarter of
1996. Management believes that several factors contributed to the comparable
store sales increase with the primary factor being sales increases at
repositioned restaurants. Net income increased to $2.2 million for the fourth
quarter of 1996 from a loss of $1.4 million for the fourth quarter of 1995. The
Company's primary and fully-diluted earnings per share was $.12 per share in the
fourth quarter of 1996 compared to a loss of $.08 per share in the fourth
quarter of 1995.

Revenues increased by 11.5% to $294.0 million for the fiscal year ended
December 27, 1996 from $263.8 million for the fiscal year ended December 29,
1995 primarily due to a 9.8% increase in comparable store sales for 1996. In
addition, the Company purchased 19 restaurants from its largest franchisee in
September 1996. Net income increased to $13.2 million in 1996 compared to
$63,000 in 1995. The Company's primary and fully diluted earnings per share
increased to $.70 per share in 1996 compared to a loss of $.02 per share in
1995.

BOARD COMPOSITION UPON CLOSING OF THE OFFERING

In connection with the sale of the Shares being offered hereby by The
Hallwood Group Incorporated ("Hallwood"), one of the Selling Stockholders, it is
anticipated that Charles A. Crocco, Jr., Anthony J. Gumbiner, Robert L. Lynch,
J. Thomas Talbot and Brian M. Troup, each of whom is affiliated with Hallwood,
will resign from the Company's Board of Directors upon the closing of the
offering. It is anticipated that after the closing of the offering, the number
of directors constituting the entire Board of Directors of the Company will be
reduced to seven from nine, and that the four directors remaining after these
resignations will elect three new directors to fill the vacancies created by
these resignations.

5
<PAGE> 7

RISK FACTORS

Prospective investors should consider carefully the following factors in
addition to other information included in this Prospectus before purchasing any
of the Shares.

IMPLEMENTATION OF GROWTH STRATEGIES

The Company's continued growth depends, to a significant degree, on its
ability to successfully implement its growth strategies. Among such strategies,
the Company plans to continue to open new stores in selected markets. The
opening and success of such new Chuck E. Cheese's restaurant/entertainment
centers will depend on various factors, including the availability of suitable
sites, the negotiation of acceptable lease terms for such locations, the ability
to meet construction schedules, the ability of the Company to manage such
expansion and hire and train personnel, as well as general economic and business
conditions. The ability of the Company to successfully open new stores will also
depend upon the availability of sufficient funds for such purpose, including
funds from operations, the Company's existing credit facility, future debt
financings, future equity offerings or a combination thereof. There can be no
assurance that the Company will be successful in opening and operating the
number of anticipated new stores on a timely or profitable basis. The Company's
growth is also dependent on management's ability to continually evolve and
update the Company's concept to anticipate and respond to changing customer
needs and competitive conditions. There can be no assurance that management will
be able to successfully anticipate changes in competitive conditions or customer
needs or that the market will accept the Company's concepts.

RESTAURANT/ENTERTAINMENT INDUSTRY

The restaurant/entertainment industry is affected by national, regional and
local economic conditions, demographic trends and consumer tastes. The
performance of individual restaurants may be affected by factors such as traffic
patterns and the type, number and location of competing restaurants. Dependence
on frequent deliveries of fresh food products also subjects food service
businesses, such as the Company, to the risk that shortages or interruptions in
supply caused by adverse weather or other conditions could adversely affect the
availability, quality and cost of ingredients. In addition, factors such as
inflation, increased food, labor and employee benefit costs and the availability
of experienced management and hourly employees may also adversely affect the
restaurant industry in general and the Company's restaurant/entertainment
centers in particular. The entertainment industry is affected by many factors,
including changes in customer preferences and increases in the type and number
of entertainment offerings. Operating costs may also be affected by further
increases in the minimum hourly wage, unemployment tax rates, sales taxes and
similar matters over which the Company has no control.

COMPETITION

The Company believes that its combined restaurant/entertainment center
concept puts it in a niche which combines elements of both the restaurant and
entertainment industries. As a result, the Company, to some degree, competes
with entities in both industries. Although other restaurant chains presently
utilize the concept of combined family restaurant/entertainment operations, the
Company believes these competitors operate primarily on a local or regional,
market-by-market basis. Within the traditional restaurant sector, the Company
competes with other casual restaurants on a nationwide basis. In addition to
such national restaurant chains and regional and local restaurant/family
entertainment competitors, the Company competes with other concepts that target
the same consumer, including "fun centers," such as those operated by Discovery
Zone, Inc. These fun centers have experienced rapid expansion which has affected
the Company's historical performance. The Company's high operating leverage may
make it particularly susceptible to competition. Such competitive market
conditions, including the emergence of significant new competition, could
adversely affect the Company's ability to successfully increase its results of
operations.

6
<PAGE> 8

DEPENDENCE ON KEY PERSONNEL

The success of the Company's business will continue to be highly dependent
upon Richard M. Frank, the Chairman of the Board and Chief Executive Officer of
the Company, Michael H. Magusiak, the President of the Company, and other
members of the Company's senior management. Although the Company has entered
into employment agreements with each of Mr. Frank and Mr. Magusiak, the loss of
the services of either of such individuals could have a material adverse effect
upon the Company's business and development. The Company's success will also
depend upon its ability to retain and attract additional skilled management
personnel to its senior management team and at its operational level. There can
be no assurances that the Company will be able to retain the services of Messrs.
Frank or Magusiak, senior members of its management team or the required
operational support at the store level in the future.

FRANCHISE OPERATIONS

The Company's success is also dependent, to some degree, upon its franchise
operations and the manner in which its franchisees operate and develop their
restaurant/entertainment centers to promote and develop the Company's concept
and its reputation for quality and value. Currently, 22% of the Company's
restaurant/entertainment centers are owned and operated by its franchisees.
Although the Company has established criteria to evaluate prospective
franchisees, there can be no assurance that current or prospective franchisees
will have the business abilities or access to financial resources necessary to
successfully develop or operate restaurant/entertainment centers in their
franchise areas in a manner consistent with the Company's concepts and
standards.

SENSITIVITY TO NEGATIVE PUBLICITY

The Company's target market of 2 to 12 year old children and families with
small children is potentially highly sensitive to adverse publicity. There can
be no assurance that the Company will not experience negative publicity
regarding one or more of its restaurant/entertainment centers. The occurrence of
negative publicity regarding one or more of the Company's locations could
materially and adversely affect the Company's image with its customers and its
results of operations.

POSSIBLE LIMITATIONS ON USE OF NET OPERATING LOSS AND TAX CREDIT CARRYFORWARDS

Federal income tax laws may limit the amount of net operating losses and
certain tax credits that might otherwise be used by the Company to offset future
income and tax liabilities. There can be no assurance as to the availability of
such losses and credits for such offset.

FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS; SEASONALITY

The Company has experienced, and in the future could experience, quarterly
variations in revenues as a result of a variety of factors, many of which are
outside the Company's control, including the timing and number of new store
openings, the timing of capital investments in existing stores, unfavorable
weather conditions and natural disasters. The Company typically experiences
lower net sales in the second and fourth quarters than in the first and third
quarters. If revenues are below expectations in any given quarter, the Company's
operating results would likely be materially adversely affected for that
quarter.

GOVERNMENT REGULATION

The Company and its franchisees are subject to various federal, state and
local laws and regulations affecting operations, including those relating to the
use of video and arcade games and rides, the preparation and sale of food, and
those relating to building and zoning requirements. The Company and its
franchisees are also subject to laws governing their relationship with
employees, including minimum wage requirements, overtime, working and safety
conditions, and citizenship requirements. In addition, the Company is subject to
regulation by the Federal Trade Commission and must comply with certain state
laws which govern the offer, sale and termination of franchises and the refusal
to renew franchises. Difficulties or failures in obtaining required licenses or
other regulatory approvals could delay or prevent the opening of a new
restaurant/entertainment center, and the suspension of, or inability to renew, a
license or permit could interrupt operations at an existing restaurant.

7
<PAGE> 9

USE OF PROCEEDS

All of the Shares offered hereby are being sold by the Selling
Stockholders. The Company will not receive any of the proceeds from the sale of
Shares by the Selling Stockholders.

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company at December 27, 1996. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related Notes.

<TABLE>
<CAPTION>
DECEMBER 27,
1996
------------
(IN THOUSANDS)
<S> <C>
Current portion of long-term debt........................... $ 1,785
Long-term debt and other obligations, noncurrent............ 35,678
--------
Total debt................................................ 37,463
--------
Class A redeemable preferred stock, par value $60.00 per
share; authorized -- 49,570 shares; issued -- 49,570
shares.................................................... 2,108
--------
Stockholders' equity:
Common stock, par value $.10 per share;
authorized -- 50,000,000 shares; issued -- 21,519,075
shares(1).............................................. 2,152
Additional paid-in capital................................ 153,795
Retained earnings......................................... 17,613
Deferred compensation..................................... (1,821)
Less 3,109,176 common shares in treasury.................. (30,263)
--------
Total stockholders' equity............................. 141,476
--------
Total capitalization................................. $181,047
========
</TABLE>

- ---------------

(1) Excludes 1,010,511 shares of Common Stock issuable upon exercise of options
outstanding as of December 27, 1996.

8
<PAGE> 10

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock is traded on the Nasdaq National Market under the symbol
"SHBZ." The following table sets forth on a per share basis the high and low
sale prices for the Common Stock as reported on the Nasdaq National Market for
the periods indicated.

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1995
First Quarter............................................. $ 73/16 $ 47/8
Second Quarter............................................ 83/16 513/16
Third Quarter............................................. 91/16 75/16
Fourth Quarter............................................ 815/16 71/4
1996
First Quarter............................................. $1213/16 $ 8
Second Quarter............................................ 175/8 121/2
Third Quarter............................................. 191/4 12
Fourth Quarter............................................ 20 14
1997
First Quarter (through March 19, 1997).................... $25 $163/4
</TABLE>

On March 14, 1997, there were 4,171 holders of record of outstanding shares
of Common Stock.

The Company has not paid any cash dividends on its Common Stock and does
not expect to pay cash dividends on its Common Stock in 1997 or in the
foreseeable future. The Board of Directors anticipates that all cash flow
generated from operations in the foreseeable future will be retained and used to
develop and expand the Company's business and reduce outstanding indebtedness.
Any future payment of cash dividends will depend upon the Company's results of
operations, financial condition, cash requirements and other factors deemed
relevant by the Board of Directors.

The Company may not pay any dividends to holders of its Common Stock
(except in shares of Common Stock) unless an amount equal to all dividends then
accrued on its Class A Preferred Stock, par value $60.00 per share (the "Class A
Preferred Stock"), has been paid or set aside to be paid. A dividend to holders
of record of Class A Preferred Stock as of December 27, 1996 in the amount of
$1.20 per share will be paid on March 27, 1997.

9
<PAGE> 11

SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA

The information presented below, except store data, for, and at the end of,
each of the years in the five year period ended December 27, 1996 is derived
from the consolidated financial statements, which have been audited by Deloitte
& Touche LLP, independent auditors.

The information presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Consolidated Financial Statements at December 29, 1995 and
December 27, 1996 and for each of the years in the three year period ended
December 27, 1996 and the related notes and Independent Auditors' Report (which
notes a 1994 change in accounting for pre-opening costs), which are included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, DECEMBER 29, DECEMBER 27,
1993 1993 1994 1995 1996
---------- ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT STORE DATA AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................... $253,444 $272,344 $268,515 $263,783 $293,990
Costs and expenses:
Cost of sales.................. 125,279 137,343 137,729 136,700 143,381
Selling, general and
administrative expenses...... 39,733 42,129 47,263 44,794 43,534
Depreciation and
amortization................. 19,249 23,058 26,032 23,184 25,057
Interest expense............... 1,508 797 1,861 3,118 3,476
(Gain) loss on property
transactions................. 654 675 (2,597) 136 263
Other operating expenses(1).... 41,771 50,095 55,114 55,476 56,058
-------- -------- -------- -------- --------
Total costs and
expenses................ 228,194 254,097 265,402 263,408 271,769
-------- -------- -------- -------- --------
Income before income taxes....... 25,250 18,247 3,113 375 22,221
Income taxes..................... 9,747 6,356 2,437 312 9,000
-------- -------- -------- -------- --------
Net income....................... 15,503 11,891 676 63 13,221
======== ======== ======== ======== ========
Earnings (loss) per common and
common equivalent share(2)..... $ .74 $ .57 $ .02 $ (.02) $ .70
Weighted average shares
outstanding.................... 20,570 20,196 18,191 18,098 18,532
OTHER DATA:
Cash flow from operations........ $ 44,246 $ 44,905 $ 30,819 $ 27,810 $ 48,362
Cash flow from investing......... (35,872) (45,909) (22,576) (30,548) (51,868)
Cash flow from financing......... (7,631) 2,053 (10,373) 5,946 1,319
EBITDA(3)........................ 46,341 42,431 27,721 25,941 49,966
Capital expenditures............. 33,903 44,600 29,421 28,277 51,719
BALANCE SHEET DATA (AT PERIOD END):
Total assets..................... $173,217 $193,649 $188,308 $199,010 $216,580
Long-term obligations(4)......... 17,743 29,816 33,223 39,244 39,571
Stockholders' equity............. 132,167 136,647 125,515 126,487 141,476
STORE DATA:
Stores open at period end:
Company-operated(5)............ 182 215 226 226 244
Franchised..................... 113 110 106 93 70
-------- -------- -------- -------- --------
Total..................... 295 325 332 319 314
Comparable store sales increase
(decrease)(6).................. 3.2% (5.3)% (5.8)% (1.4)% 9.8%
Company-operated stores remodeled
during period.................. 26 25 10 87 126
</TABLE>

- ---------------

(1) Consists primarily of expenses for rent, utilities and repairs.

(2) Per share information is calculated after the payment of dividends on shares
of redeemable preferred stock and reflects a three-for-two stock split in
the form of a 50% stock dividend of shares of Common Stock effected on May
22, 1996.

(3) Earnings before interest income, interest expense, (gain) loss on property
transactions, depreciation, amortization and income taxes.

(4) Includes current and long-term portions of long-term debt, redeemable
preferred stock and other long-term liabilities.

(5) Does not include 27 Monterey's Tex-Mex Cafe restaurants that were sold by
the Company effective May 4, 1994.

(6) Comparable store sales are calculated using sales of Company-owned stores
which were open for the full prior period.

10
<PAGE> 12

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

From 1987 to 1992, the Company experienced steady growth in revenues,
profitability and restaurant locations, as revenues increased at a 15% compound
annual rate and the number of Company-operated stores increased from 118 at the
start of 1987 to 182 at the end of 1992. During early 1993, the Company began to
experience increasing competitive pressure in the form of national fun centers
such as Discovery Zone, Inc., which offered a different type of entertainment
targeted at the same market as Chuck E. Cheese's. The first quarter of 1993
marked the first time in 20 consecutive quarters that the Company did not report
comparable store sales growth. In response to the changing competitive
environment, management began an extensive review of each aspect of the
business. Following this review, the Company began a repositioning program that
focused on critical areas of the business, including the remodeling and
repositioning of its restaurants. See "Business -- Recent Strategic
Initiatives."

Under this program, the Company remodeled 10 stores in 1994. Based on the
positive operating results of these remodeled stores, the Company decided to
remodel substantially all of its Company-operated stores by the end of 1996.
Accordingly, the Company remodeled 87 stores in 1995 and another 126 stores in
1996. During the first half of 1997, the Company plans to complete the
remodeling program as it remodels the remaining 21 stores, bringing to 244 the
number of store locations remodeled since 1994.

As a result of the remodeling and repositioning program, comparable store
sales have improved significantly since the fourth quarter of 1995. The
following charts show the change in comparable store sales for each quarter and
the percentage of Company-operated restaurants that were remodeled by the end of
each quarter.

CHANGE IN COMPARABLE STORE SALES

[COMPARABLE STORE SALES CHART]

REMODELED RESTAURANTS AS A PERCENTAGE
OF TOTAL COMPANY-OPERATED RESTAURANTS

[REMODELED RESTAURANTS AS A PERCENTAGE]

11
<PAGE> 13

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage
of revenues that certain items in the statement of earnings represent and should
be read in conjunction with the discussion below and with the Company's
Consolidated Financial Statements, including the notes thereto, for the periods
indicated.

<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
DECEMBER 30, DECEMBER 29, DECEMBER 27,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenue.................................................. 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales.......................................... 51.3 51.8 48.7
Selling, general and administrative.................... 17.6 17.0 14.8
Depreciation and amortization.......................... 9.7 8.8 8.5
Interest expense....................................... .7 1.2 1.2
(Gain) loss on property
transactions........................................ (1.0) .1 .1
Other operating expenses(1)............................ 20.5 21.0 19.1
----- ----- -----
Income before income taxes............................... 1.2 .1 7.6
Income tax expense....................................... .9 .1 3.1
----- ----- -----
Net income............................................... .3% 0.0% 4.5%
===== ===== =====
</TABLE>

- ---------------
(1) Consists primarily of expenses for rent, utilities and repairs.

1996 COMPARED TO 1995

Revenues increased by 11.5% to $294.0 million in 1996 from $263.8 million
in 1995 primarily due to an increase of 9.8% in comparable store sales from 1995
to 1996. In addition, the Company purchased 19 restaurants from its largest
franchisee in September 1996. Average annual sales per restaurant increased to
approximately $1,286,000 in 1996 from approximately $1,178,000 in 1995.
Management believes that several factors contributed to the comparable store
sales increase with the primary factor being sales increases at repositioned
stores. Menu prices increased 3.2% between the two years. Revenues from
franchise fees and royalties were $3.7 million in 1996, an increase of 6.1% from
1995, primarily due to an increase in franchise fee income in 1996 and an
increase of 3.6% in comparable franchise store sales for 1996. The increase in
comparable franchise store sales was partially offset by a decline in the number
of franchise restaurants operated each year. During 1996, four new franchise
restaurants opened, eight franchise restaurants closed and 19 franchise
restaurants were purchased by the Company.

Cost of sales as a percentage of revenues decreased to 48.7% in 1996 from
51.8% in 1995. Cost of food, beverage, prize and merchandise items for Chuck E.
Cheese's restaurants as a percentage of restaurant sales decreased to 17.4% in
1996 from 17.9% in 1995 primarily due to a 3.2% increase in menu prices. Labor
expenses for Chuck E. Cheese's restaurants as a percentage of restaurant sales
declined to 28.7% in 1996 from 30.9% in 1995 primarily due to an increase in
comparable store sales and more effective utilization of hourly employees.

Selling, general and administrative expenses as a percentage of revenues
decreased to 14.8% in 1996 from 17.0% in 1995 primarily due to comparable store
sales increases and a reduction of advertising costs between the two periods.

Depreciation and amortization expense as a percentage of revenues decreased
to 8.5% in 1996 from 8.8% in 1995 primarily due to the full amortization of
certain deferred charges.

Interest expense increased to $3.5 million in 1996 from $3.1 million in
1995 primarily due to an increase in the Company's average outstanding debt
between the two periods. Debt increased as a result of capital expenditures in
connection with the repositioning of 126 and 87 restaurants in 1996 and 1995,
respectively.

12
<PAGE> 14

The Company had a net loss on property transactions of $263,000 in 1996 and
$136,000 in 1995 due to the replacement of assets arising from the enhancement
of facilities and entertainment packages of restaurants. The loss in 1995 was
net of a gain of $100,000 from the sale of certain assets which had been held
for resale.

Other operating expenses decreased as a percentage of revenues to 19.1% in
1996 from 21.0% in 1995 primarily due to a decrease in insurance costs, the
increase in comparable store sales and the fact that a significant portion of
operating costs are fixed.

The Company had net income of $13.2 million in 1996 compared to $63,000 in
1995 due to the changes in revenues and expenses discussed above. The Company's
primary and fully diluted earnings per share increased to $.70 per share in 1996
compared to a loss of $.02 per share in 1995.

1995 COMPARED TO 1994

Revenues declined 1.8% to $263.8 million in 1995 from $268.5 million in
1994 primarily due to the sale of the Company's Monterey's Tex-Mex Cafe
restaurants in May 1994. Revenue generated by the Company's Chuck E. Cheese's
restaurants increased to $263.3 million in 1995 from $262.0 million in 1994
primarily due to the net addition of 11 Company restaurants in 1994 and two
Company restaurants in 1995. Comparable store sales declined 1.4% from 1994 to
1995. Revenues from the Company's Monterey's Tex-Mex Cafe restaurants were $6.5
million in 1994.

Cost of sales as a percentage of revenues increased to 51.8% in 1995 from
51.3% in 1994. Cost of food, beverage, prize and merchandise items for Chuck E.
Cheese's restaurants as a percentage of restaurant sales decreased to 17.9% in
1995 from 18.2% in 1994 primarily due to an increase in game sales as a
percentage of total restaurant sales. Labor expenses for Chuck E. Cheese's
restaurants as a percentage of restaurant sales increased to 30.9% in 1995 from
30.0% in 1994 primarily due to increased labor rates, reduced management
turnover and the decline in comparable store sales.

Selling, general and administrative expenses as a percentage of revenues
decreased to 17.0% in 1995 from 17.6% in 1994 primarily due to a reduction in
corporate overhead expenses.

Depreciation and amortization expense as a percentage of revenues decreased
to 8.8% in 1995 from 9.7% in 1994. Pre-opening expense declined due to the
write-off of all unamortized pre-opening expense in the fourth quarter of 1994
resulting from a change in the estimated useful future benefit of such expenses.
Depreciation and amortization expense decreased by $2.8 million in 1995 due to
the sale of the Company's Monterey's Tex-Mex Cafe restaurants in May 1994 and a
change effected in the first quarter of 1995 in the estimated useful lives of
certain fixed assets that resulted in approximately $2.3 million of such
decrease.

Interest expense increased to $3.1 million in 1995 from $1.9 million in
1994 primarily due to an increase in interest rates and the Company's average
outstanding debt for 1995.

The Company had a net loss on property transactions of $136,000 in 1995
compared to a net gain on property transactions of $2.6 million in 1994. In
1994, the Company recognized a gain of $5.5 million from the sale of
substantially all of the assets of its Monterey's Tex-Mex Cafe restaurants on
May 4, 1994. The gain was partially offset by a loss of approximately $2.3
million in 1994. The loss was a result of the Company's decision to close one
Chuck E. Cheese's restaurant and the impairment in fair value of the fixed
assets of 10 Chuck E. Cheese's restaurants due to the Company's decision not to
renew the leases as a result of the deterioration of site characteristics.

Other operating expenses as a percentage of revenues increased to 21.0% in
1995 from 20.5% in 1994 primarily due to increased rent expense and the decline
in comparable store sales.

The Company's net income decreased to $63,000 in 1995 from $676,000 in 1994
due to the changes in revenues and expenses discussed above.

13
<PAGE> 15

INFLATION AND SEASONALITY

The Company's costs of operations, including, but not limited to, labor,
supplies, utilities, financing and rental costs, are significantly affected by
inflationary factors. The Company pays most of its part-time employees rates
that are related to federal and state mandated minimum wage requirements.
Management anticipates that recent increases in the federally mandated minimum
wage will result in increased labor costs for the Company. Any other increases
in any such costs would result in higher costs to the Company, which the Company
expects would be partially offset by menu price increases and increased
efficiencies in operations. The Company typically experiences lower net sales in
the second and fourth quarters than in the first and third quarters.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operations increased to $48.4 million in 1996 compared to
$27.8 million in 1995. Cash outflow from investing activities for 1996 was $51.9
million. Cash inflow from financing activities in 1996 was $1.3 million. The
Company's primary requirements for cash relate to planned capital expenditures
and debt service. The Company expects that it will satisfy such requirements
from cash provided by operations and funds available under its line of credit.

The Company repositioned 10, 87 and 126 restaurants in 1994, 1995 and 1996,
respectively. Company expenditures relating to the remodeling program averaged
approximately $330,000 per restaurant during 1996, representing total
expenditures of approximately $41.6 million. The Company anticipates remodeling
the remaining 21 restaurants in the first half of 1997 at an average cost of
approximately $350,000 per restaurant for a total of approximately $7.4 million.
However, this amount can vary significantly at a particular restaurant depending
on several factors, including the restaurant's square footage, the date of the
most recent remodel and the existing assets at the restaurant. Expenditures
relating to the repositioning program have been financed primarily by cash flow
from operations and borrowings under the Company's line of credit.

The Company plans to open approximately six to eight new stores in 1997 and
10 to 12 new stores in 1998. The Company currently anticipates the cost of
opening such new stores to average approximately $1.3 million per store. In
addition to such new store openings, the Company plans to expand 10 to 15
existing stores in 1997 by an average of 1,000 to 4,000 square feet per store.
The Company also anticipates adding new game packages to as many as 100 stores
in 1997 at an average cost of approximately $150,000 per store. The Company
currently estimates that capital expenditures in 1997, including expenditures
for the remodeling of existing stores, new store openings, existing store
expansions and equipment investments, will be approximately $40 to $50 million.
The Company plans to finance these expenditures through cash flow from
operations and borrowings, if necessary, under the Company's line of credit.

In August 1996, the Company increased its line of credit to $15.0 million
from $5.0 million and extended the maturity date from June 1997 to June 1998.
Currently, any borrowings under this line of credit would be at prime or at the
London Interbank Offered Rate ("LIBOR") plus 2%. As of January 31, 1997,
$500,000 was outstanding under the line of credit.

The Company believes it will realize substantial benefit in the future from
the utilization of approximately $47 million in net operating loss carryforwards
to reduce its federal income tax liability. Such net operating loss
carryforwards expire from 1999 through 2001. Although the use of such
carryforwards could, under certain circumstances, be limited, the Company is
presently unaware of the occurrence of any event which would result in the
imposition of such limitation. The Company's Restated Articles of Incorporation
contain a provision which is intended to prevent changes in ownership of its
Common Stock that would cause such limitation. In addition, the Company has
investment tax credit, job tax credit and alternative minimum tax credit
carryforwards of approximately $7 million of which $5.8 million expires from
1997 through 2010. Tax credit carryforwards can be utilized by the Company only
after all net operating loss carryforwards have been utilized (if no event
occurs that would limit the use of net operating carryforwards). If the
improvement in the Company's results of operations does not continue, a portion
of the net operating loss and tax credit carryforwards could expire prior to
utilization resulting in a charge against income. Taxable income for the five
years ended December 27, 1996 was approximately $66 million. Based on the
results of the repositioned restaurants, the Company currently anticipates
future taxable income levels sufficient to realize its net operating loss and
tax credit carryforwards

14
<PAGE> 16

prior to their expiration after considering an allowance of $1.1 million for the
estimated expiration of tax credit carryforwards in 1997. However, there can be
no assurance that the levels of taxable income will be sufficient to realize
these benefits.

15
<PAGE> 17

BUSINESS

GENERAL

The first Chuck E. Cheese's restaurant was opened in 1977. In 1980, the
Company opened the first ShowBiz Pizza Place restaurant and in 1985 the Company
acquired the Chuck E. Cheese's chain. During 1993, the Company completed the
conversion of its Company-operated ShowBiz Pizza Place restaurants to Chuck E.
Cheese's restaurants. From 1985 to 1996, the Company expanded to its current 244
Company-operated locations.

RECENT STRATEGIC INITIATIVES

Following is a discussion of each of the recent strategic initiatives
recently implemented by the Company.

Remodeling of Existing Stores. In 1994, the Company began a remodeling
program designed to improve the appearance and competitive position of the
Company's restaurants and to meet key customer needs identified through an
extensive research process. The key elements of the remodeling program include
the following:

- Enhanced exterior, containing signage projecting a friendlier, more
upbeat image of the Chuck E. Cheese character, block letters and back-lit
awnings;

- Brighter, airier locations typically provided by increasing the number of
exterior windows;

16
<PAGE> 18

- The addition of SkyTubes, attractive tubes and tunnels suspended from the
ceiling, that compete directly with pay-for-play fun centers;

- The installation of new games; and

- The addition of other interior improvements.

Enhancing Value Perception to Customers. The Company's extensive research
process identified value as a key need of the Company's customers. In response
to this identified need, the Company is attempting to enhance the value
perception of its restaurant/entertainment centers to its customers through the
following:

- Free Access to SkyTubes -- As a free attraction, the SkyTubes represent a
significant value to customers who typically pay for such activity at
pay-for-play fun centers.

- Token Value Deals -- This program allow customers to purchase tokens in
volume at a discount at the same time that food is ordered rather than
requiring continual purchases by parents. This has increased the
perception of value among consumers because customers are not continually
buying additional tokens.

- Improved Prize Program -- The Company has revamped the prize program by
increasing the number of prize tickets dispensed from games and updating
the prize offerings to include more popular new toys.

- Improved Game Packages -- The Company has added kiddie skill games and
redemption type games for the older customer base to its game offerings.

- "Kid Check" Child Security Program -- To improve security and reassure
parents, the Company has implemented the "Kid Check" program at all
locations. Kid Check is monitored by a Chuck E. Cheese's employee, who
greets guests and stamps the hand of each person in the party with a
unique number in invisible ink. A child can leave only with an adult
whose stamped number matches the child's when viewed under an ultraviolet
light.

- Improved Food Quality -- The Company's food and beverage improvements
have focused on better pizza and enhanced menu items to increase the
perception of healthiness to parents. The pizza quality has been improved
through the use of a better pizza tray which keeps the crust crispy
longer and through various ingredient enhancements. Recent blind tests by
independent experienced taste evaluators show that Chuck E. Cheese's
pizza is superior to or at parity with national competitors.

Expansion of Existing Stores. The Company is expanding the size of selected
stores by an average of 1,000 to 4,000 square feet based on highest sales per
square foot. In 1995 and 1996, the Company expanded four and six stores,
respectively, and management anticipates expanding an additional 10 to 15 stores
in 1997.

Addition of New Game Packages. In addition to the remodeling described
above, the Company is testing new expanded game packages to enhance customer
appeal in 17 repositioned stores. If the test results continue to exceed the
Company's requirements for returns on invested capital, management anticipates
adding these new expanded game packages to as many as 100 selected stores in
1997. The cost of these enhanced game packages is expected to average
approximately $150,000 per store. The Company anticipates increased sales in
stores with enhanced game packages.

Implementation of Birthday Hotline. The Company has implemented a Birthday
Hotline, a toll-free reservation number available for parents to book birthday
parties at Chuck E. Cheese's restaurants, in approximately 129 restaurants.
Management believes that the Birthday Hotline will provide faster and more
professional service to parents, thereby facilitating the booking of more
birthday parties at Chuck E. Cheese's restaurants. Management also believes that
this will improve operating efficiencies at the Company's restaurants and result
in incremental revenues due to increased sales of birthday party favor bags.
Management is currently evaluating whether the benefits derived from the
Birthday Hotline justify its further implementation. The Company derives
approximately 15% of its revenues from birthday parties.

Integration of McBiz Stores. In September 1996, the Company purchased all
of the 19 Chuck E. Cheese's restaurants owned by its largest franchisee, McBiz
Corporation ("McBiz"), plus the 49% minority interest of one restaurant
previously operated as a joint venture by the two companies for approximately
$2.6 million in cash and

17
<PAGE> 19

reimbursement for remodeling costs for three restaurants which had been
remodeled prior to the purchase. The addition of these restaurants represents an
increase of over 8% in the number of Company-operated stores. The Company is
integrating these stores into the Chuck E. Cheese's system on an expedited
basis, including remodeling all of these stores by the end of the first quarter
of 1997. Based upon the sales growth experienced to date in the Company's
remodeled stores and historical performance of the acquired McBiz stores,
management anticipates that these new locations will contribute to the Company's
overall revenues, profitability and earnings per share in 1997. However, there
can be no assurance that the anticipated level of revenues, profitability and
earnings per share will be achieved.

FUTURE GROWTH OPPORTUNITIES

Management has identified the following areas as future growth
opportunities for the Company:

Opening of New Stores. Since 1994, the Company has focused primarily on
remodeling and repositioning existing stores. Beginning in 1997, management
plans to focus more attention on new store development. Management has
specifically targeted approximately 100 potential sites in the United States for
future new store openings. Management anticipates opening approximately six to
eight new stores in 1997 and approximately 10 to 12 new stores in 1998. In
addition, management believes that there are a number of other attractive sites
in the United States that have not yet been specifically identified but that
could be attractive locations for future new stores. The Company's rate of
opening new stores is highly variable depending on obtaining sites at reasonable
costs that meet the Company's site requirements.

Development of Smaller Market Store. Currently, the Company seeks to locate
its restaurants, which generally range from 8,000 to 14,000 square feet in size,
in larger metropolitan areas with high populations of children. However,
management is in the process of developing a redesigned prototype Chuck E.
Cheese's restaurant which could be used in smaller markets. The Company
anticipates completing the prototype, which is expected to be a 7,500 to 8,000
square foot unit, by the end of 1997 and developing the first restaurant in
1998.

Development of Enhanced Customer Entertainment Features. The Company is
continually seeking ways to enhance the entertainment experience and perceived
value provided by Chuck E. Cheese's restaurant/entertainment centers through the
evolution of the Company's concept, including enhancing the existing robotic
hardware and software of the animated stage show. The Company is currently
testing a new show, Chuck E.'s Awesome Adventure Machine, in one location in
Dallas. The new show has only one robotic character (Chuck E. Cheese) at a
control center in the center of the stage. Two large projection televisions on
each side of Chuck E. Cheese allow Chuck E. Cheese to take the audience on
adventures around the globe and universe. The show has interaction between Chuck
E. Cheese and the characters on screen, and the video segments are very upbeat
with lots of music.

Franchising. As of December 27, 1996, the Company had 63 franchise units in
the United States, four in Canada, two in Chile and one in Guatemala. The
Company intends to continue its franchise program in the United States,
primarily with existing franchisees, and on a case by case basis in selected
international markets. Management is approached regularly by interested
international developers because of the appeal of the concept and the success of
existing operations.

Merchandising. Merchandise sales were approximately 3% of revenues in 1996
(total merchandise sales were $9.6 million in 1996). Based on the number of
children aged 2 to 12 years old visiting Chuck E. Cheese's restaurants,
management believes that an opportunity exists for enhanced merchandise sales
and increased revenues from expanding the prizes and merchandise available for
redemption or purchase.

Licensing of the Chuck E. Cheese Character. The Company believes that the
Chuck E. Cheese character is among the most familiar and best-liked characters
among children aged 2 to 12 years old. Management is currently exploring
opportunities to license the Chuck E. Cheese character. In July 1996, the
Company entered into an agreement to use ACA, The Licensing Group ("ACA") to
represent it in pursuing opportunities in character licensing. The agreement
provides that ShowBiz will pay to ACA one-third of the net royalties received by
the Company. The agreement is automatically renewed each year unless either
party gives thirty days notice to

18
<PAGE> 20

the contrary. The Company believes that product licensing at the retail level
can help further promote the Chuck E. Cheese character and the Company's
restaurants.

INDUSTRY OVERVIEW

Management believes that the Company is one of the leading operators of
family-oriented restaurant/entertainment centers in the United States. By
combining these two often separate activities, the Company is able to capitalize
on the consumer's demand for fun, value and convenience and create an
entertaining family experience.

The family entertainment industry is a broad and growing industry. The
spectrum of entertainment opportunities for families with young children is
extremely broad, ranging from low-cost, short-lived activities to more lengthy
and expensive activities. Low cost, low commitment activities include events
such as stopping for treats, ice cream, etc. while high cost, high time
commitment activities would be events such as amusement park visits, field
trips, etc. ShowBiz and its entertainment industry peer group are more medium
cost, medium time commitment activities, typically offering value-oriented,
activity-based entertainment costing approximately $7.25 per person per visit
and lasting approximately one and one-half hours per visit.

The family restaurant industry is also very broad. Young children, however,
greatly limit the range of opportunities for family restaurant-goers. As a
result, convenience and value are significant decision factors for families
dining out with young children; the ultimate objective is to minimize the adult
"hassle factor" and provide value.

MARKETING STRATEGY

The primary customer base for Chuck E. Cheese's restaurants is families
with children between 2 and 12 years old. The Company estimates that the typical
customer visits a Chuck E. Cheese's location two to six times a year and spends
an average of $7.25 per person and approximately one and one-half hours per
visit. Approximately 90% of ShowBiz customers have children under the age of 12.
The average child's age is 5.4 years. The typical Chuck E. Cheese's customer has
young children and seeks a fun, entertaining restaurant experience which
includes quality food and good value.

The Company conducts advertising campaigns which target families with young
children and feature the family entertainment experiences available at Chuck E.
Cheese's restaurants. Since the concept has high awareness and appeal, the
advertising is primarily aimed at increasing the frequency of customer visits.

Television is the key advertising medium directed to children. Ads placed
on both local and national levels show the fun that kids and their families and
friends can have at Chuck E. Cheese's restaurants. In addition, the Company is a
sponsoring underwriter of Barney and Friends, one of the highest-rated programs
among two to six year olds, and has recently begun an advertising campaign on
Nickelodeon.

Parents are periodically targeted by full color free-standing inserts in
local newspapers. These inserts feature package deals available at Chuck E.
Cheese's which include pizza, drinks, and game tokens for $16 to $20. In each
restaurant the Company promotes additional value meal packages priced from $25
to $35. These package deals provide tokens with meal purchases rather than
requiring continual purchases by parents.

OPERATIONS

Chuck E. Cheese's restaurants are typically located in shopping centers or
in free-standing buildings near shopping centers and generally occupy 8,000 to
14,000 square feet. Chuck E. Cheese's are typically divided into three areas: a
kitchen and related area (cashier and prize area, salad bar, manager's office,
technician's office, restrooms, etc.) occupies approximately 35% of the space, a
dining area occupies approximately 25% of the space, and an activity area
occupies approximately 40% of the space.

The kitchen area includes a walk-in refrigerator, sinks, an automated pizza
oven, a dough mixer, storage space, and food preparation counters. The kitchen
has space for several employees to work simultaneously, and the automated pizza
oven has the capacity to bake approximately 100 pizzas per hour.

19
<PAGE> 21

The dining area of each Chuck E. Cheese's restaurant features a variety of
comic and musical entertainment by computer-controlled robotic characters,
together with video monitors and animated props, located on various stage type
settings. The dining area typically provides table and chair seating for 250 to
375 customers. Each Chuck E. Cheese's restaurant offers a variety of pizzas, a
salad bar, sandwiches, desserts and an assortment of other menu items. Soft
drinks, coffee, and tea are also served, along with beer and wine where
permitted by local laws. All food is prepared fresh daily in the kitchen.
Customers order from a central cashier and food is delivered to them at their
table.

Each Chuck E. Cheese's contains a family-oriented playroom area offering
approximately 40 coin and token-operated attractions, including arcade-style
games, kiddie rides, video games, skill oriented games and other similar
entertainment. Most games dispense tickets which can be redeemed by guests for
prize merchandise such as toys and dolls. Also included in the playroom area are
ceiling-suspended tubes and tunnels (SkyTubes) and other free attractions for
young children, with booth or table seating available for the entire family. The
playroom area normally occupies approximately 60% of the restaurant's public
area and contributes significantly to its revenues. A limited number of free
tokens are furnished with food orders and additional tokens may be purchased.
These tokens are used to play the games in the playroom area.

Most food is prepared in the restaurant using mixes produced in accordance
with Company standards. Each day prior to the opening of the restaurant,
employees prepare fresh pizza dough according to Company specifications.
Employees also clean and prepare fresh vegetables daily (no canned or frozen
vegetables are used). Meat and cheese items are delivered pre-cut. The following
chart shows sales of various food items at Company stores in the last year.

FOOD AND BEVERAGE SALES
TWELVE MONTHS ENDED DECEMBER 27, 1996
(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
DOLLAR AMOUNT PERCENT OF TOTAL
------------- ----------------
<S> <C> <C>
Pizza.................................................... $153.4 75.7%
Salad Bar................................................ 10.2 5.1
Sandwiches............................................... 7.5 3.7
Non-Alcoholic Beverages.................................. 24.0 11.8
Alcoholic Beverages...................................... 6.4 3.2
Other.................................................... 1.1 .5
------ ------
Total.......................................... $202.6 100.0%
</TABLE>

Pizzas are made to order using the dough and other items prepared earlier
in the day. Visual aids showing the volume or weight of each ingredient for each
type of pizza are displayed near the pizza preparation counter, so employees are
able to quickly determine the appropriate items for each type of pizza. Portions
are controlled through standard-sized ladles for sauce and by weight for solids.
After the raw pizza is assembled, it is placed on a motor-driven shelf in the
automated pizza oven, which automatically controls the cooking period for the
pizza. The Company strives to serve a pizza 10 to 12 minutes after the order is
placed. Fresh, prepared-to-order sandwiches are also placed through the
automated oven.

The salad bar typically consists of 21 items, including fresh produce,
pasta salads, fruits and cheeses. Employees prepare fresh vegetables daily for
the salad bar and cut them according to Company specifications for size and
thickness. Certain items, including pasta salad, are delivered pre-prepared by
McLane Company, Inc. ("McLane's"), a national food distributor. Employees
maintain the freshness of the salad bar and dispose of items before their shelf
lives expire.

Birthday cakes are ordered through McLane's and delivered to the stores
pre-decorated with the Chuck E. Cheese character.

Beverage dispensers are located near the cashier. When customers purchase
beverages they are given a cup and may dispense their own selection of soda or
other soft drinks -- refills of soda and similar drinks are free.

20
<PAGE> 22

Chuck E. Cheese's restaurants also sell juice in bottles and milk in cartons
with no free refills. Where permitted by law, Chuck E. Cheese's restaurants sell
beer and wine by the glass.

Each Chuck E. Cheese's restaurant generally employs a general manager, one
or two assistant managers, an electronics specialist who is responsible for
repair and maintenance of the robotic characters and games, and 45 to 75 food
preparation and service employees, most of whom work only part time. In general,
a minimum of five staffers is required at any time the restaurant is open.
Management maintains direct and frequent contact with unit level managers
through a network of 27 district managers, most of whom supervise six to 12
stores each, and four regional managers, each of whom supervises five to nine
district managers.

COMPETITION

The restaurant and entertainment industries are highly competitive, with a
number of major national and regional chains operating in the restaurant or
family entertainment business. Although other restaurant chains presently
utilize the combined family entertainment/restaurant concept, these competitors
primarily operate on a regional, market-by-market basis. ShowBiz believes that
it is the leader in the family restaurant/entertainment niche and has no true
direct national competition in this area.

Although ShowBiz has competition on a local and regional basis in most
areas, ShowBiz believes that its family entertainment concept is a meaningful
differentiation from other restaurants. With food prices that are competitive
with other pizza restaurants, ShowBiz offers an entertainment package which
significantly enhances the customer's price/value experience and promotes family
entertainment and interaction.

In the early 1990s, fun centers emerged as a new competitor catering
directly to ShowBiz's target market -- the 12 and under age group. These fun
centers typically charge an initial admission fee and offer a variety of tubes,
slides, trampolines, ball bins and other climbing apparatus that allow children
to be active in a large indoor environment. These stores grew in popularity by
emphasizing a new aspect of child entertainment that focuses on recreation,
fitness and education, while providing a safe and controlled environment that
parents appreciate. A number of fun centers opened across the country in
response to the popularity of active child entertainment.

Discovery Zone, Inc. ("DZ"), which is now reorganizing under Chapter 11 of
the United States Bankruptcy Code, expanded rapidly and increased its store base
from approximately 35 locations at the end of 1991 to over 300 (including
acquired Leaps and Bounds locations) prior to recent closures. DZs are typically
located in a shopping center and offer a variety of "ball crawls," slides and
other soft-playground equipment, a game room with arcade-style and
skill-oriented games, a dining area that serves food and beverages, party rooms
for group events, and a merchandise counter with DZ apparel, toys and other
items.

The rapid expansion of fun centers negatively impacted ShowBiz's financial
performance in 1993 through 1995, yet at the same time expanded the overall
market for and market awareness of children's entertainment/dining. In response
to the changing competitive environment, ShowBiz management began an extensive
review of each aspect of the business. Following the review, the Company began
its remodeling and repositioning program. See " -- Recent Strategic
Initiatives."

FRANCHISING PROGRAM

As of December 27, 1996, the Company had 63 franchise units in the United
States, four in Canada, two in Chile and one in Guatemala. ShowBiz has 44
franchisees, the two largest being Family Entertainment Center with seven stores
and Mid-South Food Management, Inc. with six stores. In 1996, ShowBiz acquired
19 stores from its then-largest franchisee, McBiz Corporation. The Company began
franchising its restaurants in October 1981 and the first franchised restaurant
opened in June 1982.

The Chuck E. Cheese's standard franchise agreement grants to the franchisee
the right to develop and operate a restaurant and use the associated trademarks
within the standards and guidelines established by the Company. The franchise
agreement presently offered by the Company has an initial term of 15 years and
includes a 10-year renewal option. New franchise agreements generally provide
protection to the franchisee prohibiting the Company from opening a store or
allowing another franchisee to open a store within a five-mile radius of an

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<PAGE> 23

existing franchised location. The agreements provide the Company with a right of
first refusal should any franchisee decide to sell a store.

The franchise agreements governing existing franchised Chuck E. Cheese's
restaurants currently require each franchisee to pay the Company an initial
franchise fee of $50,000, a continuing monthly royalty fee equal to 3.8% of
gross sales and a fee equal to 1.3% of gross sales to cover costs of system-wide
advertising and for further development and improvement of entertainment
attractions. Franchisees are also required to expend at least 3% of gross sales
for local advertising.

PROPERTIES

As of December 27, 1996, the Company operated 244 restaurants and had 67
franchised units in the United States and Canada, two franchised units in Chile
and one unit in Guatemala. The Company-owned stores include 19 Chuck E. Cheese's
locations acquired from McBiz in 1996.

Of the 244 Chuck E. Cheese's restaurants operated by the Company as of
December 27, 1996, 229 occupy leased premises and 15 occupy owned premises. The
leases of Chuck E. Cheese's restaurants contain terms which vary from lease to
lease, although a typical lease provides for a primary term of 10 years, with
two five-year renewal options, and provides for annual minimum rent payments of
approximately $6.00 to $22.00 per square foot, subject to periodic adjustment.
Most of the restaurant leases require the Company to pay the cost of repairs,
insurance and real estate taxes and, in many instances, provide for additional
rent equal to the amount by which a percentage (generally no higher than 7%) of
gross revenues exceeds the minimum rent. The leases will expire at various times
from 1997 to 2009.

SUPPLIERS

The Company has developed rigorous standards for the supplies used in its
restaurants and by its franchisees. All food items and other supplies except
produce and fresh dairy products are purchased on behalf of the Company by
McLane's from approved suppliers. The Company has developed exclusive
specifications for key food components (e.g., cheese, pizza dough mix, toppings,
and sauces), and for each major food product the Company has at least two
independent vendors selected on the basis of reputation, quality assurance
systems, pricing, location, and financial strength. Produce is sourced locally
but again must meet specific standards set by the Company. The Company also
maintains a non-contractual relationship with a vendor to supply and deliver toy
prizes and merchandise to individual restaurants.

EMPLOYEES

The Company's employment varies seasonally, with the greatest number of
people employed during the summer. As of December 27, 1996, the Company employed
approximately 11,000 people: 10,200 hourly field employees (approximately 650 of
these are full time) and 600 salaried field employees as well as 125 salaried
headquarters employees and 60 hourly headquarters employees. None of the
Company's employees is a member of any union or collective bargaining group. The
Company considers its employee relations to be good.

LEGAL PROCEEDINGS

From time to time the Company is involved in litigation, most of which is
incidental to its business. In the Company's opinion, no litigation to which the
Company currently is a party is likely to have a material adverse effect on the
Company's results of operations, financial condition or cash flows.

TRADEMARKS

The Company owns various trademarks, including "Chuck E. Cheese" and
"ShowBiz Pizza Place," that are used in connection with the restaurants and have
been registered with the United States Patent and Trademark Office. The duration
of such trademarks is unlimited, subject to continued use. The Company believes
that it holds the necessary rights for protection of the marks essential to the
conduct of its present restaurant operations.

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<PAGE> 24

GOVERNMENT REGULATION

The development and operation of Chuck E. Cheese's restaurants are subject
to various federal, state and local laws and regulations, including but not
limited to those that impose restrictions, levy a fee or tax, or require a
permit or license on the service of alcoholic beverages and the operation of
games and rides. The Company is subject to the Fair Labor Standards Act, the
Americans With Disabilities Act and family leave mandates. A significant portion
of the Company's restaurant personnel are paid at rates related to the minimum
wage established by federal and state law. Increases in such minimum wage result
in higher labor costs to the Company, which may be partially offset by price
increases and operational efficiencies.

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<PAGE> 25

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information with respect to the
current executive officers and directors of the Company. It is anticipated that
Messrs. Crocco, Gumbiner, Lynch, Talbot and Troup, each of whom is affiliated
with Hallwood, will resign from the Company's Board of Directors upon the
closing of the offering.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard M. Frank...................... 49 Chairman of the Board and Chief
Executive Officer
Michael H. Magusiak................... 40 President and Director
Richard T. Huston..................... 50 Executive Vice President -- Marketing
and Entertainment
Larry G. Page......................... 52 Executive Vice President, Chief
Financial Officer and Treasurer
Charles A. Crocco, Jr................. 58 Director
Anthony J. Gumbiner................... 52 Director
Robert L. Lynch....................... 79 Director
Louis P. Neeb......................... 58 Director
Cynthia I. Pharr...................... 48 Director
J. Thomas Talbot...................... 61 Director
Brian M. Troup........................ 50 Director
</TABLE>

The business experience of each of the executive officers and directors who
are anticipated to continue in office after the closing of the offering is set
forth below.

Richard M. Frank has been Chairman of the Board and Chief Executive Officer
of the Company since March 1986 and has been a director of the Company since
June 1985. He served as President and Chief Operating Officer from June 1985
until October 1988. He joined the Company in 1985. He has served as a director
for Monterey Acquisition Corp. since May 1994.

Michael H. Magusiak was elected President of the Company in June 1994. He
had previously served as Executive Vice President, Chief Financial Officer and
Treasurer since June 1988. He has also served as a director of the Company since
1988. He was Vice President of the Company from October 1987 to June 1988 and
Controller of the Company from October 1987 to January 1989. He joined the
Company in July 1987. He has served as a director for Monterey Acquisition Corp.
since May 1994.

Richard T. Huston has served as Executive Vice President of the Company
since July 1986 and as Director of Marketing and Strategic Development since
January 1993. His responsibilities were expanded in June 1994 to include
entertainment as well as marketing. He served as Director of Marketing and
Development from October 1988 to January 1993. He served as Vice President from
October 1985 to July 1986, as Director of Marketing from October 1985 to October
1988, and as a director from July 1986 to September 1988. He joined the Company
in 1985.

Larry G. Page has served as Executive Vice President, Chief Financial
Officer and Treasurer of the Company since October 1994. Prior to joining the
Company, Mr. Page served as Vice President and Regional General Manager in the
retail services division of Comdata Holdings Corporation, a publicly-held
financial services company, from July 1985 to October 1994. Mr. Page is a
Certified Public Accountant and was a partner in various national and regional
public accounting firms, including Arthur Andersen LLP, from August 1978 through
July 1985.

Louis P. Neeb was elected as a director in August 1994. Mr. Neeb has served
as Chairman of the Board and CEO of Casa Ole' Restaurants, Inc. from October
1995 to the present. From August 1982 to the present, Mr. Neeb has been
President of Neeb Enterprises, Inc., a management consulting firm specializing
in restaurants. From October 1993 through January 1994, he was Chairman of the
Board of Spaghetti Warehouse, Inc., a

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<PAGE> 26

publicly-traded restaurant company. From July 1991 through January 1994, Mr.
Neeb was President and Chief Executive Officer of Spaghetti Warehouse, Inc. Mr.
Neeb has also had other extensive experience in the restaurant industry,
including serving as Chairman of the Board of Burger King Corporation. Mr. Neeb
is a member of the Board of Directors of the Franchise Finance Corporation of
America, a publicly-traded real estate trust which provides real estate for
restaurants.

Cynthia I. Pharr was elected as a director of the Company in August 1994.
She is currently President and owner of C. Pharr & Company, a communications
management consulting firm. She has served in that position since March 1993.
From May 1989 through February 1993, Ms. Pharr was President and Chief Executive
Officer of Tracy -- Locke/Pharr P R, a public relations firm. From August 1986
through April 1989, she was President and owner of C. Pharr & Company, Inc. a
public relations agency. Ms. Pharr has served as a member of the Board of
Directors of Spaghetti Warehouse, Inc. since August 1991, as well as Chairman of
the Board of GuestCare, Inc., a privately held technology company, from February
1994 to the present.

Except as set forth above, none of the continuing directors of the Company
hold directorships in any company with a class of securities registered pursuant
to Section 12 of the Securities Exchange Act of 1934 (the "Exchange Act") or
subject to the requirements of Section 15(d) of the Exchange Act or any company
registered as an investment company under the Investment Company Act of 1940.

It is anticipated that after the closing of the offering, the number of
directors constituting the entire Board of Directors will be reduced to seven
from nine, and that the four directors remaining after the anticipated
resignations of Messrs. Crocco, Gumbiner, Lynch, Talbot and Troup will elect
three new directors to fill the vacancies created by these resignations, which
are anticipated to be effective upon the closing of the offering.

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<PAGE> 27

SELLING STOCKHOLDERS

The following table sets forth the number and percentage of outstanding
shares of Common Stock beneficially owned by the Selling Stockholders and the
number of Shares to be sold by each Selling Stockholder in the offering.

<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING COMMON
STOCK
-----------------------
NUMBER OF SHARES SHARES TO BEFORE AFTER
NAME AND ADDRESS OF SELLING STOCKHOLDER BEFORE OFFERING(1) BE SOLD(2) OFFERING OFFERING(3)
--------------------------------------- ------------------ ---------- -------- -----------
<S> <C> <C> <C> <C>
The Hallwood Group Incorporated(4).......... 2,632,983 2,305,371 14.2% 1.8%
3710 Rawlins, Suite 1500
Dallas, TX 75219
Alpha Trust(5).............................. 613,058 536,778 3.3 *
c/o Radcliffes Trustee Company SA
9 Rue Charles Humbert
1205 Geneva, Switzerland
Epsilon Trust(5)............................ 408,705 357,851 2.2 *
c/o Radcliffes Trustee Company SA
9 Rue Charles Humbert
1205 Geneva, Switzerland
</TABLE>

- ---------------

* Less than one percent.

(1) Hallwood has agreed to purchase, prior to the closing of the offering,
219,194 total shares of Common Stock from Alpha Trust and Epsilon Trust. The
Number of Shares Before Offering reflects the consummation of such
purchases.

(2) Excludes 327,612 shares owned by Hallwood, 76,280 shares owned by Alpha
Trust and 50,854 owned by Epsilon Trust subject to the Underwriters'
over-allotment option.

(3) Assumes no exercise of the Underwriters' over-allotment option, which, if
exercised in full, would result in no share ownership after the Offering by
the Selling Stockholders.

(4) The directors of Hallwood are Anthony J. Gumbiner, Brian M. Troup, Charles
A. Crocco, Jr., Robert L. Lynch and J. Thomas Talbot. Mr. Gumbiner is
Chairman of the Board and Chief Executive Officer of Hallwood. Mr. Troup is
President and Chief Operating Officer of Hallwood. The Company has been
informed that a portion of such Shares are pledged as collateral to secure
certain obligations of Hallwood. Arrangements have been made for the release
of such liens contemporaneously with the closing of the offering.

(5) Mr. Gumbiner has the power to designate and replace the trustees of Alpha
Trust. Mr. Troup has the power to designate and replace the trustees of
Epsilon Trust. The Company has been informed that a portion of such Shares
are pledged as collateral to secure certain obligations of Alpha Trust and
Epsilon Trust. Arrangements have been made for the release of such liens
contemporaneously with the closing of the offering. The record holder of the
Shares of Alpha Trust and Epsilon Trust is RTC Nominees AG.

The Company and Hallwood entered into a Financial and Management Consulting
Services Agreement (the "Consulting Agreement"), dated as of December 1, 1988,
pursuant to which Hallwood provides a variety of non-exclusive financial and
managerial consulting services to the Company. Such services include corporate
finance and acquisition analysis on an "as requested" basis. Pursuant to the
terms of the Consulting Agreement, the Company pays Hallwood $125,000 per year.
The Consulting Agreement will be terminated upon the closing of this offering.

In connection with this offering, the Company entered into an agreement
with the Selling Stockholders providing for the registration of the Common Stock
owned by the Selling Stockholders. Such agreement obligates the Selling
Stockholders to pay, or hold the Company harmless from, all expenses of the
offering other than legal and accounting fees incurred by the Company and the
Company's out-of-pocket expenses.

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<PAGE> 28

Hallwood has advised the Company that it has determined to sell the Shares
offered hereby at this time to repay debt, utilize expiring federal income tax
net operating loss carryforwards and focus on core investments actively managed
by Hallwood.

DESCRIPTION OF CAPITAL STOCK

The description set forth below does not purport to be complete and is
qualified in its entirety by reference to the Restated Articles of Incorporation
(the "Articles of Incorporation") and the Restated Bylaws (the "Bylaws") of the
Company.

GENERAL

The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, 49,570 shares of Class A Preferred Stock, par value $60.00 per
share (the "Class A Preferred Stock"), and 500,000 shares of Class B Preferred
Stock, par value $100.00 per share (the "Class B Preferred Stock"). As of
December 27, 1996, there were 18,409,899 shares of Common Stock outstanding,
49,570 shares of Class A Preferred Stock outstanding, no shares of Class B
Preferred Stock outstanding and 1,821,026 shares of Common Stock reserved and
available for issuance under the 1988 Non-Statutory Stock Option Plan,
Non-Employee Directors Stock Option Plan and Stock Grant Plan.

COMMON STOCK

The rights of the holders of the Common Stock discussed below are subject
to such rights as the Board of Directors may hereafter confer on the holders of
preferred stock; accordingly, rights conferred on holders of preferred stock
issued under the Articles of Incorporation may adversely affect the rights of
holders of the Common Stock.

Subject to the right of holders of preferred stock, the holders of
outstanding shares of Common Stock are entitled to receive dividends out of
assets legally available therefor, at such times and in such amounts as the
Board of Directors may from time to time determine. See "Price Range of Common
Stock and Dividend Policy." The shares of Common Stock are neither redeemable
nor convertible and the holders thereof have no preemptive or subscription
rights to purchase any securities of the Company. Upon liquidation, dissolution
or winding up of the Company, the holders of Common Stock are entitled to
receive, pro rata, the assets of the Company that are legally available for
distribution, after payment of all debts and other liabilities and subject to
the prior rights of any holders of preferred stock then outstanding. Each
outstanding share of Common Stock is entitled to one vote on all matters
submitted to a vote of stockholders. The Articles of Incorporation provide that
prior to December 31, 2002, no transfer of shares of Common Stock to any person
holding greater than 4.75% of the outstanding Common Stock or who, after any
transfer, would own in excess of 4.75% of the outstanding Common Stock is
permitted without the written consent of the Board of Directors.

PREFERRED STOCK

Dividends. Holders of Class A Preferred Stock are currently entitled to
receive when, as and if declared by the Board of Directors of the Company, cash
dividends equal to $1.20 per share per quarter. At December 27, 1996, dividends
of $1.20 per share, aggregating $59,484, have been declared but not yet paid.
Unpaid dividends on the Class A Preferred Stock cumulate and must be paid before
any distribution (other than in Common Stock or Class B Preferred Stock) is made
to holders of Common Stock or Class B Preferred Stock.

Liquidation. In the event of the liquidation, dissolution or winding up of
the Company, the holders of the Class A Preferred Stock are entitled to be paid
$60.00 per share plus all cumulated unpaid dividends thereon before any
distribution or payment is made to the holders of Common Stock or Class B
Preferred Stock.

Redemption of Class A Preferred Stock. The Company may, at any time or from
time to time, voluntarily redeem all or a part of the outstanding Class A
Preferred Stock at a redemption price of $60.00 per share plus the amount of all
cumulated unpaid dividends thereon. Because more than 90% of the shares of Class
A Preferred Stock has previously been reacquired by the Company, the Company
believes that it has satisfied all mandatory

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<PAGE> 29

redemption requirements until the year 2005. The Company must redeem, or
repurchase in the open market, all outstanding shares of the Class A Preferred
Stock no later than December 31, 2005. There is no restriction on the repurchase
or redemption of shares by the Company while there is an arrearage in payment of
dividends.

Voting. Except as described below or as required by law, the holders of
shares of the Class A Preferred Stock and Common Stock each have one vote for
each share so held and vote together and not as separate classes on matters
submitted to a vote of the stockholders of the Company. With respect only to the
election of directors, under applicable Kansas law, a holder of Common Stock or
Class A Preferred Stock is entitled to cumulate his votes for any candidate and
to spread his votes, so cumulated, among as many candidates per election and in
such manner as he may see fit.

The vote of the holders of two-thirds of the outstanding shares of the
Class A Preferred Stock is required: (a) to amend the liquidation and dividend
preferences of the Class A Preferred Stock or otherwise to amend the Articles of
Incorporation in a manner that would materially adversely affect the holders of
the Class A Preferred Stock; (b) to increase the authorized number of shares of
the Class A Preferred Stock; (c) to create any new class of stock having any
preferences over or being on a par with the Class A Preferred Stock as to
dividends, redemption or liquidation; (d) to create classes of preferred stock
junior to the Class A Preferred Stock unless certain dividend, redemption and
conversion price restrictions are met; (e) to merge or consolidate with any
other corporation; or (f) to sell, convey or otherwise dispose of all or
substantially all of the property or business of the Company.

Miscellaneous. The following provisions of the Articles of Incorporation
and Bylaws may have the effect of delaying or inhibiting any attempts to take
control of the Company: (i) the classification of directors of the Company and
provisions in the Articles of Incorporation and Bylaws that protect the
classification provisions from amendment, (ii) the authorized Class B Preferred
Stock with respect to which the Board of Directors retains the power to issue
and to determine voting rights, (iii) the restriction contained in the Articles
of Incorporation on the transfer of shares of Common Stock to any person holding
greater than 4.75% of the outstanding Common Stock or who, after any transfer,
would own in excess of 4.75% of the outstanding Common Stock, and (iv) the
requirement of a favorable class vote of the holders of two-thirds of the
outstanding shares of Class A Preferred Stock to approve any merger,
consolidation or sale, conveyance or other disposition of all or substantially
all of the Company's property or business.

Upon the occurrence and during the continuance of any event of default (as
defined in the Articles of Incorporation), the number of directors constituting
the board of directors of the Company shall, at a meeting of stockholders
requested by the holders of 5% or more of the Class A Preferred Stock, be
reduced or increased, as the circumstances shall require, to five, and the
holders of the Class A Preferred Stock, voting together as a class, shall be
entitled to elect three of such directors, and the holders of the Common Stock
and Class B Preferred Stock, voting together as a class, shall be entitled to
elect the remaining two.

Shares of the Class A Preferred Stock are not convertible into shares of
Common Stock. All of the outstanding shares of Common Stock and the Class A
Preferred Stock have been validly issued and are fully paid, and nonassessable.
The holders of the Class A Preferred Stock, Common Stock and Class B Preferred
Stock have no preemptive rights. The Articles of Incorporation further provide
that the Company shall not authorize or issue any class or series of nonvoting
equity securities.

INDEMNIFICATION FOR CERTAIN LIABILITIES

The Bylaws of the Company provide for each director and officer of the
Company to be indemnified by the Company, as of right, to the full extent
permitted or authorized by the laws of the State of Kansas against any
liability, judgment, fine, amount paid in settlement, cost and expense asserted
or threatened against and incurred by such person in his capacity as or arising
out of his status as a director or officer.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers or
persons controlling the Company, pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Securities and Exchange
Commission (the "Commis-

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<PAGE> 30

sion") such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.

CERTAIN EFFECTS OF AUTHORIZED AND UNISSUED STOCK

The unissued and unreserved shares of capital stock may be issued for a
variety of proper corporate purposes, including future private or public
offerings to raise additional capital or facilitate acquisitions. The Company's
Board of Directors currently does not have any plans to issue additional shares
of Common Stock or Preferred Stock (other than in connection with the 1988
Non-Statutory Stock Option Plan, Non-Employee Directors Stock Option Plan and
the Stock Grant Plan).

One of the effects of the existence of such unissued and unreserved shares
may be to enable the Company's Board of Directors to discourage an attempt to
change control of the Company and thereby to protect the continuity of the
Company's management. The issuance of shares of Class A Preferred Stock, whether
or not related to any attempt to effect change in control, may adversely affect
the rights of the holders of shares of Common Stock.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is Boston Equiserve
Limited Partnership.

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<PAGE> 31

CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS

A general discussion of certain United States federal income and estate tax
consequences of the ownership and disposition of Common Stock applicable to
Non-U.S. Holders (as defined) of Common Stock is set forth below. In general, a
"Non-U.S. Holder" is a person other than: (i) a citizen or resident (as defined
for United Stated federal income or estate tax purposes of the United States;
(ii) a corporation or partnership created or organized in the United States or
under the laws of the United States or of any state thereof; or (iii) an estate
or trust the income of which is subject to United States federal income taxation
regardless of its source. The discussion is based on current law and is provided
for general information only. The discussion does not address all aspects of
United States federal income and estate taxation. The discussion does not
consider any specific facts or circumstances that may apply to a particular
Non-U.S. Holder and does not address all aspects of United States federal income
or estate tax law that may be relevant to Non-U.S. Holders that may be subject
to special treatment under such law (for example, insurance companies,
tax-exempt organizations, financial institutions or broker-dealers).
ACCORDINGLY, PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS
REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND NON-U.S. CURRENT AND
POSSIBLE FUTURE INCOME AND OTHER TAX CONSEQUENCES OF HOLDING AND DISPOSING OF
COMMON STOCK.

DIVIDENDS

In general, the gross amount of dividends paid to a Non-U.S. Holder will be
subject to United States withholding tax at a 30% rate (or any lower rate
prescribed by an applicable tax treaty) unless the dividends are effectively
connected with a trade or business carried on by the Non-U.S. Holder within the
United States. In determining the applicability of a tax treaty that provides
for a lower rate of withholding, dividends paid to an address in a foreign
country are presumed under current regulations of the Treasury Department to be
paid to a resident of that country unless the payor has knowledge to the
contrary. Under proposed Treasury regulations, however, a Non-U.S. Holder would
be required to file certain forms in order to claim the benefit of an applicable
treaty rate. Withholding will not apply to dividends effectively connected with
a trade or business carried on in the United States by a Non-U.S. Holder who
properly files Internal Revenue Service Form 4224 with the payor of the
dividends. Such dividends will generally be subject to United States federal
income tax at ordinary federal income tax rates. However, effectively connected
dividends may be taxed at ordinary federal income tax rates under an applicable
tax treaty only if such dividends are attributable to a permanent establishment
of the Non-U.S. holder in the United States. In the case of a Non-U.S. Holder
which is a corporation, effectively connected income may be subject to the
branch profits tax (which is generally imposed on a foreign corporation at a
rate of 30% of the "effectively connected earnings and profits") except to the
extent that an applicable tax treaty provides otherwise. A Non-U.S. Holder
eligible for a reduced rate of United States withholding tax pursuant to an
income tax treaty may obtain a refund of any excess amounts withheld by filing
an appropriate claim for refund with the Internal Revenue Service. If a Non-U.S.
Holder is a partnership, a withholding rate in excess of 30% may apply. Although
no withholding would apply to effectively connected dividends paid to a foreign
partnership engaged in a United States trade or business, the foreign
partnership generally will be required to withhold tax on any effectively
connected dividend includible in the distributive share of partnership income of
a partner who is a Non-U.S. Holder, whether or not distributed, at the highest
applicable rate of United States taxation. Different withholding requirements
may apply to partnerships, the interests of which are publicly traded, and those
partnerships are advised to consult their tax advisors. The proposed Treasury
regulations, if adopted in their present form, would require withholding at the
rate of 31% on dividends unless the foreign partnership furnished an
"intermediary withholding certificate" containing the appropriate withholding
certificate for each partner, or the foreign partnership furnished other
appropriate forms claiming exemption from or reduction in 31% withholding.
Non-U.S. Holders that are foreign partnerships are advised to consult their tax
advisors regarding the special withholding rules in the proposed Treasury
regulations.

SALE OF COMMON STOCK

Generally, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain realized upon the disposition of his Common Stock unless:
(i) the Company has been, is, or becomes a "U.S. real property

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<PAGE> 32

holding corporation" for federal income tax purposes and certain other
requirements are met; (ii) the gain is effectively connected with a trade or
business carried on by the Non-U.S. Holder (or by a partnership, trust or estate
in which the Non-U.S. Holder is a partner or beneficiary) within the United
States; or (iii) the Common Stock is disposed of by an individual Non-U.S.
Holder, who holds the Common Stock as a capital asset and is present in the
United States for a period or periods aggregating 183 days or more in the
taxable year of the disposition, and the gains are considered derived from
sources within the United States. The Company believes that it has not been, is
not currently and, based upon its current business plans, is not likely to
become a U.S. real property holding corporation. A Non-U.S. Holder also may be
subject to tax pursuant to the provisions of United States tax law applicable to
certain United States expatriates. Non-U.S. Holders should consult applicable
treaties, which may exempt from United States taxation gains realized upon the
disposition of Common Stock in certain cases.

ESTATE TAX

Common Stock owned or treated as owned (other than through a foreign
corporation) by an individual Non-U.S. Holder at the time of death (or
previously transferred subject to certain retained rights or powers) will be
includible in the individual's gross estate for United States federal estate tax
purposes, unless an applicable treaty provides otherwise, and may be subject to
United States federal estate tax.

BACKUP WITHHOLDING AND INFORMATION REPORTING

The Company may be required to report annually to the Internal Revenue
Service and to Non-U.S. Holders the amount of dividends paid to, and the tax
withheld with respect to, each Non-U.S. Holder. These information reporting
requirements apply regardless of whether withholding was reduced by an
applicable tax treaty. Copies of these information returns also may be made
available under the provisions of a specific treaty or agreement to the tax
authorities in the country in which the Non-U.S. Holder resides or is
established. United States backup withholding tax (which generally is a
withholding tax imposed at the rate of 31% on certain payments to persons that
fail to furnish the information required under the United States information
reporting and backup withholding rules) generally will not apply to dividends
paid on Common Stock to a Non-U.S. Holder at an address outside the United
States, absent actual knowledge by the payor that the payee is not a Non-U.S.
Holder. Backup withholding and information reporting generally will apply to
dividends paid on Common Stock to a Non-U.S. Holder at an address inside the
United States unless such Non-U.S. Holder is an "exempt recipient" and provides
information required under such information reporting and backup withholding
rules.

The payment of the proceeds from the disposition of Common Stock to or
through the United States office of a broker will be subject to information
reporting and backup withholding unless the owner, under penalties of perjury,
certifies, among other things, its status as a Non-U.S. Holder or otherwise
establishes an exemption. The payment of the proceeds from the disposition of
Common Stock to or through a foreign office of a non-United States broker will
not be subject to backup withholding and generally will not be subject to
information reporting. Unless the broker has documentary evidence in its files
that the owner is a Non-U.S. Holder and certain other conditions are met, or the
owner otherwise establishes an exemption, information reporting generally will
apply to dispositions through (a) a non-United States office of a United States
broker and (b) a non-United States office of a non-United States broker that is
either a "controlled foreign corporation" for United States federal income tax
purposes or a person 50% or more of whose gross income from all sources for a
three year testing period was effectively connected with a United States trade
or business.

The backup withholding and information reporting rules are currently under
review by the Treasury Department and their application to the Common Stock is
subject to change.

Any amount withheld under the backup withholding rules from a payment to a
Non-U.S. Holder may be allowed as a credit against such Non-U.S. Holder's United
States federal income tax and any amounts withheld in excess of such Non-U.S.
Holder's United States federal income tax liability may be refunded, provided
that required information is furnished to the Internal Revenue Service.

31
<PAGE> 33

UNDERWRITING

Under the terms and subject to the conditions contained in an Underwriting
Agreement dated March , 1997 (the "Underwriting Agreement"), the underwriters
named below (the "Underwriters"), for whom Credit Suisse First Boston
Corporation and Principal Financial Securities, Inc. are acting as
representatives (the "Representatives"), have severally but not jointly agreed
to purchase from the Selling Stockholders the following respective numbers of
Shares:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Principal Financial Securities, Inc. .......................
---------
Total............................................. 3,200,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the Shares offered hereby
(other than those Shares covered by the over-allotment option described below)
if any are purchased. The Underwriting Agreement provides that, in the event of
a default by an Underwriter in certain circumstances, the purchase commitments
of non-defaulting Underwriters may be increased or the Underwriting Agreement
may be terminated.

The Selling Stockholders have granted to the Underwriters an option
expiring at the close of business on the 30th day after the date of this
Prospectus, to purchase up to 454,746 additional shares of Common Stock (the
"Option Shares") at the initial public offering price, less the underwriting
discounts and commissions, all as set forth on the cover page of this
Prospectus. Such option may be exercised only to cover over-allotments, if any,
in the sale of the Shares. To the extent that this option to purchase is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of Option Shares as
the number of Shares set forth next to such Underwriter's name in the preceding
table bears to the sum of the total number of Shares in such table it was
obligated to purchase pursuant to the Underwriting Agreement.

The Selling Stockholders have been advised by the Representatives that the
Underwriters propose to offer the Shares to the public initially at the public
offering price set forth on the cover page of this Prospectus and, through the
Representatives, to certain dealers at such price less a concession of
$ per Share, and the Underwriters and such dealers may allow a discount
of $ per Share on sales to other dealers. After the initial public
offering, the public offering price and concession and discount to dealers may
be changed by the Representatives.

In connection with this offering, certain of the Underwriters and selling
group members (if any) and their respective affiliates may engage in passive
market making transactions in the Common Stock on The Nasdaq Stock Market in
accordance with Rule 10b-6A under the Exchange Act during a period before
commencement of offers or sales of the shares offered hereby. The passive market
making transactions must comply with applicable volume and price limits and be
identified as such.

The Company, certain of its executive officers and directors and the
Selling Stockholders have agreed that none of them will, directly or indirectly,
offer, sell, announce its intention to sell, contract to sell, pledge,
hypothecate, grant any option to purchase or otherwise dispose of, or file with
the Commission a registration statement under the Securities Act relating to,
any shares of Common Stock or securities convertible or exchangeable into or
exercisable for any shares of Common Stock without the prior written consent of
Credit Suisse First Boston Corporation, for a period of 90 days after the date
of this Prospectus, subject to certain limited exceptions.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or contribute to payments which the Underwriters, may be
required to make in respect thereof.

The Selling Stockholders have agreed to pay certain expenses of the
offering. See "Selling Stockholders."

32
<PAGE> 34

Credit Suisse First Boston Corporation has provided certain financial
advisory and investment banking services to the Company and Hallwood in the past
for which it has received usual and customary fees.

Principal Financial Securities, Inc. has provided certain financial
advisory and investment banking services to Hallwood in the past for which it
has received usual and customary fees.

The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions,
penalty bids and "passive" market making in accordance with Regulation M under
the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Shares in the open market after the
distribution has been completed in order to cover syndicate short positions. In
"passive" market making, market makers in the Shares who are underwriters or
prospective underwriters may, subject to certain limitations, make bids for
purchases of the Shares until the time, if any, at which a stabilizing bid is
made. Penalty bids permit the Representatives to reclaim a selling concession
from a syndicate member when the Shares originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the Shares to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.

NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

The distribution of the Shares in Canada is being made only on a private
placement basis exempt from the requirement that the Company prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of Shares are effected. Accordingly, any resale of the Shares in Canada
must be made in accordance with applicable securities laws which will vary
depending on the relevant jurisdiction, and which may require resales to be made
in accordance with available statutory exemptions or pursuant to a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the Shares.

REPRESENTATIONS OF PURCHASERS

Each purchaser of Shares in Canada who receives a purchase confirmation
will be deemed to represent to the Company, the Selling Stockholders and the
dealer from whom such purchase confirmation is received that (i) such purchaser
is entitled under applicable provincial securities laws to purchase such Shares
without the benefit of a prospectus qualified under such securities laws, (ii)
where required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions".

RIGHTS OF ACTION AND ENFORCEMENT

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.

All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Ontario purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such

33
<PAGE> 35

persons in Canada or to enforce a judgment obtained in Canadian courts against
such issuer or persons outside of Canada.

NOTICE TO BRITISH COLUMBIA RESIDENTS

A purchaser of Shares to whom the Securities Act (British Columbia) applies
is advised that such purchaser is required to file with the British Columbia
Securities Commission a report within ten days of the sale of any Shares
acquired by such purchaser pursuant to this offering. Such report must be in the
form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from the Company. Only one such report
must be filed in respect of Shares acquired on the same date and under the same
prospectus exemption.

LEGAL MATTERS

Certain legal matters with respect to the validity of the Shares will be
passed upon for the Company by Winstead Sechrest & Minick P.C., Dallas, Texas.
The Underwriters have been represented by Fulbright & Jaworski L.L.P., Dallas,
Texas.

EXPERTS

The Consolidated Financial Statements of the Company as of December 29,
1995 and December 27, 1996 and for each of the three years in the period ended
December 27, 1996, included in this Prospectus and incorporated by reference
herein, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report (which expresses an unqualified opinion and includes an
explanatory paragraph relating to a change in the method of accounting for
preopening expenses in 1994) which is included and incorporated by reference
herein, and has been included and incorporated herein in reliance upon the
report of such firm as given upon its authority as experts in accounting and
auditing.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents, filed by the Company with the Commission under the
Exchange Act, are incorporated in this Prospectus by reference:

(a) The Company's Annual Report on Form 10-K, as amended, for the
fiscal year ended December 27, 1996;

(b) The Company's Current Report on Form 8-K filed with the Commission
on March 11, 1997, as amended; and

(c) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A filed with the Commission on
November 19, 1993.

All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the shares offered hereby shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in this Prospectus or
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus. The Company will provide without charge to
each person to whom this Prospectus is delivered, on the written or oral request
of any such person, a copy of any or all of the documents incorporated herein by

34
<PAGE> 36

reference (other than exhibits to such documents which are not specifically
incorporated by reference in such documents). Written request for such copies
should be directed to Mr. Larry Page, Executive Vice President and Chief
Financial Officer, ShowBiz Pizza Time, Inc., 4441 West Airport Freeway, Irving,
Texas 75062, telephone number (972) 258-8507.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act with respect to the
Shares. This Prospectus, which forms a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement. For
further information with respect to the Company and the Shares, reference is
made to the Registration Statement. Statements contained in this Prospectus as
to the contents of any contract or other document are not necessarily complete
and, where such contract or other document is an exhibit to the Registration
Statement, each such statement is qualified in all respects by the provisions in
such exhibit, to which reference is hereby made. Copies of the Registration
Statement may be examined without charge at the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and the
Commission's Regional Offices located at Seven World Trade Center, 13th Floor,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of all or any portion of the Registration
Statement can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of certain fees
prescribed by the Commission, or from the Commission's Web site
(http://www.sec.gov), which contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, files periodic reports, proxy
statements and other information with the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of the reports, proxy statements and information
so filed can be obtained from the Public Reference Section of the Commission,
upon payment of certain fees prescribed by the Commission or from the
Commission's Web site. The Company's Common Stock is traded on the Nasdaq
National Market. The foregoing material is available for inspection at the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.

35
<PAGE> 37

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets at December 29, 1995 and
December 27, 1996......................................... F-3
Consolidated Statements of Earnings for the years ended
December 30, 1994, December 29, 1995 and December 27,
1996...................................................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 30, 1994, December 29, 1995 and
December 27, 1996......................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 30, 1994, December 29, 1995 and December 27,
1996...................................................... F-6
Notes to Consolidated Financial Statements for the years
ended December 30, 1994, December 29, 1995 and December
27, 1996.................................................. F-7
</TABLE>

F-1
<PAGE> 38

INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders
ShowBiz Pizza Time, Inc.
Irving, Texas

We have audited the accompanying consolidated balance sheets of ShowBiz
Pizza Time, Inc. and subsidiary as of December 27, 1996 and December 29, 1995
and the related consolidated statements of earnings, shareholders' equity, and
cash flows for each of the three years in the period ended December 27, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of ShowBiz Pizza Time, Inc. and
subsidiary as of December 27, 1996 and December 29, 1995 and the results of
their operations and their cash flows for each of the three years in the period
ended December 27, 1996, in conformity with generally accepted accounting
principles.

As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for preopening costs in 1994.

DELOITTE & TOUCHE LLP

Dallas, Texas

February 21, 1997

F-2
<PAGE> 39

SHOWBIZ PIZZA TIME, INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 29, 1995 AND DECEMBER 27, 1996

(THOUSANDS, EXCEPT SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 27,
1995 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 5,589 $ 3,402
Accounts receivable, including receivables from related
parties of $415 and $675, respectively................. 3,327 3,543
Current portion of notes receivable, including receivables
from related parties of $327 and $221, respectively.... 608 457
Inventories............................................... 3,589 3,368
Prepaid expenses.......................................... 2,781 3,185
Current portion of deferred tax asset..................... 4,147 13,633
-------- --------
Total current assets.............................. 20,041 27,588
-------- --------
Investments in related parties.............................. 761 1,315
-------- --------
Property and equipment...................................... 137,181 163,998
-------- --------
Deferred tax asset.......................................... 28,582 12,296
-------- --------
Other assets:
Notes receivable, less current portion, including
receivables from related parties of $1,983 and $2,323,
respectively........................................... 7,072 7,257
Other..................................................... 5,373 4,126
-------- --------
12,445 11,383
-------- --------
$199,010 $216,580
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Current portion of long-term debt......................... $ 95 $ 1,785
Accounts payable and accrued liabilities.................. 29,836 31,738
-------- --------
Total current liabilities.............................. 29,931 33,523
-------- --------
Long-term debt, less current portion........................ 35,753 34,668
-------- --------
Deferred credits............................................ 3,443 3,795
-------- --------
Other liabilities........................................... 1,391 1,010
-------- --------

Commitments and contingencies

Redeemable preferred stock, $60 par value, redeemable for
$2,974 in 2005............................................ 2,005 2,108
-------- --------
Shareholders' equity:
Common stock, $.10 par value; authorized 50,000,000
shares; 21,435,092 and 21,519,075 shares issued,
respectively........................................... 2,144 2,152
Capital in excess of par value............................ 153,515 153,795
Retained earnings......................................... 4,733 17,613
Deferred compensation..................................... (3,642) (1,821)
Less treasury shares of 3,109,176 at both dates, at
cost................................................... (30,263) (30,263)
-------- --------
126,487 141,476
-------- --------
$199,010 $216,580
======== ========
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE> 40

SHOWBIZ PIZZA TIME, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

YEARS ENDED DECEMBER 30, 1994,

DECEMBER 29, 1995 AND DECEMBER 27, 1996

(THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Food and beverage revenues.................................. $189,257 $182,376 $202,624
Games and merchandise revenues.............................. 74,331 76,969 86,444
Franchise fees and royalties................................ 4,078 3,464 3,675
Interest income, including related party income of $209,
$222 and $246, respectively............................... 688 872 1,051
Joint venture income........................................ 161 102 196
-------- -------- --------
268,515 263,783 293,990
-------- -------- --------
Costs and expenses:
Cost of sales............................................. 137,729 136,700 143,381
Selling, general and administrative expenses, including
related party expenses of $125 in each year............ 47,263 44,794 43,534
Depreciation and amortization............................. 26,032 23,184 25,057
Interest expense.......................................... 1,861 3,118 3,476
(Gain) loss on property transactions...................... (2,597) 136 263
Other operating expenses.................................. 55,114 55,476 56,058
-------- -------- --------
265,402 263,408 271,769
-------- -------- --------
Income before income taxes.................................. 3,113 375 22,221
Income taxes:
Current expense........................................... 869 701 2,855
Deferred (benefit) expense................................ 1,568 (389) 6,145
-------- -------- --------
2,437 312 9,000
-------- -------- --------
Net income.................................................. $ 676 $ 63 $ 13,221
======== ======== ========
Earnings per common and common equivalent share:
Primary:
Net income (loss)...................................... $ .02 $ (.02) $ .70
======== ======== ========
Weighted average shares outstanding.................... 18,191 18,098 18,477
======== ======== ========
Fully diluted:
Net income (loss)...................................... $ .02 $ (.02) $ .70
======== ======== ========
Weighted average shares outstanding.................... 18,191 18,098 18,532
======== ======== ========
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE> 41

SHOWBIZ PIZZA TIME, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

YEARS ENDED DECEMBER 30, 1994,

DECEMBER 29, 1995 AND DECEMBER 27, 1996

(THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
COMMON TREASURY
STOCK CAPITAL IN DEFERRED STOCK
------------------- EXCESS OF RETAINED COMPEN- ------------------
SHARES PAR VALUE PAR VALUE EARNINGS SATION SHARES COST
------ --------- ---------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1993..................... 21,425 $2,143 $156,511 $ 4,677 $(9,934) 1,569 $(16,750)
Net income.................................... 676
Redeemable preferred stock accretion.......... (103)
Redeemable preferred stock dividends, $4.80
per share................................... (238)
Stock options exercised....................... 81 8 232
Tax expense from exercise of stock options and
stock grants................................ (928)
Treasury stock acquired....................... 1,540 (13,513)
Amortization of deferred compensation......... 2,734
------ ------ -------- ------- ------- ----- --------
Balances, December 30, 1994..................... 21,506 2,151 155,815 5,012 (7,200) 3,109 (30,263)
Net income.................................... 63
Redeemable preferred stock accretion.......... (104)
Redeemable preferred stock dividends, $4.80
per share................................... (238)
Stock options exercised....................... 19 2 88
Stock grant shares forfeited.................. (90) (9) (1,734) 1,737
Tax expense from exercise of stock options and
stock grants................................ (654)
Amortization of deferred compensation......... 1,821
------ ------ -------- ------- ------- ----- --------
Balances, December 29, 1995..................... 21,435 2,144 153,515 4,733 (3,642) 3,109 (30,263)
Net income.................................... 13,221
Redeemable preferred stock accretion.......... (103)
Redeemable preferred stock dividends, $4.80
per share................................... (238)
Stock options exercised....................... 77 7 930
Tax benefit from exercise of stock options and
stock grants................................ (655)
Amortization of deferred compensation......... 1,821
Stock issued under 401(k) plan................ 8 1 51
Stock split costs............................. (30)
Cancellation of fractional shares............. (1) (16)
------ ------ -------- ------- ------- ----- --------
Balances, December 27, 1996..................... 21,519 $2,152 $153,795 $17,613 $(1,821) 3,109 $(30,263)
====== ====== ======== ======= ======= ===== ========
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE> 42

SHOWBIZ PIZZA TIME, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 30, 1994,

DECEMBER 29, 1995 AND DECEMBER 27, 1996

(THOUSANDS)

<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income................................................ $ 676 $ 63 $ 13,221
Adjustments to reconcile net income to cash provided by
operations:
Depreciation and amortization.......................... 26,032 23,184 $ 25,057
Deferred income tax expense (benefit).................. 1,568 (389) 6,145
(Gain) loss on property transactions................... (2,597) 136 263
Compensation expense under stock grant plan............ 2,734 1,821 1,821
Other.................................................. 619 418 352
Net change in receivables, inventories, prepaids,
payables and accrued liabilities..................... 1,787 2,577 1,503
-------- -------- --------
Cash provided by operations.......................... 30,819 27,810 48,362
-------- -------- --------
Investing activities:
Purchases of property and equipment....................... (29,421) (28,277) (51,719)
Proceeds from disposition of property and equipment....... 6,725 20
Payments received on notes receivable..................... 2,992 2,503 3,534
Additions to notes receivable............................. (2,169) (3,047) (3,568)
Change in investments and other assets.................... (703) (1,747) (115)
-------- -------- --------
Cash used in investing activities...................... (22,576) (30,548) (51,868)
-------- -------- --------
Financing activities:
Proceeds from line of credit.............................. 8,535 38,895 7,600
Payments on line of credit................................ (5,235) (32,995) (6,900)
Reduction of debt and capital lease obligations........... (47) (59) 95
Redeemable preferred stock dividends...................... (238) (238) (238)
Acquisition of treasury stock............................. (13,513)
Exercise of stock options................................. 240 90 937
Other..................................................... (115) 253 15
-------- -------- --------
Cash provided by (used in) financing activities........ (10,373) 5,946 1,319
-------- -------- --------
Increase (decrease) in cash and cash equivalents............ (2,130) 3,208 (2,187)
Cash and cash equivalents, beginning of year................ 4,511 2,381 5,589
-------- -------- --------
Cash and cash equivalents, end of year...................... $ 2,381 $ 5,589 $ 3,402
======== ======== ========
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE> 43

SHOWBIZ PIZZA TIME, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 30, 1994,

DECEMBER 29, 1995 AND DECEMBER 27, 1996

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Operations:

ShowBiz Pizza Time, Inc. (the "Company") operates and franchises family
restaurant entertainment centers as Chuck E. Cheese's restaurants, and through
BHC Acquisition Corporation ("BAC"), its wholly owned subsidiary, also operated
Monterey's Tex-Mex Cafe restaurants. The Monterey's Tex-Mex Cafe restaurants
were sold effective May 5, 1994.

Fiscal year:

The Company's fiscal year is 52 or 53 weeks and ends on the Friday nearest
December 31. References to 1994, 1995 and 1996 are for the fiscal years ended
December 30, 1994, December 29, 1995 and December 27, 1996, respectively. Fiscal
years 1994, 1995 and 1996 were each 52 weeks in length.

Basis of consolidation:

The consolidated financial statements include the accounts of the Company
and BAC. All significant intercompany accounts and transactions have been
eliminated.

Cash and cash equivalents:

Cash and cash equivalents of the Company are composed of demand deposits
with banks and short-term cash investments with remaining maturities of three
months or less from the date of purchase by the Company.

Inventories:

Inventories of food, paper products and supplies are stated at the lower of
cost or market on a first-in, first-out basis.

Property and equipment, depreciation and amortization:

Property and equipment are stated at cost. Depreciation and amortization
are provided by charges to operations over the estimated useful lives of the
assets, or the lease term if less, by the straight-line method. During the first
quarter of 1995, the Company changed its estimate of the useful lives of certain
fixed assets. As a result of this change, income before income taxes increased
approximately $2.3 million, net income increased approximately $1.4 million and
earnings per share increased approximately $.12 in 1995.

Deferred charges and related amortization:

In the fourth quarter of 1994, the Company revised its estimate of the
future benefit for preopening expenses. As a result, the Company expensed all
unamortized preopening expenses of approximately $900,000. The Company now
expenses all preopening expenses as incurred. Previously, preopening expenses
were amortized over a two year period. Other deferred charges are amortized over
various periods of up to five years. All amortization is provided by the
straight-line method, which approximates the interest method.

Franchise fees and royalties:

The Company recognizes initial franchise fees upon fulfillment of all
significant obligations to the franchisee. Royalties from franchisees are
accrued as earned.

F-7
<PAGE> 44

SHOWBIZ PIZZA TIME, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Impairment of intangibles and long-lived assets:

Impairment losses are recognized if the future cash flows expected to be
generated by intangibles and long-lived assets are less than the carrying value
of the assets. The impairment loss is equal to the amount by which the carrying
value of the assets exceeds the fair value of the assets.

Use of estimates and assumptions:

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Accounting for stock-based compensation:

The Company has elected to not apply the accounting provisions of the
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" issued by the Financial Accounting Standards Board ("SFAS 123") .
In 1996, the Company implemented the disclosure provisions of SFAS 123 (Note
19).

Earnings per share:

The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" effective for years ending
after December 15, 1997. The Company does not believe that adoption will have a
material impact on historical earnings per share.

2. SIGNIFICANT TRANSACTIONS:

In September 1996, the Company purchased from its largest franchisee 19
restaurants plus the 49% minority interest of one restaurant previously operated
as a joint venture by the Company and seller. In addition to the cash purchase
price of $2.6 million, the Company reimbursed the seller for remodeling costs
for three restaurants which had been recently remodeled. The Company assumed no
liabilities under the asset purchase. Results of operations for the assets
purchased are included in the Company's results from the date of this
acquisition.

Effective May 5, 1994, the Company sold its Monterey's Tex-Mex Cafe
restaurants for an aggregate purchase price consisting of approximately $6.7
million in cash, $4.7 million in subordinated promissory notes and the retention
of a 12 1/2% equity interest in the acquiring company. Due to the Company's
substantial equity interest, the acquiring company is a related party subsequent
to the transaction. Revenues from the Company's Monterey's Tex-Mex Cafe
restaurants were $6.5 million in 1994. Income before income taxes was $6.3
million in 1994 including a gain of $5.5 million from the sale.

The Company provided for a loss of approximately $2.3 million in 1994 as a
result of the Company's decision to close one Chuck E. Cheese's restaurant and
the impairment in fair value of the fixed assets of 10 Chuck E. Cheese's
restaurants. The impairment in fair value of the 10 restaurants was due to the
Company's decision not to renew the leases as a result of the deterioration of
site characteristics or the inability to renew the leases at acceptable rental
terms.

F-8
<PAGE> 45

SHOWBIZ PIZZA TIME, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. ACCOUNTS RECEIVABLE:

<TABLE>
<CAPTION>
1995 1996
------ ------
(THOUSANDS)
<S> <C> <C>
Trade....................................................... $ 516 $ 538
Other....................................................... 2,886 3,025
------ ------
3,402 3,563
Less allowance for doubtful collection...................... (75) (20)
------ ------
$3,327 $3,543
====== ======
</TABLE>

4. NOTES RECEIVABLE:

The Company's notes receivable at December 29, 1995 and December 27, 1996
arose principally as a result of the sale of restaurants, lines of credit
established with the International Association of ShowBiz Pizza Time
Restaurants, Inc., a related party (Note 18), and advances to franchisees, joint
ventures and managed properties. All obligors under the notes receivable are
principally engaged in the restaurant industry. The notes have various terms,
but most are payable in monthly installments of principal and interest through
2001, with interest rates ranging from 7.5% to 12.0%. The notes are generally
collateralized by the related property and equipment. Balances of notes
receivable are net of an allowance for doubtful collection of $354,000 and
$174,000 at December 29, 1995 and December 27, 1996, respectively.

5. PROPERTY AND EQUIPMENT:

<TABLE>
<CAPTION>
ESTIMATED
LIVES 1995 1996
---------- -------- ---------
(IN YEARS) (THOUSANDS)
<S> <C> <C> <C>
Land and improvements.............................. 0-20 $ 4,630 $ 5,208
Leasehold improvements............................. 4-20 118,041 135,201
Buildings and improvements......................... 4-25 8,789 9,161
Furniture, fixtures and equipment.................. 2-15 97,703 120,688
Property leased under capital leases (Note 7)...... 10-15 1,328 1,328
-------- ---------
230,491 271,586
Less accumulated depreciation and amortization..... (94,781) (108,345)
-------- ---------
135,710 163,241
Construction in progress........................... 1,471 757
-------- ---------
$137,181 $ 163,998
======== =========
</TABLE>

6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:

<TABLE>
<CAPTION>
1995 1996
------- -------
(THOUSANDS)
<S> <C> <C>
Accounts payable............................................ $12,851 $13,240
Salaries and wages.......................................... 4,215 4,292
Insurance................................................... 8,805 8,714
Taxes, other than income.................................... 2,561 3,037
Other....................................................... 1,404 2,455
------- -------
$29,836 $31,738
======= =======
</TABLE>

F-9
<PAGE> 46

SHOWBIZ PIZZA TIME, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. LEASES:

The Company leases certain restaurants and related property and equipment
under operating and capital leases. All leases require the Company to pay
property taxes, insurance and maintenance of the leased assets. The leases
generally have initial terms of 7 to 30 years with various renewal options.

Following is a summary of property leased under capital leases:

<TABLE>
<CAPTION>
1995 1996
------ ------
(THOUSANDS)
<S> <C> <C>
Buildings and improvements.................................. $1,328 $1,328
Less accumulated depreciation............................... (877) (982)
------ ------
$ 451 $ 346
====== ======
</TABLE>

Scheduled annual maturities of the obligations for capital and operating
leases as of December 27, 1996, are as follows:

<TABLE>
<CAPTION>
YEARS CAPITAL OPERATING
- ----- ------- ---------
(THOUSANDS)
<S> <C> <C> <C>
1997.............................................................. $ 292 $ 28,270
1998.............................................................. 256 26,419
1999.............................................................. 184 24,731
2000.............................................................. 187 23,073
2001.............................................................. 214 20,348
2002-2009 (aggregate payments).................................... 838 27,076
------ --------
Minimum future lease payments..................................... 1,971 $149,917
========
Less amounts representing interest................................ (918)
------
Present value of future minimum lease payments.................... 1,053
Less current portion.............................................. (117)
------
$ 936
======
</TABLE>

Certain of the Company's real estate leases, both capital and operating,
require payment of contingent rent in the event defined revenues exceed
specified levels.

The Company's rent expense is comprised of the following:

<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Minimum............................................... $28,003 $28,730 $30,484
Contingent............................................ 216 146 195
------- ------- -------
$28,219 $28,876 $30,679
======= ======= =======
</TABLE>

F-10
<PAGE> 47

SHOWBIZ PIZZA TIME, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. LONG-TERM DEBT:

<TABLE>
<CAPTION>
1995 1996
------- -------
(THOUSANDS)
<S> <C> <C>
Term loans, 10.02%, due June 2001........................... $18,000 $18,000
Term loans, LIBOR plus 3.5%, due June 2000.................. 10,000 10,000
Term loans, LIBOR plus 3.5%, due October 1997............... 5,000
Revolving bank loan, prime plus 0% to .5% or LIBOR plus 2%
to 3%, due June 1998...................................... 1,700 7,400
Obligations under capital leases (Note 7)................... 1,148 1,053
------- -------
35,848 36,453
Less current portion........................................ (95) (1,785)
------- -------
$35,753 $34,668
======= =======
</TABLE>

In August 1996, the Company's line of credit agreement was amended to
provide the Company with available borrowings of up to $15 million expiring in
June 1998. In September 1996, the Company prepaid $5 million in term notes. The
Company's credit facility totals $43 million, which consists of $28 million in
term notes and the $15 million line of credit. Interest under the line of credit
is dependent on earnings and debt levels of the Company. Currently, any
borrowings under this line of credit would be at prime (8.25% at December 27,
1996) plus 0% or, at LIBOR (5.5% at December 27, 1996) plus 2%. At December 27,
1996, $7.4 million was outstanding under the line of credit. A 3/8% commitment
fee is payable on any unused credit line. The Company is required to comply with
certain financial ratio tests during the terms of the loan agreements.

As of December 27, 1996, scheduled annual maturities of all long-term debt
(exclusive of obligations under capital leases) are as follows (thousands):

<TABLE>
<CAPTION>
YEARS AMOUNT
----- -------
<S> <C>
1997........................................................ $ 1,668
1998........................................................ 10,732
1999........................................................ 9,333
2000........................................................ 7,667
2001........................................................ 6,000
-------
$35,400
=======
</TABLE>

9. COMMITMENTS AND CONTINGENCIES:

The Company has guaranteed certain obligations related to restaurant
building and equipment leases. The underlying assets are collateral for the
leases and the makers or assignees of all of the obligations are required to
perform thereunder before the Company is required to fulfill its guarantee. In
the event of default by the maker or assignee, the Company, in almost all cases,
may make payment under the guarantees in accordance with the original payment
schedule and has the right to locate potential buyers or subtenants for the
assets. As of December 27, 1996, such guarantees aggregated approximately
$142,000.

10. LITIGATION:

F-11
<PAGE> 48

SHOWBIZ PIZZA TIME, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. REDEEMABLE PREFERRED STOCK:

As of December 27, 1996, the Company had 49,570 shares of its redeemable
preferred stock authorized and outstanding. The stock pays dividends at $4.80
per year, subject to a minimum cash flow test. As of December 27, 1996, one
quarterly dividend, totaling $59,484 or $1.20 per share, was accrued but not yet
paid. The redeemable preferred stock has been recorded at the net present value
and is being accreted on the straight-line basis. The Company's restated
articles of incorporation provide for the redemption of such shares at $60 per
share in 2005. During the continuation of any event of default by the Company,
the preferred shareholders shall be able to elect a majority of the directors of
the Company.

12. EARNINGS PER COMMON SHARE:

Earnings per common and common equivalent share were computed based on the
weighted average number of common and dilutive common equivalent shares
outstanding during the period. Net income available per common share has been
adjusted for the items indicated.

Earnings per common and common equivalent share (adjusted for a
three-for-two stock split effected May 22, 1996) were computed as follows
(thousands, except per share data):

<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Net income............................................ $ 676 $ 63 $13,221
Accretion of redeemable preferred stock............... (103) (104) (103)
Redeemable preferred stock dividends.................. (238) (238) (238)
------- ------- -------
Adjusted income (loss) applicable to common shares.... $ 335 $ (279) $12,880
======= ======= =======
Primary:
Weighted average common shares outstanding.......... 18,117 18,098 18,207
Common equivalent shares for stock options.......... 74 270
------- ------- -------
Weighted average shares outstanding................. 18,191 18,098 18,477
======= ======= =======
Earnings (loss) per common and common equivalent
share............................................ $ .02 $ (.02) $ .70
======= ======= =======
Fully Diluted:
Weighted average common shares outstanding.......... 18,117 18,098 18,207
Common equivalent shares for stock options.......... 74 325
------- ------- -------
Weighted average shares outstanding................. 18,191 18,098 18,532
======= ======= =======
Earnings (loss) per common and common equivalent
share............................................ $ .02 $ (.02) $ .70
======= ======= =======
</TABLE>

13. FRANCHISE FEES AND ROYALTIES:

At December 27, 1996, 70 Chuck E. Cheese's restaurants were operated by a
total of 44 different franchisees. The standard franchise agreements grant to
the franchisee the right to develop and operate a restaurant and use the
associated trade names, trademarks and service marks within the standards and
guidelines established by the Company.

Initial franchise fees included in revenues were $315,000, $98,000 and
$274,000 in 1994, 1995 and 1996, respectively.

F-12
<PAGE> 49

SHOWBIZ PIZZA TIME, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. COST OF SALES:

<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Food, beverage and related supplies................ $ 46,328 $ 43,412 $ 45,681
Games and merchandise.............................. 12,369 13,285 14,816
Labor.............................................. 79,032 80,003 82,884
-------- -------- --------
$137,729 $136,700 $143,381
======== ======== ========
</TABLE>

15. INCOME TAXES:

The significant components of income tax expense are as follows:

<TABLE>
<CAPTION>
1994 1995 1996
------ ------ -------
(THOUSANDS)
<S> <C> <C> <C>
Current expense............................................ $ 869 $ 701 $ 2,855
Deferred expense:
Utilization of operating loss carryforwards.............. 2,204 1,138 8,664
Net tax benefits from exercise of stock options and stock
grants................................................ (928) (654) (655)
Allowance for tax credit carryforwards expiring in
1997................................................... 1,104
Tax credits.............................................. (237) (127) (475)
Other (primarily temporary differences related to
depreciation)......................................... (575) (746) (1,389)
------ ------ -------
$2,437 $ 312 $ 9,000
====== ====== =======
</TABLE>

At December 27, 1996, the Company has recorded a deferred tax asset of
approximately $26.0 million reflecting the $17.5 million tax effect of $47.0
million in net operating loss carryforwards, $7.7 million in tax credit
carryforwards and tax effected net taxable deductions of $800,000. Realization
of the deferred tax asset is dependent on generating sufficient taxable income
prior to expiration of these carryforwards. Tax credit carryforwards can be
utilized only after all net operating loss carryforwards have been realized. In
1994, the Company recorded a valuation allowance of $1.1 million for tax credit
carryforwards which are estimated to expire in 1997. Although realization is not
assured, the Company believes it is more likely than not that the deferred tax
asset will be realized. The amount of the deferred tax asset considered
realizable could be reduced in the near term if estimates of future taxable
income are reduced.

As of December 27, 1996, the Company has investment tax credit and jobs tax
credit carryforwards totaling $5,258,000 and $548,000, respectively, and
alternative minimum tax credits of $1,928,000.

A schedule of expiring NOL's and tax credits by fiscal year are as follows:

<TABLE>
<CAPTION>
AMOUNTS
---------------------
TAX
YEARS NOL'S CREDITS
- ------------------------------------------------------------ ------- -----------
(THOUSANDS)
<S> <C> <C>
1997........................................................ $1,104
1998........................................................ 4,007
1999........................................................ $14,000 395
2000........................................................ 19,000 149
2001........................................................ 14,000 19
2002 -- 2010................................................ 132
------- -----------
$47,000 $5,806
======= ===========
</TABLE>

F-13
<PAGE> 50

SHOWBIZ PIZZA TIME, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's alternative minimum tax credits have no expiration date.

Current tax laws and regulations relating to substantial changes in control
may limit the utilization of net operating loss and tax credit carryforwards in
any one year. As of December 27, 1996, no limitation of such carryforwards has
occurred.

A reconciliation of the statutory rate to taxes provided is as follows:

<TABLE>
<CAPTION>
1994 1995 1996
----- ------ -----
(THOUSANDS)
<S> <C> <C> <C>
Statutory rate........................................... 34.0% 34.0% 35.0%
State income taxes....................................... 14.8% 106.1% 9.0%
Allowance for tax credit carryforwards................... 35.5%
Tax credits earned....................................... (6.9%) (33.9%) (2.1%)
Other.................................................... .9% (23.0%) (1.4%)
----- ------ -----
Income taxes provided.................................... 78.3% 83.2% 40.5%
===== ====== =====
</TABLE>

16. FAIR VALUE OF FINANCIAL INSTRUMENTS:

The Company has certain financial instruments consisting primarily of cash,
cash equivalents, notes receivable, notes payable and redeemable preferred
stock. The carrying amount of cash and cash equivalents approximates fair value
because of the short maturity of those instruments. The carrying amount of the
Company's notes receivable and long-term debt approximates fair value based on
the interest rates charged on instruments with similar terms and risks. The
estimated fair value of the Company's redeemable preferred stock is $3.0
million.

17. SUPPLEMENTAL CASH FLOW INFORMATION:

<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
(THOUSANDS)
<S> <C> <C> <C>
Cash paid during the year for:
Interest............................................... $1,781 $3,055 $3,429
Income taxes........................................... 1,389 801 2,222
Supplemental schedule of noncash investing and financing
activities:
Notes received in connection with the disposition of
property and equipment.............................. 4,650
Investment received in connection with the disposition
of property and equipment........................... 438
Notes and accounts receivable canceled in connection
with the acquisition of property and equipment...... 483
</TABLE>

18. RELATED PARTY TRANSACTIONS:

The Hallwood Group, Incorporated ("Hallwood") is the beneficial owner of
approximately 2.6 million shares or 14.2% of the outstanding common stock of the
Company. The directors of Hallwood serve as a majority of the directors of the
Company. In February 1997, the Company announced a public offering of 3.2
million shares of common stock to be sold by Hallwood and certain of its
affiliates. The selling stockholders have also granted underwriters an option to
purchase an additional 454,746 shares of common stock to cover over allotments,
if any. All of the 2.6 million shares owned by Hallwood are offered for sale in
the public offering and over allotment option. It is anticipated that after the
closing of the public offering, the directors of Hallwood will resign as
directors of the Company. The Company will not receive any proceeds from the
proposed sale of shares by the selling stockholders.

F-14
<PAGE> 51

SHOWBIZ PIZZA TIME, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company made annual payments to Hallwood of $125,000 for consulting
services in 1996, 1995 and 1994. The consulting agreement will be terminated
upon the closing of the public offering. In consideration for rent reductions
resulting from Hallwood's negotiation of the Company's home office lease
agreement in December 1990, the Company assigned to Hallwood its sublease
interest in the home office building with a fair value of approximately $120,000
per year.

The Company has advanced amounts to joint ventures in which the Company has
a 50% interest or less. At December 27, 1996, approximately $757,000 was
outstanding under these notes. Principal and interest are payable in monthly
installments, with interest at various rates from prime to 12%. The Company also
has miscellaneous accounts receivable from joint ventures of approximately
$669,000 and $410,000 at December 27, 1996 and December 29, 1995, respectively.

The Company has granted three separate operating lines of credit to the
International Association of ShowBiz Pizza Time Restaurants, Inc. (the
"Association"). In December 1996, the lines were renewed to provide the
Association with available borrowings of $2.5 million at 10.5% interest and are
due December 31, 1997. The Association develops entertainment attractions and
produces system wide advertising. Two officers of the Association are also
officers of the Company. At December 27, 1996, approximately $1,787,000 was
outstanding under these lines of credit. The Company also had miscellaneous
accounts receivable from the Association of $6,000 and $5,000 at December 27,
1996 and December 29, 1995, respectively.

19. EMPLOYEE BENEFIT PLANS:

The Company has employee benefit plans that include: a) executive bonus
compensation plans based on the performance of the Company; b) non-statutory
stock option plans for its employees and non-employee directors; c) a stock
grant plan and d) a retirement and savings plan.

In 1995, the Company increased the number of shares of the Company's common
stock which may be issued under its employee stock option plan by 750,000 shares
to an aggregate of 2,772,038 shares. All shares must be granted before December
31, 1998. The exercise price for options granted under the plan may not be less
than the fair market value of the Company's common stock at date of grant.
Options may not be exercised until the employee has been continuously employed
at least one year after the date of grant. Options which expire or terminate may
be re-granted under the plan.

In 1995, the Company adopted a stock option plan for its non-employee
directors. The number of shares of the Company's common stock that may be issued
under this plan cannot exceed 150,000 shares.

At December 27, 1996, there were 810,515 shares available for grant. Stock
option transactions are summarized as follows:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE EXERCISE
NUMBER OF SHARES PRICE PER SHARE
-------------------------------- ---------------------------
1994 1995 1996 1994 1995 1996
--------- -------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year........ 558,993 759,953 848,942 $15.08 $10.92 $ 9.08
Granted.................. 512,250 391,860 276,734 8.10 6.08 8.39
Exercised................ (77,570) (19,239) (77,495) 2.92 4.70 12.10
Terminated............... (233,720) (283,632) (37,670) 17.60 10.17 11.01
--------- -------- ---------
Options outstanding, end
of year.................. 759,953 848,942 1,010,511 10.92 9.08 8.58
========= ======== =========
</TABLE>

F-15
<PAGE> 52

SHOWBIZ PIZZA TIME, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

All stock options are granted at fair market value of the common stock at
the grant date. The estimated fair value of options granted during 1996 was
$3.08 per share. The fair value of each stock option grant is estimated on the
date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in 1996: risk free interest rate of
6.5%; no dividend yield; expected lives of four years; and expected volatility
of 40%. Stock options expire five years from the grant date. Stock options vest
over various periods ranging from one to four years. The number of stock option
shares exercisable at December 27, 1996 was 430,794. These stock options have
exercise prices ranging from $5.29 to $22.33 per share and have a weighted
average exercise price of $10.56 per share. In January 1997, the Company granted
789,933 additional options at exercise prices of $17.25 to $17.65 per share.

The number of shares of the Company's common stock which may be awarded to
senior executives of the Company under the Stock Grant Plan is 1,718,637 shares.
No grants were awarded in 1994, 1995 or 1996. In connection with an employment
agreement effective January 1998, the Company granted 105,000 shares in January
1997. Compensation expense recognized by the Company pursuant to this plan was
$2,734,000, $1,821,000 and $1,821,000 in 1994, 1995 and 1996, respectively. All
shares vest over periods ranging from 3 years to 6 years and are subject to
forfeiture upon termination of the participant's employment by the Company. The
shares are nontransferable during the vesting periods.

As a result of shares awarded to the Company's Chairman of the Board and
Chief Executive Officer, the Company recognized deferred compensation of $12.0
million in 1993. In 1995, the Company's Chairman of the Board and Chief
Executive Officer forfeited 90,000 shares of unvested common stock of the
Company previously awarded to him under the Company's stock grant plan. As a
result of this forfeiture, deferred compensation and capital in excess of par
value were reduced by approximately $1.7 million. The deferred compensation is
amortized over the compensated periods of service through 1997.

The Company applies the provisions of APB Opinion 25 and related
Interpretations in accounting for its employee benefit plans. Accordingly, no
compensation cost has been recognized for its stock option plans. Had
compensation cost for the Company's stock -based compensation plans been
determined based on the fair value at the grant date for awards under those
plans consistent with the method prescribed by SFAS 123, the Company's proforma
net income would have been $12.8 million in 1996 and a net loss of $154,000 in
1995. Proforma earnings per share would have been $.67 per share in 1996 and a
loss of $.03 per share in 1995.

The Company has adopted the ShowBiz 401(k) Retirement and Savings Plan, to
which it may at its discretion make an annual contribution out of its current or
accumulated earnings. Contributions by the Company may be made in the form of
its common stock or in cash. In 1996, the Company made contributions of
approximately $15,000 and $37,000 in common stock for the 1994 and 1995 plan
years, respectively. The Company plans to contribute $59,000 in common stock for
the 1996 plan year.

F-16
<PAGE> 53

SHOWBIZ PIZZA TIME, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

20. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):

The following summarizes the unaudited quarterly results of operations for
the years ended December 27, 1996 and December 29, 1995 (thousands, except per
share data).

<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 27, 1996
----------------------------------------------
MARCH 29 JUNE 28 SEPT. 27 DEC. 27
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues................................... $78,452 $69,848 $74,777 $70,913
Income before income taxes................. 8,771 3,840 5,993 3,617
Net income................................. 5,175 2,265 3,537 2,244
Per Share:
Primary and fully diluted:
Net income............................... $ 0.28 $ 0.12 $ 0.19 $ 0.12
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 29, 1995
----------------------------------------------
MARCH 31 JUNE 30 SEPT. 29 DEC. 29
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues................................... $72,751 $62,643 $66,976 $61,413
Income (loss) before income taxes.......... 4,266 (1,963) 287 (2,215)
Net income (loss).......................... 2,565 (1,180) 61 (1,383)
Per Share:
Primary and fully diluted:
Net income (loss)........................ $ .14 $ (.07) $ .00 $ (.08)
</TABLE>

F-17
<PAGE> 54

<TABLE>
<C> <C>
[Picture of a family of four [Picture of a table-setting
dining at a typical of food, beverages and tokens.]
Chuck E. Cheese's restaurant.]
</TABLE>

<TABLE>
<C> <C>
[Picture of the exterior of a typical [Picture of the interior of a typical
Chuck E. Cheese's restaurant.] Chuck E. Cheese's restaurant.]
</TABLE>

<PAGE> 55

------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH
DATE.

------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................ 3
Recent Developments.................... 5
Risk Factors........................... 6
Use of Proceeds........................ 8
Capitalization......................... 8
Price Range of Common Stock and
Dividend Policy...................... 9
Selected Historical Consolidated
Financial and Operating Data......... 10
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 11
Business............................... 16
Management............................. 24
Selling Stockholders................... 26
Description of Capital Stock........... 27
Certain United States Tax Consequences
to Non-United States Holders......... 30
Underwriting........................... 32
Notice to Canadian Residents........... 33
Legal Matters.......................... 34
Experts................................ 34
Incorporation of Certain Documents by
Reference............................ 34
Additional Information................. 35
Index to Consolidated Financial
Statements........................... F-1
</TABLE>

======================================================

[NAME AND LOGO]

3,200,000 SHARES

COMMON STOCK
($.10 PAR VALUE)
PROSPECTUS

CREDIT SUISSE FIRST BOSTON

PRINCIPAL FINANCIAL SECURITIES, INC.

------------------------------------------------------
<PAGE> 56

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The expenses of this offering, which will be paid by ShowBiz Pizza Time,
Inc. (the "Registrant") and the Selling Stockholders, exclusive of underwriting
discounts and commissions, are estimated as follows:

<TABLE>
<S> <C>
SEC registration fee........................................ $ 27,134
National Association of Securities Dealers filing fee....... 9,455
Printing.................................................... 90,000*
Legal fees and expenses..................................... 125,000*
Accounting fees and expenses................................ 75,000*
Transfer Agent and Registrar fees and expenses.............. 5,000*
Miscellaneous............................................... 60,000*
--------
Total............................................. $391,589*
========
</TABLE>

- ---------------

* Estimated

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Article TENTH of the Restated Articles of Incorporation of the Company (the
"Articles") permits the Company to indemnify any director or officer of the
Company, as follows:

"The corporation may agree to the terms and conditions upon which any
director, officer, employee or agent accepts his office or position and in
its Bylaws, by contract or in any other manner may agree to indemnify and
protect any director, officer, employee or agent of the corporation, or any
person who serves at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise, to the extent permitted by the laws of the State of
Kansas."

Article FIFTEENTH of the Articles limits the liability of directors to
the Company and its stockholders, as follows:

"No director shall be liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, provided
that this Article shall not eliminate or limit the liability of a director
(i) for any breach of the director's duty of loyalty to the Corporation or
its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
the provisions of K.S.A. 17-6424 and amendments thereto or (iv) for any
transaction from which the director derived an improper personal benefit."

Section 6305 of the Kansas General Corporation Code provides as
follows:

"(a) A corporation shall have power to indemnify any person who was or
is a party, or is threatened to be made a party, to any threatened, pending
or completed action, suit or proceeding whether civil, criminal,
administrative or investigative, other than an action by or in the right of
the corporation, by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding, including attorney fees, if such
person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation; and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe such person's conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent,

II-1
<PAGE> 57

shall not, of itself, create a presumption that the person did not act in
good faith and in a manner which such person reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that
such person's conduct was unlawful.

"(b) A corporation shall have power to indemnify any person who was or
is a party, or is threatened to be made a party, to any threatened, pending
or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person is
or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise against expenses actually and reasonably incurred by
such person in connection with the defense or settlement of such action or
suit, including attorney fees, if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall
deem proper.

"(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b), or
in defense of any claim, issue or matter therein, such director, officer,
employee or agent shall be indemnified against expenses actually and
reasonably incurred by such person in connection therewith, including
attorney fees.

"(d) Any indemnification under subsections (a) and (b), unless ordered
by a court, shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because such
director, officer, employee or agent has met the applicable standard of
conduct set forth in subsections (a) and (b). Such determination shall be
made (1) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or even if
obtainable, a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.

"(e) Expenses incurred by a director or officer in defending a civil
or criminal action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the director or officer to
repay such amount if it is ultimately determined that the director or
officer is not entitled to be indemnified by the corporation as authorized
in this section. Such expenses incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the board of
directors deems appropriate.

"(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in a person's official capacity and as to action in another capacity while
holding such office.

"(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against such person and incurred by such person in
any such capacity, or arising out of such person's status as such, whether
or not the corporation would have the power to indemnify such person
against such liability under the provisions of this section.

"(h) For purposes of this section, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a

II-2
<PAGE> 58

consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its
separate existence had continued.

"(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to an employee benefit
plan; and references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee benefit
plan, its participants, or beneficiaries; and a person who acted in good
faith and in a manner such person reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this section.

"(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person."

Section 24 of the Bylaws of the Company also provides for
indemnification of directors and officers under certain circumstances, as
follows:

"Each person who is or was a director or officer of the corporation or
is or was serving at the request of the corporation as a director or
officer of another corporation (including the heirs, executors,
administrators and estate of such person) shall be indemnified by the
corporation as of right to the full extent permitted or authorized by the
laws of the State of Kansas, as now in effect and as hereafter amended,
against any liability, judgment, fine, amount paid in settlement, cost and
expense (including attorneys' fees) asserted or threatened against and
incurred by such person in his capacity as or arising out of his status as
a director or officer of the corporation or, if serving at the request of
the corporation, as a director or officer of another corporation. The
indemnification provided by this bylaw provision shall not be exclusive of
any other rights to which those indemnified may be entitled under any other
bylaw or under any agreement, vote of stockholders or disinterested
directors or otherwise, and shall not limit in any way any right which the
corporation may have to make different or further indemnification with
respect to the same or different persons or classes of persons.

"No person shall be liable to the corporation for any loss, damage,
liability or expense suffered by it on account of any action taken or
omitted to be taken by him as a director or officer of the corporation or
of any other corporation which he serves as a director or officer at the
request of the corporation, if such person (i) exercised the same degree of
care and skill as a prudent man would have exercised under the
circumstances in the conduct of his own affairs, or (ii) took or omitted to
take such action in reliance upon advice of counsel for the corporation, or
for such other corporation, or upon statements made or information
furnished by directors, officers, employees or agents of the corporation or
of such other corporation which he had no reasonable grounds to
disbelieve."

Subsection 6002(b)(8) of the General Corporation Code of the State of
Kansas provides as follows:

"(b) In addition to the matters required to be set forth in the
articles of incorporation by subsection (a) of this section, the articles
of incorporation may also contain any or all of the following matters:

* * *

"(8) A provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders, policyholders or members
for monetary damages for breach of fiduciary duty as a director,

II-3
<PAGE> 59

provided that such provision shall not eliminate or limit the liability of
a director (A) for any breach of the director's duty of loyalty to the
corporation or its stockholders, policyholders or members (B) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, (C) under the provisions of K.S.A. 17-6424
and amendments thereto, or (D) for any transaction from which the director
derived an improper personal benefit. No such provision shall eliminate or
limit the liability of a director for any act or omission occurring prior
to the date when such provision becomes effective. All references in this
subsection to a director shall also be deemed to refer to a member of the
governing body of a corporation which is not authorized to issue capital
stock."

ITEM 16. EXHIBITS

(a) Exhibits. See attached Exhibit Index.

(b) Financial Statement Schedules. II -- Valuation and qualifying accounts
and reserves.

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933:

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.

Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Company pursuant to
section 13 or section 15(d) of the Securities Exchange Act of 1934, that are
incorporated by reference in the registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the

II-4
<PAGE> 60

securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.

II-5
<PAGE> 61

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Irving, State of Texas, on March 17,
1997.

SHOWBIZ PIZZA TIME, INC.

By: /s/ MICHAEL H. MAGUSIAK
----------------------------------
Michael H. Magusiak
President

Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ RICHARD M. FRANK Chairman of the Board of March 18, 1997
- ----------------------------------------------------- Directors, Chief Executive
Richard M. Frank Officer and Director
(Principal Executive
Officer)

/s/ MICHAEL H. MAGUSIAK President and Director March 17, 1997
- -----------------------------------------------------
Michael H. Magusiak

/s/ LARRY G. PAGE Executive Vice President, March 18, 1997
- ----------------------------------------------------- Chief Financial Officer and
Larry G. Page Treasurer (Principal
Financial and Accounting
Officer)

* Director March 17, 1997
- -----------------------------------------------------
Anthony J. Gumbiner

Director March , 1997
- -----------------------------------------------------
Brian M. Troup

Director March , 1997
- -----------------------------------------------------
J. Thomas Talbot

* Director March 17, 1997
- -----------------------------------------------------
Charles A. Crocco, Jr.

* Director March 17, 1997
- -----------------------------------------------------
Robert L. Lynch

* Director March 17, 1997
- -----------------------------------------------------
Louis P. Neeb

* Director March 17, 1997
- -----------------------------------------------------
Cynthia I. Pharr

*By: /s/ MICHAEL H. MAGUSIAK
------------------------------------------------
Michael H. Magusiak
Attorney-in-Fact
</TABLE>

II-6
<PAGE> 62

INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders

ShowBiz Pizza Time, Inc.

Irving, Texas

We have audited the consolidated financial statements of ShowBiz Pizza
Time, Inc. and subsidiary as of December 27, 1996, and December 29, 1995, and
for each of the three years in the period ended December 27, 1996, and have
issued our report thereon dated February 21, 1997; such report, which expresses
an unqualified opinion and includes an explanatory paragraph relating to a
change in the method of accounting for preopening expenses in 1994, is included
elsewhere in this Registration Statement. Our audits also included the
consolidated financial statement schedule of ShowBiz Pizza Time, Inc. and
subsidiary, listed in Item 14. This consolidated financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

DELOITTE & TOUCHE LLP

Dallas, Texas

February 21, 1997

S-1
<PAGE> 63

SCHEDULE II

SHOWBIZ PIZZA TIME, INC.

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------- --------- --------- ---------- ----------
ADDITIONS
BALANCE CHARGED
AT TO COSTS BALANCE AT
BEGINNING AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- --------- --------- ---------- ----------
(THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Years ended:
December 27, 1996........................ $ 75 $ 55(A) $ 20
==== ==== ====
December 29, 1995........................ $475 $400(A) $ 75
==== ==== ====
December 30, 1994........................ $266 $209 $475
==== ==== ====
Reserve for uncollectible notes receivable:
Years ended:
December 27, 1996........................ $354 $180(B) $174
==== ==== ====
December 29, 1995........................ $139 $215 $354
==== ==== ====
December 30, 1994........................ $139 $139
==== ====
</TABLE>

- ---------------

(A) Settlement of previously reserved accounts.

(B) Adjustment to notes receivable reserve.

S-2
<PAGE> 64

EXHIBIT INDEX

<TABLE>
<CAPTION>
PAGE
EXHIBIT NUMBER DESCRIPTION NO.
- -------------- ----------- ----
<C> <S> <C>
1.1 -- Form of Underwriting Agreement.
*3.1 -- Restated Articles of Incorporation of the Company, dated
November 26, 1996.
4.1 -- Specimen form of certificate representing $.10 par value
Common Stock (filed as Exhibit 4(a) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 28, 1990, and incorporated herein by reference).
4.2 -- Articles Fourth, Fifth, Ninth and Fourteenth of the
Restated Articles of Incorporation of the Company
(included in Exhibit 3.1).
4.3 -- Sections 13 and 14 of the Bylaws of the Company (included
in Exhibit 3 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1994, and
incorporated herein by reference).
5.1 -- Opinion of Winstead Sechrest & Minick P.C.
23.1 -- Consent of Deloitte & Touche LLP.
23.2 -- Consent of Winstead Sechrest & Minick P.C. (included in
Exhibit 5.1).
*24.1 -- Power of Attorney.
</TABLE>

- ---------------

* Previously filed.

<PAGE> 1

3,200,000 SHARES

SHOWBIZ PIZZA TIME, INC.

COMMON STOCK

UNDERWRITING AGREEMENT

March __, 1997

CREDIT SUISSE FIRST BOSTON CORPORATION
PRINCIPAL FINANCIAL SECURITIES, INC.
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, NY 10010-3629

Dear Sirs:

1. Introductory. The stockholders listed in Schedule A hereto
("Selling Stockholders") propose severally to sell an aggregate of 3,200,000
outstanding shares ("Firm Securities") of the Common Stock, $.10 par value per
share ("Securities"), of ShowBiz Pizza Time, Inc., a Kansas corporation
("Company"), and certain of the Selling Stockholders also propose to sell to
the Underwriters, at the option of the Underwriters, an aggregate of not more
than 454,746 additional outstanding shares ("Optional Securities") of the
Securities as set forth below. The Firm Securities and the Optional Securities
are herein collectively called the Offered Securities. The Selling
Stockholders hereby agree with the Company and with the several Underwriters
named in Schedule B hereto ("Underwriters") as follows:

2. Representations and Warranties of the Company and the Selling
Stockholders. (a) The Company represents and warrants to, and agrees with,
the several Underwriters that:

(i) A registration statement (No. 333-22229) relating to
the Offered Securities, including a form of prospectus, has been filed
with the Securities and Exchange Commission ("Commission") and either
(A) has been declared effective under the Securities Act of 1933
("Act") and is not proposed to be amended or (B) is proposed to be
amended by amendment or post-effective amendment. If such registration
statement (the "initial registration statement") has been declared
effective, either (A) an additional registration statement (the
"additional registration statement") relating to the Offered
Securities may have been filed with the Commission pursuant to Rule
462(b) ("Rule 462(b)") under the Act and, if so filed, has become
effective upon filing pursuant to such Rule and the Offered Securities
all have been duly registered under the Act pursuant to the initial
registration statement and, if applicable, the additional registration
statement or (B) such an additional registration statement is proposed
to be filed with the Commission pursuant to Rule 462(b) and will
become effective upon filing pursuant to such Rule and upon such
filing the Offered Securities will all have been duly registered under
the Act pursuant to the initial registration statement and such
additional registration statement. If the Company does not propose to
amend the initial registration statement or if an additional
registration statement has been filed and the Company does not propose
to amend it, and if any post-effective amendment to either such
registration statement has been filed with the Commission prior to the
execution and delivery of this Agreement, the most recent amendment
(if any) to each such registration statement has been declared
effective by the Commission or has become effective upon filing
pursuant to Rule 462(c) ("Rule 462(c)") under the Act or, in the case
of the additional registration statement, Rule 462(b). For purposes of
this Agreement, "Effective Time" with respect to the initial
registration statement or, if filed prior to the execution and
delivery of this Agreement,
<PAGE> 2
the additional registration statement means (A) if the Company has
advised the Representatives that it does not propose to amend such
registration statement, the date and time as of which such
registration statement, or the most recent post-effective amendment
thereto (if any) filed prior to the execution and delivery of this
Agreement, was declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c), or (B) if the Company
has advised the Representatives that it proposes to file an amendment
or post-effective amendment to such registration statement, the date
and time as of which such registration statement, as amended by such
amendment or post-effective amendment, as the case may be, is declared
effective by the Commission. If an additional registration statement
has not been filed prior to the execution and delivery of this
Agreement but the Company has advised the Representatives that it
proposes to file one, "Effective Time" with respect to such additional
registration statement means the date and time as of which such
registration statement is filed and become effective pursuant to Rule
462(b). "Effective Date" with respect to the initial registration
statement or the additional registration statement (if any) means the
date of the Effective Time thereof. The initial registration
statement, as amended at its Effective Time, including all material
incorporated by reference therein and all information contained in the
additional registration statement (if any) and deemed to be a part of
the initial registration statement as of the Effective Time of the
additional registration statement pursuant to the General Instructions
of the Form on which it is filed and including all information (if
any) deemed to be a part of the initial registration statement as of
its Effective Time pursuant to Rule 430A(b) ("Rule 430A(b)") under the
Act, is hereinafter referred to as the "Initial Registration
Statement". The additional registration statement, as amended at its
Effective Time, including the contents of the initial registration
statement incorporated by reference therein and including all
information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "Additional Registration
Statement". The Initial Registration Statement and the Additional
Registration Statement are hereinafter referred to collectively as the
"Registration Statements" and individually as a "Registration
Statement". The form of prospectus relating to the Offered
Securities, as first filed with the Commission pursuant to and in
accordance with Rule 424(b) ("Rule 424(b)") under the Act or (if no
such filing is required) as included in a Registration Statement,
including all material incorporated by reference in such prospectus,
is hereinafter referred to as the "Prospectus". No document has been
or will be prepared or distributed in reliance on Rule 434 under the
Act.

(ii) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement:
(A) on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement conformed in all respects to the
requirements of the Act and the rules and regulations of the
Commission ("Rules and Regulations") and did not include any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, (B) on the Effective Date of the Additional
Registration Statement (if any), each Registration Statement
conformed, or will conform, in all respects to the requirements of the
Act and the Rules and Regulations and did not include, or will not
include, any untrue statement of a material fact and did not omit, or
will not omit, to state any material fact required to be stated
therein or necessary to make the statements therein not misleading,
and (C) on the date of this Agreement, the Initial Registration
Statement and, if the Effective Time of the Additional Registration
Statement is prior to the execution and delivery of this Agreement,
the Additional Registration Statement each conforms, and at the time
of filing of the Prospectus pursuant to Rule 424(b) or (if no such
filing is required) at the Effective Date of the Additional
Registration Statement in which the Prospectus is included, each
Registration Statement and the Prospectus will conform, in all
respects to the requirements of the Act and the Rules and Regulations,
and neither of such documents includes, or will include, any untrue
statement of a material fact or omits, or will omit, to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading. If the Effective Time of the
Initial Registration Statement is subsequent to the execution and
delivery of this Agreement: on the Effective Date of the Initial
Registration Statement, the Initial Registration Statement and the
Prospectus will conform in all respects to the requirements of the Act
and the Rules and Regulations, neither of such documents will include
any untrue statement of a material fact or will omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, and no Additional Registration
Statement has been or will be filed. The two preceding sentences do
not apply to statements in or omissions from a Registration Statement
or the

-2-
<PAGE> 3
Prospectus based upon written information furnished to the Company by
any Underwriter through the Representatives specifically for use
therein, it being understood and agreed that the only such information
is that described as such in Section 7(c) hereof.

(iii) The Company has been duly incorporated and is an
existing corporation in good standing under the laws of the State of
Kansas, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus;
and the Company is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions in which its
ownership or lease of property or the conduct of its business requires
such qualification.

(iv) Each subsidiary of the Company has been duly
incorporated and is an existing corporation in good standing under the
laws of the jurisdiction of its incorporation, with power and
authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus; and each subsidiary of the
Company is duly qualified to do business as a foreign corporation in
good standing in all other jurisdictions in which its ownership or
lease of property or the conduct of its business requires such
qualification; all of the issued and outstanding capital stock of each
subsidiary of the Company has been duly authorized and validly issued
and is fully paid and nonassessable; and the capital stock of each
subsidiary owned by the Company, directly or through subsidiaries, is
owned free from liens, encumbrances and defects.

(v) The Offered Securities and all other outstanding
shares of capital stock of the Company have been duly authorized and
validly issued, fully paid and nonassessable and conform to the
description thereof contained in the Prospectus; and the stockholders
of the Company have no preemptive rights with respect to the
Securities.

(vi) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person that would give rise to a valid claim against the Company or
any Underwriter for a brokerage commission, finder's fee or other like
payment.

(vii) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act
with respect to any securities of the Company owned or to be owned by
such person or to require the Company to include such securities in
the securities registered pursuant to a Registration Statement or in
any securities being registered pursuant to any other registration
statement filed by the Company under the Act.

(viii) The Securities are listed on The Nasdaq Stock
Market's National Market.

(ix) No consent, approval, authorization, or order of, or
filing with, any governmental agency or body or any court is required
to be obtained or made by the Company for the consummation of the
transactions contemplated by this Agreement in connection with the
sale of the Offered Securities, except such as have been obtained and
made under the Act and such as may be required under state securities
laws.

(x) The execution, delivery and performance of this
Agreement, and the consummation of the transactions herein
contemplated will not result in a breach or violation of any of the
terms and provisions of, or constitute a default under, any statute,
any rule, regulation or order of any governmental agency or body or
any court, domestic or foreign, having jurisdiction over the Company
or any subsidiary of the Company or any of their properties, or any
agreement or instrument to which the Company or any such subsidiary is
a party or by which the Company or any such subsidiary is bound or to
which any of the properties of the Company or any such subsidiary is
subject, or the charter or by-laws of the Company or any such
subsidiary.

(xi) This Agreement has been duly authorized, executed and
delivered by the Company.

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<PAGE> 4
(xii) Except as disclosed in the Prospectus, the Company
and its subsidiaries have good and marketable title to all real
properties and all other properties and assets owned by them, in each
case free from liens, encumbrances and defects that would materially
affect the value thereof or materially interfere with the use made or
to be made thereof by them; and except as disclosed in the Prospectus,
the Company and its subsidiaries hold any leased real or personal
property under valid and enforceable leases with no exceptions that
would materially interfere with the use made or to be made thereof by
them.

(xiii) The Company and its subsidiaries possess adequate
certificates, authorities or permits issued by appropriate
governmental agencies or bodies necessary to conduct the business now
operated by them and have not received any notice of proceedings
relating to the revocation or modification of any such certificate,
authority or permit that, if determined adversely to the Company or
any of its subsidiaries, would individually or in the aggregate have a
material adverse effect on the Company and its subsidiaries taken as a
whole.

(xiv) No labor dispute with the employees of the Company or
any subsidiary exists or, to the knowledge of the Company, is imminent
that might have a material adverse effect on the Company and its
subsidiaries taken as a whole.

(xv) The Company and its subsidiaries own, possess or can
acquire on reasonable terms, adequate trademarks, trade names and
other rights to inventions, know-how, patents, copyrights,
confidential information and other intellectual property
(collectively, "intellectual property rights") necessary to conduct
the business now operated by them, or presently employed by them, and
have not received any notice of infringement of or conflict with
asserted rights of others with respect to any intellectual property
rights that, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material
adverse effect on the Company and its subsidiaries taken as a whole.

(xvi) Except as disclosed in the Prospectus, neither the
Company nor any of its subsidiaries is in violation of any statute,
any rule, regulation, decision or order of any governmental agency or
body or any court, domestic or foreign, relating to the use, disposal
or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to
hazardous or toxic substances (collectively, "environmental laws"),
owns or operates any real property contaminated with any substance
that is subject to any environmental laws, is liable for any off-site
disposal or contamination pursuant to any environmental laws, or is
subject to any claim relating to any environmental laws, which
violation, contamination, liability or claim would individually or in
the aggregate have a material adverse effect on the Company and its
subsidiaries taken as a whole; and the Company is not aware of any
pending investigation which might lead to such a claim.

(xvii) Except as disclosed in the Prospectus, there are no
pending actions, suits or proceedings against or affecting the
Company, any of its subsidiaries or any of their respective properties
that, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material
adverse effect on the condition (financial or other), business,
properties or results of operations of the Company and its
subsidiaries taken as a whole, or would materially and adversely
affect the ability of the Company to perform its obligations under
this Agreement, or which are otherwise material in the context of the
sale of the Offered Securities; and no such actions, suits or
proceedings are threatened or, to the Company's knowledge,
contemplated.

(xviii) The financial statements included in each
Registration Statement and the Prospectus present fairly the financial
position of the Company and its consolidated subsidiaries as of the
dates shown and their results of operations and cash flows for the
periods shown, and such financial statements have been prepared in
conformity with the generally accepted accounting principles in the
United States applied on a consistent basis; and the schedules
included in each Registration Statement present fairly the information
required to be stated therein.

-4-
<PAGE> 5
(xix) Except as disclosed in the Prospectus, since the date
of the latest audited financial statements included in the Prospectus
there has been no material adverse change, nor any development or
event involving a prospective material adverse change, in the
condition (financial or other), business, properties or results of
operations of the Company and its subsidiaries taken as a whole, and,
except as disclosed in or contemplated by the Prospectus, there has
been no dividend or distribution of any kind declared, paid or made by
the Company on any class of its capital stock.

(xx) The Company is not and, after giving effect to the
offering and sale of the Offered Securities, will not be an
"investment company" as defined in the Investment Company Act of 1940.

(b) Each Selling Stockholder represents and warrants to, and
agrees with, the several Underwriters that:

(i) Such Selling Stockholder has, except as set forth on
Schedule A hereto, valid and unencumbered title to the Offered
Securities to be delivered by such Selling Stockholder on such Closing
Date and on each Closing Date hereinafter mentioned will have valid
and unencumbered title to the Offered Securities to be delivered by
such Selling Stockholder on such Closing Date and full right, power
and authority to enter into this Agreement and to sell, assign,
transfer and deliver the Offered Securities to be delivered by such
Selling Stockholder on such Closing Date hereunder; and upon the
delivery of and payment for the Offered Securities on each Closing
Date hereunder the several Underwriters will acquire valid and
unencumbered title to the Offered Securities to be delivered by such
Selling Stockholder on such Closing Date.

(ii) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement:
(A) on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement conformed in all respects to the
requirements of the Act and the Rules and Regulations and did not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, (B) on the Effective Date of the
Additional Registration Statement (if any), each Registration
Statement conformed, or will conform, in all respects to the
requirements of the Act and the Rules and Regulations and did not
include, or will not include, any untrue statement of a material fact
and did not omit, or will not omit, to state any material fact
required to be stated therein or necessary to make the statement
therein not misleading, and (C) on the date of this Agreement, the
Initial Registration Statement and, if the Effective Time of the
Additional Registration Statement is prior to the execution and
delivery of this Agreement, the Additional Registration Statement each
conforms, and at the time of filing of the Prospectus pursuant to Rule
424(b) or (if no such filing is required) at the Effective Date of the
Additional Registration Statement in which the Prospectus is included,
each Registration Statement and the Prospectus will conform, in all
respects to the requirements of the Act and the Rules and Regulations,
and neither of such documents includes, or will include, any untrue
statement of a material fact or omits, or will omit, to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading. If the Effective Time of the
Initial Registration Statement is subsequent to the execution and
delivery of this Agreement: on the Effective Date of the Initial
Registration Statement, the Initial Registration Statement and the
Prospectus will conform in all respects to the requirements of the Act
and the Rules and Regulations, neither of such documents will include
any untrue statement of a material fact or will omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading. The two preceding sentences apply
only to the extent that any statements in or omissions from a
Registration Statement or the Prospectus are based on written
information furnished to the Company by such Selling Stockholder
specifically for use therein.

(iii) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between such Selling
Stockholder and any person that would give rise to a valid claim
against the Company or any Underwriter for a brokerage commission,
finder's fee or other like payment.

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<PAGE> 6
3. Purchase, Sale and Delivery of Offered Securities. On the
basis of the representations, warranties and agreements herein contained, but
subject to the terms and conditions herein set forth, each Selling Stockholder
agrees, severally and not jointly, to sell to the Underwriters, and each
Underwriter agrees, severally and not jointly, to purchase from each Selling
Stockholder, at a purchase price of $ per share, that number of Firm
Securities (rounded up or down, as determined by Credit Suisse First Boston
Corporation ("CSFBC") in its discretion, in order to avoid fractions) obtained
by multiplying the number of Firm Securities set forth opposite the name of
such Selling Stockholder in Schedule A hereto by a fraction the numerator of
which is the number of Firm Securities set forth opposite the name of such
Underwriter in Schedule B hereto and the denominator of which is the total
number of Firm Securities.

Certificates in negotiable form for the Offered Securities have been
placed in custody, for delivery under this Agreement, under Custody Agreements
made with Melvin J. Melle and Anthony J. Gumbiner, as custodians (each, a
"Custodian"), and Custody and Escrow Agreements made with Citibank, N.A., as
escrow agent ("Escrow Agent"). Each Selling Stockholder agrees that the shares
represented by the certificates held in custody for the Selling Stockholders
under such Custody Agreements and Escrow Agreements are subject to the
interests of the Underwriters hereunder, that the arrangements made by the
Selling Stockholders for such custody are to that extent irrevocable, and that
the obligations of the Selling Stockholders hereunder shall not be terminated
by operation of law, whether by the death of any individual Selling Stockholder
or the occurrence of any other event, or in the case of a trust, by the death
of any trustee or trustees or the termination of such trust. If any individual
Selling Stockholder or any such trustee or trustees should die, or if any other
such event should occur, or if any of such trusts should terminate, before the
delivery of the Offered Securities hereunder, certificates for the Offered
Securities shall be delivered by the Custodian in accordance with the terms and
conditions of this Agreement as if such death or other event or termination had
not occurred, regardless of whether or not the Custodian shall have received
notice of such death or other event or termination.

The Custodian or the Escrow Agent, as the case may be, will deliver
the Firm Securities to the Representatives for the accounts of the
Underwriters, against payment of the purchase price in federal (same day) funds
by official bank check or checks or wire transfer to an account at a bank
acceptable to CSFBC drawn to the order of the Custodian or the Escrow Agent, as
instructed by the attorney-in-fact for the Selling Stockholders, at the office
of , at A.M., New York time, on ,
or at such other time not later than seven full business days thereafter as
CSFBC and the Custodian determine, such time being herein referred to as the
"First Closing Date". The certificates for the Firm Securities so to be
delivered will be in definitive form, in such denominations and registered in
such names as CSFBC requests and will be made available for checking and
packaging at the office of Boston Equiserve Limited Partnership at least 24
hours prior to the First Closing Date.

In addition, upon written notice from CSFBC given to the Company and
the Selling Stockholders or the attorneys-in-fact of the Selling Stockholders
from time to time not more than 30 days subsequent to the date of the
Prospectus, the Underwriters may purchase all or less than all of the Optional
Securities at the purchase price per Security to be paid for the Firm
Securities. The Selling Stockholders agree, severally and not jointly, to sell
to the Underwriters the respective numbers of Optional Securities obtained by
multiplying the number of Optional Securities specified in such notice by a
fraction the numerator of which is the number of shares set forth opposite the
names of such Selling Stockholders in Schedule A hereto under the caption
"Number of Optional Securities to be Sold" and the denominator of which is the
total number of Optional Securities (subject to adjustment by CSFBC to
eliminate fractions). Such Optional Securities shall be purchased from each
Selling Stockholder for the account of each Underwriter in the same proportion
as the number of Firm Securities set forth opposite such Underwriter's name
bears to the total number of Firm Securities (subject to adjustment by CSFBC to
eliminate fractions) and may be purchased by the Underwriters only for the
purpose of covering over-allotments made in connection with the sale of the
Firm Securities. No Optional Securities shall be sold or delivered unless the
Firm Securities previously have been, or simultaneously are, sold and
delivered. The right to purchase the Optional Securities or any portion thereof
may be exercised from time to time not more than 30 days subsequent to the date
of the Prospectus and to the extent not previously exercised may be surrendered
and terminated at any time upon notice by CSFBC to the Selling Stockholders.

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<PAGE> 7
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Custodian or the Escrow
Agent, as the case may be, will deliver the Optional Securities being purchased
on each Optional Closing Date to the Representatives for the accounts of the
several Underwriters, against payment of the purchase price in federal (same
day) funds by official bank check or checks or wire transfer to an account at a
bank acceptable to CSFBC drawn to the order of the Custodian or the Escrow
Agent, as instructed in writing by the attorney-in-fact for the Selling
Stockholders, at the office of . The certificates for the
Optional Securities being purchased on each Optional Closing Date will be in
definitive form, in such denominations and registered in such names as CSFBC
requests upon reasonable notice prior to such Optional Closing Date and will be
made available for checking and packaging at the office of Boston Equiserve
Limited Partnership at a reasonable time in advance of such Optional Closing
Date.

4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.

5. Certain Agreements of the Company and the Selling
Stockholders. The Company agrees with the several Underwriters and the Selling
Stockholders that:

(a) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement,
the Company will file the Prospectus with the Commission pursuant to
and in accordance with subparagraph (1) (or, if applicable and if
consented to by CSFBC, subparagraph (4)) of Rule 424(b) not later than
the earlier of (A) the second business day following the execution and
delivery of this Agreement or (B) the fifteenth business day after the
Effective Date of the Initial Registration Statement.

The Company will advise CSFBC promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement and
an additional registration statement is necessary to register a
portion of the Offered Securities under the Act but the Effective Time
thereof has not occurred as of such execution and delivery, the
Company will file the additional registration statement or, if filed,
will file a post-effective amendment thereto with the Commission
pursuant to and in accordance with Rule 462(b) on or prior to 10:00
P.M., New York time, on the date of this Agreement or, if earlier, on
or prior to the time the Prospectus is printed and distributed to any
Underwriter, or will make such filing at such later date as shall have
been consented to by CSFBC.

(b) The Company will advise CSFBC promptly of any proposal to
amend or supplement the initial or any additional registration
statement as filed or the related prospectus or the Initial
Registration Statement, the Additional Registration Statement (if any)
or the Prospectus and will not effect such amendment or
supplementation without CSFBC's consent; and the Company will also
advise CSFBC promptly of the effectiveness of each Registration
Statement (if its Effective Time is subsequent to the execution and
delivery of this Agreement) and of any amendment or supplementation of
a Registration Statement or the Prospectus and of the institution by
the Commission of any stop order proceedings in respect of a
Registration Statement and will use its best efforts to prevent the
issuance of any such stop order and to obtain as soon as possible its
lifting, if issued.

(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection
with sales by any Underwriter or dealer, any event occurs as a result
of which the Prospectus as then amended or supplemented would include
an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to amend the Prospectus to comply with the Act,
the Company will promptly notify CSFBC of such event and will promptly
prepare and file with the Commission, at its own expense, an amendment
or supplement which will correct such statement or omission or an
amendment which will effect such compliance. Neither CSFBC's consent
to,

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<PAGE> 8
nor the Underwriters' delivery of, any such amendment or supplement
shall constitute a waiver of any of the conditions set forth in
Section 6.

(d) As soon as practicable, but not later than the
Availability Date (as defined below), the Company will make generally
available to its securityholders an earnings statement covering a
period of at least 12 months beginning after the Effective Date of the
Initial Registration Statement (or, if later, the Effective Date of
the Additional Registration Statement) which will satisfy the
provisions of Section 11(a) of the Act. For the purpose of the
preceding sentence, "Availability Date" means the 45th day after the
end of the fourth fiscal quarter following the fiscal quarter that
includes such Effective Date, except that, if such fourth fiscal
quarter is the last quarter of the Company's fiscal year,
"Availability Date" means the 90th day after the end of such fourth
fiscal quarter.

(e) The Company will furnish to the Representatives copies of
each Registration Statement (three of which will be signed and will
include all exhibits), each related preliminary prospectus, and, so
long as a prospectus relating to the Offered Securities is required to
be delivered under the Act in connection with sales by any Underwriter
or dealer, the Prospectus and all amendments and supplements to such
documents, in each case in such quantities as CSFBC requests. The
Prospectus shall be so furnished on or prior to 3:00 P.M., New York
time, on the business day following the later of the execution and
delivery of this Agreement or the Effective Time of the Initial
Registration Statement. All other such documents shall be so furnished
as soon as available. The Selling Stockholders will pay the expenses
of printing and distributing to the Underwriters all such documents.

(f) The Company will arrange for the qualification of the
Offered Securities for sale under the laws of such jurisdictions as
CSFBC designates and will continue such qualifications in effect so
long as required for the distribution.

(g) During the period of five years hereafter, the Company
will furnish to the Representatives and, upon request, to each of the
other Underwriters, as soon as practicable after the end of each
fiscal year, a copy of its annual report to stockholders for such
year; and the Company will furnish to the Representatives (i) as soon
as available, a copy of each report and any definitive proxy statement
of the Company filed with the Commission under the Securities Exchange
Act of 1934 or mailed to stockholders, and (ii) from time to time,
such other information concerning the Company as CSFBC may reasonably
request.

(h) For a period of 90 days after the date of the public
offering of the Offered Securities, the Company will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Commission a registration statement under
the Act relating to, any additional shares of its Securities or
securities convertible into or exchangeable or exercisable for any
shares of its Securities, or publicly disclose the intention to make
any such offer, sale, pledge, disposition or filing, without the prior
written consent of CSFBC, except issuances of Securities pursuant to
the conversion or exchange of convertible or exchangeable securities
or the exercise of warrants or options, in each case outstanding on
the date hereof, grants of employee stock options pursuant to the
terms of a plan in effect on the date hereof, issuances of Securities
pursuant to the exercise of such options or issuances of Securities
pursuant to the Company's dividend reinvestment plan.

(i) The Company will pay all fees and expenses of legal
counsel for the Company, fees of the Company's independent public
accountants and any travel expenses of the Company's officers and
employees and any other expenses of the Company in connection with
attending or hosting meetings with prospective purchasers of the
Offered Securities.

Each Selling Stockholder agrees with the several Underwriters and the
Company that such Selling Stockholder will pay all expenses incident to the
performance of the obligations of such Selling Stockholder and the obligations
of the Company under this Agreement, including, fees, expenses and
disbursements of legal counsel engaged by or on behalf of the Selling
Stockholders, accounting fees, expenses and disbursements incurred by the

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<PAGE> 9
Selling Stockholders, all registration and filing fees, any filing fees and
other expenses (including fees and disbursements of counsel) incurred in
connection with qualification of the Offered Securities for sale under the laws
of such jurisdictions as CSFBC designates and the printing of memoranda
relating thereto, any filing fee incident to, and the reasonable fees and
disbursements of counsel to the Underwriters in connection with the review by
the National Association of Securities Dealers, Inc. of the Offered Securities,
any and all printing expenses, fees and expenses of the Underwriters, travel
and other out-of-pocket expenses of the Selling Stockholders, the Underwriters
and counsel to the Selling Stockholders, any transfer taxes on the sale of the
Offered Securities to the Underwriters and for expenses incurred in
distributing preliminary prospectuses and the Prospectus (including any
amendments and supplements thereto) to the Underwriters.

Each Selling Stockholder agrees to deliver to CSFBC, attention:
Transactions Advisory Group on or prior to the First Closing Date a properly
completed and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations in
lieu thereof).

Each Selling Stockholder agrees, for a period of 90 days after the
date of the initial public offering of the Offered Securities, not to offer,
sell, contract to sell, pledge or otherwise dispose of, directly or indirectly,
any additional shares of the Securities of the Company or securities
convertible into or exchangeable or exercisable for any shares of Securities,
or publicly disclose the intention to make any such offer, sale, pledge or
disposition, without the prior written consent of CSFBC.

6. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Firm
Securities on the First Closing Date and the Optional Securities to be
purchased on each Optional Closing Date will be subject to the accuracy of the
representations and warranties on the part of the Company and the Selling
Stockholders herein, to the accuracy of the statements of Company officers made
pursuant to the provisions hereof, to the performance by the Company and the
Selling Stockholders of their obligations hereunder and to the following
additional conditions precedent:

(a) The Representatives shall have received a letter,
dated the date of delivery thereof (which, if the Effective Time of
the Initial Registration Statement is prior to the execution and
delivery of this Agreement, shall be on or prior to the date of this
Agreement or, if the Effective Time of the Initial Registration
Statement is subsequent to the execution and delivery of this
Agreement, shall be prior to the filing of the amendment or
post-effective amendment to the registration statement to be filed
shortly prior to such Effective Time), of Deloitte & Touche LLP
confirming that they are independent public accountants within the
meaning of the Act and the applicable published Rules and Regulations
thereunder and stating to the effect that:

(i) in their opinion the financial statements and
schedules examined by them and included or incorporated by
reference in the Registration Statements comply as to form in
all material respects with the applicable accounting
requirements of the Act and the related published Rules and
Regulations;

(ii) on the basis of a reading of the latest
available interim financial statements of the Company,
inquiries of officials of the Company who have responsibility
for financial and accounting matters and other specified
procedures, nothing came to their attention that caused them
to believe that:

(A) at the date of the latest available
balance sheet read by such accountants, or at a
subsequent specified date not more than three
business days prior to the date of this Agreement,
there was any change in the capital stock or any
increase in short-term indebtedness or long-term debt
of the Company and its consolidated subsidiaries or,
at the date of the latest available balance sheet
read by such accountants, there was any decrease in
consolidated net assets, as compared with amounts
shown on the latest balance sheet included in the
Prospectus; or

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<PAGE> 10
(B) for the period from the closing date
of the latest income statement included in the
Prospectus to the closing date of the latest
available income statement read by such accountants
there were any decreases, as compared with the
corresponding period of the previous year in
consolidated net revenues or net operating income in
the total or per share amounts of consolidated net
income;

except in all cases set forth in clauses (A) and (B) above for
changes, increases or decreases which the Prospectus discloses
have occurred or may occur or which are described in such
letter; and

(iii) they have compared specified dollar amounts
(or percentages derived from such dollar amounts) and other
financial information contained in the Registration Statements
(in each case to the extent that such dollar amounts,
percentages and other financial information are derived from
the general accounting records of the Company and its
subsidiaries subject to the internal controls of the Company's
accounting system or are derived directly from such records by
analysis or computation) with the results obtained from
inquiries, a reading of such general accounting records and
other procedures specified in such letter and have found such
dollar amounts, percentages and other financial information to
be in agreement with such results, except as otherwise
specified in such letter.

For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, "Registration Statements" shall mean the
initial registration statement as proposed to be amended by the
amendment or post-effective amendment to be filed shortly prior to its
Effective Time, (ii) if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement but
the Effective Time of the Additional Registration Statement is
subsequent to such execution and delivery, "Registration Statements"
shall mean the Initial Registration Statement and the additional
registration statement as proposed to be filed or as proposed to be
amended by the post-effective amendment to be filed shortly prior to
its Effective Time, and (iii) "Prospectus" shall mean the prospectus
included in the Registration Statements. All financial statements and
schedules included in material incorporated by reference into the
Prospectus shall be deemed included in the Registration Statements for
purposes of this subsection.

(b) If the Effective Time of the Initial Registration
Statement is not prior to the execution and delivery of this
Agreement, such Effective Time shall have occurred not later than
10:00 P.M., New York time, on the date of this Agreement or such later
date as shall have been consented to by CSFBC. If the Effective Time
of the Additional Registration Statement (if any) is not prior to the
execution and delivery of this Agreement, such Effective Time shall
have occurred not later that 10:00 P.M., New York time, on the date of
this Agreement or, if earlier, the time the Prospectus is printed and
distributed to any Underwriter, or shall have occurred at such later
date as shall have been consented to by CSFBC. If the Effective Time
of the Initial Registration Statement is prior to the execution and
delivery of this Agreement, the Prospectus shall have been filed with
the Commission in accordance with the Rules and Regulations and
Section 5(a) of this Agreement. Prior to such Closing Date, no stop
order suspending the effectiveness of a Registration Statement shall
have been issued and no proceedings for that purpose shall have been
instituted or, to the knowledge of any Selling Stockholder, the
Company or the Representatives, shall be contemplated by the
Commission.

(c) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (i) any change, or any
development or event involving a prospective change, in the condition
(financial or other), business, properties or results of operations of
the Company or its subsidiaries which, in the judgment of a majority
in interest of the Underwriters including the Representatives, is
material and adverse and makes it impractical or inadvisable to
proceed with completion of the public offering or the sale of and
payment for the Offered Securities; (ii) any suspension or limitation
of trading in securities generally on the New York Stock Exchange or
The Nasdaq National Market, or any setting of minimum prices for
trading on such exchange, or any suspension of trading of any
securities of the Company on any exchange or in the over-the-counter
market; (iii) any banking moratorium declared by U.S. Federal or New

-10-
<PAGE> 11
York authorities; or (iv) any outbreak or escalation of major
hostilities in which the United States is involved, any declaration of
war by Congress or any other substantial national or international
calamity or emergency if, in the judgment of a majority in interest of
the Underwriters including the Representatives, the effect of any such
outbreak, escalation, declaration, calamity or emergency makes it
impractical or inadvisable to proceed with completion of the public
offering or the sale of and payment for the Offered Securities.

(d) The Representatives shall have received an opinion,
dated such Closing Date, of Stinson, Mag & Fizzell, P.C., Kansas
counsel for the Company, to the effect that the Company has been duly
incorporated and is an existing corporation in good standing under the
laws of the State of Kansas, with corporate power and authority to own
its properties and conduct its business as described in the
Prospectus.

(e) The Representatives shall have received an opinion,
dated such Closing Date, of Winstead Sechrest & Minick P.C., counsel
for the Company, to the effect that:

(i) The Company is duly qualified to do business
as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification;

(ii) The Offered Securities delivered on such
Closing Date and all other outstanding shares of the Common
Stock of the Company have been duly authorized and validly
issued, are fully paid and nonassessable and conform to the
description thereof contained in the Prospectus; and the
stockholders of the Company have no preemptive rights with
respect to the Securities;

(iii) There are no contracts, agreements or
understandings known to such counsel between the Company and
any person granting such person the right to require the
Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned
by such person or to require the Company to include such
securities in the securities registered pursuant to the
Registration Statement or in any securities being registered
pursuant to any other registration statement filed by the
Company under the Act;

(iv) No consent, approval, authorization or order
of, or filing with, any governmental agency or body or any
court is required to be obtained or made by the Company for
the consummation of the transactions contemplated by this
Agreement in connection with the sale of the Offered
Securities, except such as have been obtained and made under
the Act and such as may be required under state securities
laws;

(v) The execution, delivery and performance of
this Agreement and the consummation of the transactions herein
contemplated will not result in a breach or violation of any
of the terms and provisions of, or constitute a default under,
any statute, any rule, regulation or order of any governmental
agency or body or any court having jurisdiction over the
Company or any subsidiary of the Company or any of their
properties, or any agreement or instrument to which the
Company or any such subsidiary is a party or by which the
Company or any such subsidiary is bound or to which any of the
properties of the Company or any such subsidiary is subject,
or the charter or by-laws of the Company or any such
subsidiary;

(vi) The Initial Registration Statement was
declared effective under the Act as of the date and time
specified in such opinion, the Additional Registration
Statement (if any) was filed and became effective under the
Act as of the date and time (if determinable) specified in
such opinion, the Prospectus either was filed with the
Commission pursuant to the subparagraph of Rule 424(b)
specified in such opinion on the date specified therein or was
included in the Initial Registration Statement or the
Additional Registration Statement (as the case may be), and,
to the best of the knowledge of such counsel, no stop order
suspending the effectiveness of a Registration Statement or
any part thereof has been issued and no proceedings for that
purpose have been

-11-
<PAGE> 12
instituted or are pending or contemplated under the Act, and
each Registration Statement and the Prospectus, and each
amendment or supplement thereto, as of their respective
effective or issue dates, complied as to form in all material
respects with the requirements of the Act and the Rules and
Regulations; such counsel have no reason to believe that any
part of a Registration Statement or any amendment thereto, as
of its effective date or as of such Closing Date, contained
any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary
to make the statements therein not misleading or that the
Prospectus or any amendment or supplement thereto, as of its
issue date or as of such Closing Date, contained any untrue
statement of a material fact or omitted to state any material
fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading; the descriptions in the Registration Statements
and Prospectus of statutes, legal and governmental proceedings
and contracts and other documents are accurate and fairly
present the information required to be shown; and such counsel
do not know of any legal or governmental proceedings required
to be described in a Registration Statement or the Prospectus
which are not described as required or of any contracts or
documents of a character required to be described in a
Registration Statement or the Prospectus or to be filed as
exhibits to a Registration Statement which are not described
and filed as required; it being understood that such counsel
need express no opinion as to the financial statements or
other financial data contained in the Registration Statements
or the Prospectus; and

(vii) This Agreement has been duly authorized,
executed and delivered by the Company.

(f) The Representatives shall have received the
opinion contemplated in the Power of Attorney executed and delivered
by each Selling Stockholder and an opinion, dated such Closing Date,
of Jenkens & Gilchrist, counsel for the Selling Stockholders, to the
effect that:

(i) Each Selling Stockholder had valid and
unencumbered title to the Offered Securities delivered by such
Selling Stockholder on such Closing Date and had full right,
power and authority to sell, assign, transfer and deliver the
Offered Securities delivered by such Selling Stockholder on
such Closing Date hereunder; and, assuming the Underwriters
are acquiring the Offered Securities in good faith and without
notice of any adverse claims, the several Underwriters have
acquired valid and unencumbered title to the Offered
Securities purchased by them on such Closing Date hereunder;

(ii) No consent, approval, authorization or order
of, or filing with, any governmental agency or body or any
court is required to be obtained or made by any Selling
Stockholder for the consummation of the transactions
contemplated by the Custody Agreement, the Escrow Agreements
or this Agreement in connection with the sale of the Offered
Securities, except such as have been obtained and made under
the Act and such as may be required under state securities
laws;

(iii) The execution, delivery and performance of
the Custody Agreement, the Escrow Agreements and this
Agreement and the consummation of the transactions therein and
herein contemplated will not result in a breach or violation
of any of the terms and provisions of, or constitute a default
under, (A) any statute, any rule, regulation or order of any
governmental agency or body or any court having jurisdiction
over any Selling Stockholder or any of their properties or (B)
any agreement or instrument to which any Selling Stockholder
is a party or by which any Selling Stockholder is bound or to
which any of the properties of any Selling Stockholder is
subject, which agreements or instruments have been identified
to such counsel by the Selling Stockholder as being material
to the Selling Stockholder, or (C) the charter or by-laws of
any Selling Stockholder which is a corporation; and

-12-
<PAGE> 13
(iv) The Power of Attorney and related Custody
Agreement and Escrow Agreements with respect to each Selling
Stockholder have been duly authorized, executed and delivered
by such Selling Stockholder and constitute valid and legally
binding obligations of each such Selling Stockholder
enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating
to or affecting creditors' rights and to general equity
principles; and

(v) This Agreement has been duly authorized,
executed and delivered by or on behalf of each Selling
Stockholder.

(g) The Representatives shall have received the opinion
contemplated in the Power of Attorney executed and delivered by RTC
Nominees A.G. and an opinion, dated such Closing Date, of
_____________________, counsel for RTC Nominees A.G., as to each of
the matters set forth in clauses (i) through (v) of paragraph (f)
above.

(h) The Representatives shall have received from
Fulbright & Jaworski L.L.P., counsel for the Underwriters, such
opinion or opinions, dated such Closing Date, the validity of the
Offered Securities delivered on such Closing Date, the Registration
Statements, the Prospectus and other related matters as the
Representatives may require, and the Selling Stockholders and the
Company shall have furnished to such counsel such documents as they
request for the purpose of enabling them to pass upon such matters.

(i) The Representatives shall have received a
certificate, dated such Closing Date, of the President or any Vice
President and a principal financial or accounting officer of the
Company in which such officers, to the best of their knowledge after
reasonable investigation, shall state that: the representations and
warranties of the Company in this Agreement are true and correct; the
Company has complied with all agreements and satisfied all conditions
on its part to be performed or satisfied hereunder at or prior to such
Closing Date; no stop order suspending the effectiveness of any
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are contemplated by the Commission;
the Additional Registration Statement (if any) satisfying the
requirements of subparagraphs (1) and (3) or Rule 462(b) was filed
pursuant to Rule 462(b), including payment of the applicable filing
fee in accordance with Rule 111(a) or (b) under the Act, prior to the
time the Prospectus was printed and distributed to any underwriter;
and, subsequent to the respective dates of the most recent financial
statements in the Prospectus, there has been no material adverse
change, nor any development or event involving a prospective material
adverse change, in the condition (financial or other), business,
properties or results of operations of the Company and its
subsidiaries taken as a whole except as set forth in or contemplated
by the Prospectus or as described in such certificate.

(j) The Representatives shall have received a letter,
dated such Closing Date, of Deloitte & Touche LLP which meets the
requirements of subsection (a) of this Section, except that the
specified date referred to in such subsection will be a date not more
than three business days prior to such Closing Date for the purposes
of this subsection.

The Selling Stockholders and the Company will furnish the Representatives with
such conformed copies of such opinions, certificates, letters and documents as
the Representatives reasonably requests. CSFBC may in its sole discretion
waive on behalf of the Underwriters compliance with any conditions to the
obligations of the Underwriters hereunder, whether in respect of an Optional
Closing Date or otherwise.

7. Indemnification and Contribution. (a) The Company will
indemnify and hold harmless each Underwriter against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and will reimburse

-13-
<PAGE> 14
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only such information furnished by any Underwriter consists of the
information described as such in subsection (c) below.

(b) The Selling Stockholders will severally and not jointly
indemnify and hold harmless each Underwriter against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter for any legal or other expenses
reasonably incurred by such Underwriter in connection with investigating or
defending any such loss, claim, damage, liability or action as such expenses
are incurred; provided, however, that the Selling Stockholders will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement in or omission or alleged omission from any of such documents in
reliance upon and in conformity with written information furnished to the
Company by an Underwriter through the Representatives specifically for use
therein, it being understood and agreed that the only such information
furnished by any Underwriter consists of the information described as such in
subsection (c) below; provided, further, that a Selling Stockholder shall only
be subject to such liability to the extent that the untrue statement or alleged
untrue statement or omission or alleged omission is based upon information
provided by such Selling Stockholder or contained in a representation or
warranty given by such Selling Stockholder in this Agreement or the Custody
Agreement or the Escrow Agreement and provided, further, that the liability
under this subsection of each Selling Stockholder shall be limited to an amount
equal to the aggregate gross proceeds to such Selling Stockholder from the sale
of Securities sold by such Selling Stockholder hereunder.

(c) Each Underwriter will severally and not jointly indemnify and
hold harmless the Company and each Selling Stockholder against any losses,
claims, damages or liabilities to which the Company or such Selling Stockholder
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement, the Prospectus, or any amendment
or supplement thereto, or any related preliminary prospectus, or arise out of
or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through the Representatives
specifically for use therein, and will reimburse any legal or other expenses
reasonably incurred by the Company and each Selling Stockholder in connection
with investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred, it being understood and agreed that the
only such information furnished by any Underwriter consists of the following
information in the Prospectus furnished on behalf of each Underwriter: the last
paragraph at the bottom of the cover page concerning the terms of the offering
by the Underwriters, the legend concerning over-allotments, stabilizing and
passive market making on the inside front cover page, the concession and
reallowance figures appearing in the fourth paragraph under the caption
"Underwriting" and the information contained in the first and fifth paragraphs
under the caption "Underwriting".

(d) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party
under subsection (a), (b) or (c) above, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under subsection (a), (b) or (c) above. In case any such action
is brought against any indemnified

-14-
<PAGE> 15
party and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, with counsel satisfactory to such indemnified
party (who shall not, except with the consent of the indemnified party, be
counsel to the indemnifying party), and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened action in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement includes an unconditional release of
such indemnified party from all liability on any claims that are the subject
matter of such action.

(e) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above, then each indemnifying party shall contribute
to the amount paid or payable by such indemnified party as a result of the
losses, claims, damages or liabilities referred to in subsection (a), (b) or
(c) above (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other from the offering of the Securities or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company and the Selling Stockholders on the one hand and the Underwriters on
the other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Selling Stockholders bear to the
total underwriting discounts and commissions received by the Underwriters. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company, the Selling Stockholders or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid by an indemnified
party as a result of the losses, claims, damages or liabilities referred to in
the first sentence of this subsection (e) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any action or claim which is the subject of
this subsection (e). Notwithstanding the provisions of this subsection (e), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (e) to contribute are several in proportion to their respective
underwriting obligations and not joint.

(f) The obligations of the Company and the Selling Stockholders
under this Section shall be in addition to any liability which the Company and
the Selling Stockholders may otherwise have and shall extend, upon the same
terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each director of the Company, to each officer of the Company who
has signed a Registration Statement and to each person, if any, who controls
the Company within the meaning of the Act.

8. Default of Underwriters. If any Underwriter or Underwriters
default in their obligations to purchase Offered Securities hereunder on either
the First or any Optional Closing Date and the aggregate number of shares of
Offered Securities that such defaulting Underwriter or Underwriters agreed but
failed to purchase does not exceed 10% of the total number of shares of Offered
Securities that the Underwriters are obligated to purchase on such Closing
Date, CSFBC may make arrangements satisfactory to the Selling Stockholders for
the purchase of such Offered Securities by other persons, including any of the
Underwriters, but if no such arrangements are made

-15-
<PAGE> 16
by such Closing Date, the non-defaulting Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the Offered Securities that such defaulting Underwriters agreed but failed to
purchase on such Closing Date. If any Underwriter or Underwriters so default
and the aggregate number of shares of Offered Securities with respect to which
such default or defaults occur exceeds 10% of the total number of shares of
Offered Securities that the Underwriters are obligated to purchase on such
Closing Date and arrangements satisfactory to CSFBC and the Selling
Stockholders for the purchase of such Offered Securities by other persons are
not made within 36 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Underwriter, the Company or
the Selling Stockholders, except as provided in Section 9 (provided that if
such default occurs with respect to Optional Securities after the First Closing
Date, this Agreement will not terminate as to the Firm Securities or any
Optional Securities purchased prior to such termination). As used in this
Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.

9. Survival of Certain Representations and Obligations. The
respective indemnities, agreements, representations, warranties and other
statements of the Selling Stockholders, of the Company or its officers and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation, or statement
as to the results thereof, made by or on behalf of any Underwriter, any Selling
Stockholder, the Company or any of their respective representatives, officers
or directors or any controlling person, and will survive delivery of and
payment for the Offered Securities. If this Agreement is terminated pursuant to
Section 8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Selling Stockholders shall remain
responsible for the expenses to be paid or reimbursed by them pursuant to
Section 5 and the respective obligations of the Company, the Selling
Stockholders, and the Underwriters pursuant to Section 7 shall remain in
effect, and if any Offered Securities have been purchased hereunder the
representations and warranties in Section 2 and all obligations under Section 5
shall also remain in effect. If the purchase of the Offered Securities by the
Underwriters is not consummated for any reason other than solely because of the
termination of this Agreement pursuant to Section 8 or the occurrence of any
event specified in clause (iii), (iv) or (v) of Section 6(c), the Selling
Stockholders will jointly and severally, reimburse the Underwriters for all
out-of-pocket expenses (including fees and disbursements of counsel) reasonably
incurred by them in connection with the offering of the Offered Securities.

10. Notices. All communications hereunder will be in writing and,
if sent to the Underwriters, will be mailed, delivered or telegraphed and
confirmed to the Representatives, c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue, New York, NY 10010-3629, Attention: Investment Banking
Department--Transactions Advisory Group, or, if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at ShowBiz Pizza Time,
Inc., 4441 West Airport Freeway, Irving, Texas 75062, Attention: Richard M.
Frank, or, if sent to the Selling Stockholders or any of them, will be mailed,
delivered or telegraphed and confirmed to Melvin J. Melle or Anthony J.
Gumbiner at 3710 Rawlins, Suite 1500, Dallas, Texas 75219-4236; provided,
however, that any notice to an Underwriter pursuant to Section 7 will be
mailed, delivered or telegraphed and confirmed to such Underwriter.

11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective personal representatives
and successors and the officers and directors and controlling persons referred
to in Section 7, and no other person will have any right or obligation
hereunder.

12. Representation. The Representatives will act for the several
Underwriters in connection with the transactions contemplated by this
Agreement, and any action under this Agreement taken by the Representatives
jointly or by CSFBC will be binding upon all the Underwriters. Melvin J.
Melle and Anthony J. Gumbiner, or either of them, will act for the Selling
Stockholders in connection with such transactions, and any action under or in
respect of this Agreement taken by Melvin J. Melle and Anthony J. Gumbiner, or
either of them, will be binding upon all the Selling Stockholders.

13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.

-16-
<PAGE> 17
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.

The Company hereby submits to the non-exclusive jurisdiction of the
federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.

If the foregoing is in accordance with the Representatives'
understanding of our agreement, kindly sign and return to the Company one of
the counterparts hereof, whereupon it will become a binding agreement among the
Selling Stockholders, the Company and the several Underwriters in accordance
with its terms.

Very truly yours,

Selling Stockholders

By:
-------------------------------------
Attorney-in-Fact

ShowBiz Pizza Time, Inc.

By:
-------------------------------------
President

The foregoing Underwriting Agreement
is hereby confirmed and accepted as of
the date first above written.

Credit Suisse First Boston Corporation
Principal Financial Securities, Inc.

By Credit Suisse First Boston Corporation

By:
----------------------------------------
Title:
-------------------------------------

Acknowledged, agreed to and accepted as
of the date first written above for purposes
of Sections 2(b) and 12 and Schedule A of
this Underwriting Agreement

Alpha Trust
Epsilon Trust

By Radcliffes Trustee Company SA, as trustee

By:
----------------------------------------
Title:
-------------------------------------

-17-
<PAGE> 18
SCHEDULE A

<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF OPTIONAL
FIRM SECURITIES SECURITIES
SELLING STOCKHOLDER TO BE SOLD TO BE SOLD
- ------------------- ---------------- ------------
<S> <C> <C>
The Hallwood Group Incorporated(1) . . . . . . . . . . 2,305,371 327,612
RTC Nominees A.G., as nominee for Alpha Trust(2) . . . 536,778 76,280
RTC Nominees A.G., as nominee for Epsilon Trust(2) . . 357,851 50,854

Total . . . . . . . . . . . . . . . . . . . . . . . 3,200,000 454,746
</TABLE>

- --------------------------

(1) 344,828 of such shares are pledged to The Integra Unsecured Creditors'
Trust and 1,896,547 of such shares are pledged to Merrill Lynch. Such
encumbrances will be released contemporaneously with the closing of
the purchase and sale of the Firm Securities.

(2) An aggregate of 200,144 of such shares are pledged to IBJ Schroder.
Such encumbrance will be released contemporaneously with the closing
of the purchase and sale of the Firm Securities.

-18-
<PAGE> 19

SCHEDULE B

<TABLE>
<CAPTION>
NUMBER OF
FIRM SECURITIES
UNDERWRITER TO BE PURCHASED
----------- ---------------
<S> <C>
Credit Suisse First Boston Corporation
Principal Financial Securities, Inc.

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,200,000
</TABLE>

-19-

<PAGE> 1

EXHIBIT 5.1

[WINSTEAD SECHREST & MINICK LETTERHEAD]

March 20, 1997

ShowBiz Pizza Time, Inc.
4441 W. Airport Freeway
Irving, Texas 75062

Gentlemen:

We refer to the Registration Statement on Form S-3 (File No. 333-22229)
filed by ShowBiz Pizza Time, Inc., a Kansas corporation (the "Company"), with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Securities Act"), on February 24, 1997 and
Amendment No. 1 thereto filed with the Commission on March 20, 1997 (such
Registration Statement, as so amended, being hereinafter referred to as the
"Registration Statement"), for the purpose of registering under the Securities
Act an aggregate of 3,654,746 shares of common stock, $.10 par value per share
(the "Common Stock") (including 454,746 shares of Common Stock issuable upon the
exercise of the underwriters' over-allotment option) (collectively, the
"Securities") in connection with the public offering and sale of such Securities
by the Selling Stockholders identified as such in the Registration Statement.

This opinion is delivered in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the Securities Act.

We have examined and are familiar with originals or copies, certified or
otherwise identified to our satisfaction, of (i) the Registration Statement,
(ii) the Amended and Restated Articles of Incorporation of the Company as
currently in effect, (iii) the Restated Bylaws of the Company, as amended to
date, (iv) the Underwriting Agreement by and among the Company, Credit Suisse
First Boston Corporation and Principal Financial Securities, Inc., as
representatives of the several underwriters, and the Selling Stockholders listed
in Schedule A thereto, relating to the public offering and sale of the
Securities, in the form such agreement was filed as an exhibit to the
Registration Statement, and (v) resolutions of the Board of Directors of the
Company relating to the registration of the Securities and the filing of the
Registration Statement. We have also examined such other documents and
instruments as we have deemed relevant for the purposes of this opinion.

Based upon and subject to the foregoing and in reliance thereon, we are of
the opinion that the Securities are validly issued, fully paid and
nonassessable.

We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
our firm under the heading "Legal Matters" in the Registration Statement. In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act.

Yours very truly,

WINSTEAD SECHREST & MINICK P.C.

By: /s/ DARREL A. RICE
----------------------------------

Darrel A. Rice

<PAGE> 1

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation in this Amendment No. 1 to Form S-3
Registration Statement (No. 333-22229) of ShowBiz Pizza Time, Inc. of our report
dated February 21, 1997 (which expresses an unqualified opinion and includes an
explanatory paragraph related to the change in the method of accounting for
preopening expenses in 1994) on the consolidated financial statements, and of
our report dated February 21, 1997, on financial statement schedule, both
included in the Annual Report on Form 10-K of ShowBiz Pizza Time, Inc. for the
year ended December 27, 1996 and in this Registration Statement. We also consent
to the reference to our firm under the headings "Selected Financial Data" and
"Experts" in the Prospectus, which is part of this Registration Statement.

DELOITTE & TOUCHE LLP

Dallas, Texas

March 18, 1997