SHOWBIZ PIZZA TIME INC, S-3, 1997-02-24

SHOWBIZ PIZZA TIME INC
S-3, 1997-02-24
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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 24, 1997
REGISTRATION NO. 333-
================================================================================

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

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. [ ]
CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
=================================================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.10 par
value...................... 3,654,746 shares $24.50 $89,541,277 $27,134
=================================================================================================================
</TABLE>

(1) Includes 454,746 shares that the Underwriters have the option to purchase
from the Selling Stockholders to cover over-allotments, if any.

(2) Estimated, pursuant to Rule 457(c), solely for the purpose of calculating
the registration fee on the basis of the average high and low sale price
reported for the Common Stock on the Nasdaq National Market.

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

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY
NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION UNDER
THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED FEBRUARY 24, 1997

[SHOWBIZ PIZZA 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 February 21,
1997, the last reported sale price of the Common Stock
on the NNM was $22.50 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 7.

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 , 1997 against payment in immediately
available funds.

CREDIT SUISSE FIRST BOSTON PRINCIPAL FINANCIAL SECURITIES, INC.

Prospectus dated , 1997
<PAGE> 3

<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>

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

<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>

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

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET - NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND THEIR RESPECTIVE
AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
ON THE NASDAQ STOCK MARKET - NATIONAL MARKET IN ACCORDANCE WITH RULE 10b-6A
UNDER THE SECURITIES EXCHANGE ACT OF 1934 (THE "EXCHANGE ACT"). SEE
"UNDERWRITING."

DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN THE COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES 10b-6
AND 10b-7 UNDER THE EXCHANGE ACT.

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.................... 18,504,916 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 1,004,836 shares of Common Stock issuable upon exercise of options
outstanding at December 27, 1996.

SUMMARY FINANCIAL AND OPERATING DATA

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
------------------------------------------ -----------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 29, SEPTEMBER 29, SEPTEMBER 27,
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................ $272,344 $268,515 $263,783 $202,370 $223,077
Costs and expenses.............. 254,097 265,402 263,408 199,780 204,473
Income before income taxes...... 18,247 3,113 375 2,590 18,604
Income taxes.................... 6,356 2,437 312 1,144 7,627
Net income...................... 11,891 676 63 1,446 10,977
Net income (loss) per
share(1)...................... .57 .02 (.02) .07 .58
OTHER DATA:
EBITDA(2)....................... $ 42,431 $ 27,721 $ 25,941 $ 20,812 $ 38,895
Capital expenditures............ 44,600 29,421 28,277 19,273 38,650
BALANCE SHEET DATA (AT PERIOD
END):
Total assets.................... $193,649 $188,308 $199,010 $192,130 $212,341
Long-term obligations(3)........ 29,816 33,223 39,244 34,493 35,772
Stockholders' equity............ 136,647 125,515 126,487 127,536 138,257
STORE DATA:
Stores open at period end:
Company-operated(4)........... 215 226 226 227 244
Franchised.................... 110 106 93 96 69
-------- -------- -------- -------- --------
Total.................... 325 332 319 323 313
Comparable store sales increase
(decrease)(5)................. (5.3)% (5.8)% (1.4)% (2.5)% 9.7%
</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.

For the fiscal year ended December 27, 1996, revenues were $294.0 million,
an increase of 11.5% from revenues of $263.8 million for the fiscal year ended
December 29, 1995. This increase was primarily due to an increase of 9.8% in
comparable store sales for 1996. In addition, the Company purchased 19
restaurants from its largest franchisee in September 1996. Average annual sales
per restaurant were $1.3 million in 1996, an increase of 9.2% from $1.2 million
in 1995. Management believes that several factors contributed to the comparable
store sales increase with the primary factor being sales increases at
repositioned stores. Revenues from franchise fees and royalties were $3.7
million in 1996, an increase of 6.1% from 1995, primarily due to an increase of
3.6% in comparable franchise store sales for 1996. The increase in comparable
franchise store sales was offset by a decline in the number of franchised
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 decreased as a percentage of revenues 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 from 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 expenses 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 for 1996. Debt increased as a result of capital expenditures in
connection with the repositioning of 126 and 87 restaurants in 1996 and 1995,
respectively. 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 partially offset by a net 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 material portion of operating costs are fixed.

Income before income taxes increased to $22.2 million in 1996 from $375,000
in 1995. A material portion of operating costs are fixed resulting in an
improvement of operating margins at higher sales levels. 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.

5
<PAGE> 7

Consolidated Results of Operations. The following table sets forth certain
consolidated financial information for the Company for the fourth quarters and
the fiscal years ended December 29, 1995 and December 27, 1996:

<TABLE>
<CAPTION>
FOURTH QUARTER ENDED YEAR ENDED
---------------------------- ----------------------------
DECEMBER 29, DECEMBER 27, DECEMBER 29, DECEMBER 27,
1995 1996 1995 1996
------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Food and beverage revenue.............. $43,473 $49,640 $182,376 $202,624
Games and merchandise revenue.......... 16,841 20,286 76,969 86,444
Franchise fees and royalties........... 860 730 3,464 3,675
Joint venture income................... 21 49 102 196
Interest income........................ 218 208 872 1,051
------- ------- -------- --------
61,413 70,913 263,783 293,990
------- ------- -------- --------
Costs and expenses:
Cost of sales.......................... 31,622 35,091 136,700 143,381
Selling, general and administrative.... 10,819 10,552 44,794 43,534
Depreciation and amortization.......... 6,649 6,751 23,184 25,057
Interest expense....................... 879 841 3,118 3,476
Loss on property transactions.......... 34 70 136 263
Other operating expenses............... 13,625 13,991 55,476 56,058
------- ------- -------- --------
63,628 67,296 263,408 271,769
------- ------- -------- --------
Income (loss) before income taxes........ (2,215) 3,617 375 22,221
Income taxes:
Current expense (benefit).............. (179) 452 701 2,855
Deferred expense (benefit)............. (653) 921 (389) 6,145
------- ------- -------- --------
(832) 1,373 312 9,000
------- ------- -------- --------
Net income (loss)........................ $(1,383) $ 2,244 $ 63 $ 13,221
======= ======= ======== ========
Earnings (loss) per common and common
equivalent share:
Primary:
Net income (loss)................... $ (.08) $ .12 $ (.02) $ .70
======= ======= ======== ========
Weighted average shares
outstanding....................... 18,111 18,580 18,098 18,477
======= ======= ======== ========
Fully-diluted:
Net income (loss)................... $ (.08) $ .12 $ (.02) $ .70
======= ======= ======== ========
Weighted average shares
outstanding....................... 18,111 18,589 18,098 18,532
======= ======= ======== ========
</TABLE>

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.

6
<PAGE> 8

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.

7
<PAGE> 9

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.

8
<PAGE> 10

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 September 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>
SEPTEMBER 27,
1996
-------------
(IN THOUSANDS)
<S> <C>
Current portion of long-term debt........................... $ 945
Long-term debt and other obligations, noncurrent............ 32,745
--------
Total debt................................................ 33,690
--------
Class A redeemable preferred stock, par value $60.00 per
share; authorized -- 49,570 shares; issued -- 49,570
shares.................................................... 2,082
--------
Stockholders' equity:
Common stock, par value $.10 per share;
authorized -- 50,000,000 shares; issued -- 21,470,881
shares(1).............................................. 2,147
Additional paid-in capital................................ 153,194
Retained earnings......................................... 15,455
Deferred compensation..................................... (2,276)
Less 3,109,176 common shares in treasury.................. (30,263)
--------
Total stockholders' equity............................. 138,257
--------
Total capitalization................................. $174,029
========
</TABLE>

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

(1) Excludes options outstanding as of September 27, 1996 to purchase 1,055,107
shares of Common Stock.

9
<PAGE> 11

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............................................. $ 7 3/16 $ 4 7/8
Second Quarter............................................ 8 3/16 5 13/16
Third Quarter............................................. 9 1/16 7 5/16
Fourth Quarter............................................ 8 15/16 7 1/4
1996
First Quarter............................................. $ 12 13/16 $ 8
Second Quarter............................................ 17 5/8 12 1/2
Third Quarter............................................. 19 1/4 12
Fourth Quarter............................................ 20 14
1997
First Quarter (through February 21, 1997)................. $ 25 $ 16 3/4
</TABLE>

On December 27, 1996, there were 4,244 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 28, 1997.

10
<PAGE> 12

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 29, 1995 is derived
from the consolidated financial statements, which have been audited by Deloitte
& Touche LLP, independent auditors.

The information presented below, except store data, for the nine month
periods ended September 29, 1995 and September 27, 1996 and at September 29,
1995 and September 27, 1996 is derived from the unaudited Consolidated Financial
Statements. The unaudited Consolidated Financial Statements at September 29,
1995 and September 27, 1996 and for the nine month periods ended September 29,
1995 and September 27, 1996 are included elsewhere in this Prospectus. In the
opinion of management, the information at September 29, 1995 and September 27,
1996 and for the nine month periods ended September 29, 1995 and September 27,
1996 includes all material adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the financial position and
results of operations for such periods. The results of operations for any
interim period are not necessarily indicative of the results of operations for a
full year.

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 30, 1994 and
December 29, 1995 and for each of the years in the three year period ended
December 29, 1995 and the related notes and Independent Auditors' Report (which
notes a 1994 change in accounting for pre-opening costs), and the unaudited
Consolidated Financial Statements at September 29, 1995 and September 27, 1996
and for the nine month periods ended September 29, 1995 and September 27, 1996
and the related notes, which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------
DECEMBER 27, JANUARY 1, DECEMBER 31, DECEMBER 30,
1991 1993 1993 1994
------------ ---------- ------------ ------------
(IN THOUSANDS, EXCEPT STORE DATA AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................... $208,389 $253,444 $272,344 $268,515
Costs and expenses:
Cost of sales.................. 103,154 125,279 137,343 137,729
Selling, general and
administrative expenses...... 32,923 39,733 42,129 47,263
Depreciation and
amortization................. 16,143 19,249 23,058 26,032
Interest expense............... 2,161 1,508 797 1,861
(Gain) loss on property
transactions................. 298 654 675 (2,597)
Other operating expenses(1).... 34,777 41,771 50,095 55,114
-------- -------- -------- --------
Total costs and expenses... 189,456 228,194 254,097 265,402
-------- -------- -------- --------
Income before income taxes....... 18,933 25,250 18,247 3,113
Income taxes..................... 7,335 9,747 6,356 2,437
-------- -------- -------- --------
Net income....................... 11,598 15,503 11,891 676
======== ======== ======== ========
Earnings (loss) per common and
common equivalent share(2)..... $ .55 $ .74 $ .57 $ .02
Weighted average shares
outstanding.................... 20,592 20,570 20,196 18,191
OTHER DATA:
Cash flow from operations........ $ 36,097 $ 44,246 $ 44,905 $ 30,819
Cash flow from investing......... (29,104) (35,872) (45,909) (22,576)
Cash flow from financing......... (6,303) (7,631) 2,053 (10,373)
EBITDA(3)........................ 37,264 46,341 42,431 27,721
Capital expenditures............. 25,088 33,903 44,600 29,421
BALANCE SHEET DATA (AT PERIOD END):
Total assets..................... $158,563 $173,217 $193,649 $188,308
Long-term obligations(4)......... 21,360 17,743 29,816 33,223
Stockholders' equity............. 115,500 132,167 136,647 125,515
STORE DATA:
Stores open at period end:
Company-operated(5)............ 159 182 215 226
Franchised..................... 113 113 110 106
-------- -------- -------- --------
Total...................... 272 295 325 332
Comparable store sales increase
(decrease)(6).................. 2.2% 3.2% (5.3)% (5.8)%
Company-operated stores remodeled
during period.................. 41 25 25 10

<CAPTION>
YEAR ENDED NINE MONTHS ENDED
------------ -----------------------------
DECEMBER 29, SEPTEMBER 29, SEPTEMBER 27,
1995 1995 1996
------------ ------------- -------------
(IN THOUSANDS, EXCEPT STORE DATA AND PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................... $263,783 $202,370 $223,077
Costs and expenses:
Cost of sales.................. 136,700 105,078 108,290
Selling, general and
administrative expenses...... 44,794 33,975 32,982
Depreciation and
amortization................. 23,184 16,535 18,306
Interest expense............... 3,118 2,239 2,635
(Gain) loss on property
transactions................. 136 102 193
Other operating expenses(1).... 55,476 41,851 42,067
-------- -------- --------
Total costs and expenses... 263,408 199,780 204,473
-------- -------- --------
Income before income taxes....... 375 2,590 18,604
Income taxes..................... 312 1,144 7,627
-------- -------- --------
Net income....................... 63 1,446 10,977
======== ======== ========
Earnings (loss) per common and
common equivalent share(2)..... $ (.02) $ .07 $ .58
Weighted average shares
outstanding.................... 18,098 18,177 18,565
OTHER DATA:
Cash flow from operations........ $ 27,810 $ 20,237 $ 40,283
Cash flow from investing......... (30,548) (20,348) (38,603)
Cash flow from financing......... 5,946 1,096 (3,471)
EBITDA(3)........................ 25,941 20,812 38,895
Capital expenditures............. 28,277 19,273 38,650
BALANCE SHEET DATA (AT PERIOD END):
Total assets..................... $199,010 $192,130 $212,341
Long-term obligations(4)......... 39,244 34,493 35,772
Stockholders' equity............. 126,487 127,536 138,257
STORE DATA:
Stores open at period end:
Company-operated(5)............ 226 227 244
Franchised..................... 93 96 69
-------- -------- --------
Total...................... 319 323 313
Comparable store sales increase
(decrease)(6).................. (1.4)% (2.5)% 9.7%
Company-operated stores remodeled
during period.................. 87 55 91
</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.

11
<PAGE> 13

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 28 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

[BAR GRAPH DEPICTING THE FOLLOWING PERCENTAGE CHANGES IN COMPARABLE STORE
SALES FOR THE COMPANY'S RESTAURANTS FOR THE EIGHT QUARTERS IN THE TWO FISCAL
YEARS ENDED DECEMBER 27, 1996: 1ST Q '95 - (3.2)%; 2ND Q '95 - (2.4)%; 3RD Q
'95 - (1.9)%; 4TH Q '95 - 2.3%; 1ST Q '96 - 7.7%; 2ND Q '96 - 11.8%; 3RD Q '96
- - 10.5%; 4TH Q '96 - 9.9%.]

REMODELED RESTAURANTS AS A PERCENTAGE
OF TOTAL COMPANY-OPERATED RESTAURANTS

[BAR GRAPH DEPICTING THE FOLLOWING PERCENTAGES OF COMPANY-OPERATED RESTAURANTS
THAT WERE REMODELED BY THE END OF EACH QUARTER IN THE TWO FISCAL YEARS ENDED
DECMEBER 27, 1996: 1ST Q '95 - 9.3%; 2ND Q '95 - 21.1%; 3RD Q '95 - 28.6%; 4TH
Q '95 - 42.9%; 1ST Q '96 - 53.1%; 2ND Q '96 - 68.9%; 3RD Q '96 - 77.0%; 4TH Q
'96 - 91.4%.]

12
<PAGE> 14

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage
of revenues that certain items in the statement of operations 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.

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

NINE MONTH PERIOD ENDED SEPTEMBER 27, 1996 AS COMPARED TO NINE MONTH PERIOD
ENDED
SEPTEMBER 29, 1995

Revenues increased by 10.2% to $223.1 million for the nine month period
ended September 27, 1996 (the "1996 Period") from $202.4 million for the nine
month period ended September 29, 1995 (the "1995 Period") primarily due to an
increase of 9.7% in comparable store sales for the 1996 Period. In addition, the
Company purchased 19 Chuck E. Cheese's restaurants from its largest franchisee
in September 1996. Management believes that several factors contributed to the
comparable store sales increase with the primary factor being sales increases at
remodeled stores. Menu prices increased by approximately 3.0% between the
periods.

Cost of sales as a percentage of revenues decreased to 48.5% in the 1996
Period from 51.9% in the 1995 Period. Cheese costs increased by approximately
18% in the 1996 Period compared to the 1995 Period. Despite such increase, cost
of food, beverage, prize and merchandise items as a percentage of restaurant
sales decreased to 17.6% in the 1996 Period from 18.0% in the 1995 Period
primarily due to the increase in menu prices. Restaurant labor expenses as a
percentage of restaurant sales decreased to 28.3% during the 1996 Period from
30.8% in the 1995 Period 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
declined to 14.8% in the 1996 Period from 16.7% in the 1995 Period primarily due
to comparable store sales increases and a reduction in advertising costs. Due to
improvements in advertising strategy, the Company decreased advertising costs
while increasing media coverage, the number of commercials run and newspaper
advertising.

Depreciation and amortization expenses as a percentage of revenues remained
constant at 8.2% in the 1996 Period and the 1995 Period.

Interest expense increased to approximately $2.6 million in the 1996 Period
from $2.2 million in the 1995 Period primarily due to increased borrowing since
the third quarter of 1995 in connection with the remodeling and repositioning
program.

The Company had a net loss on property transactions of $193,000 in the 1996
Period and $102,000 in the 1995 Period due to the replacement of assets arising
from the enhancement of facilities and entertainment

13
<PAGE> 15

packages of restaurants. The loss in 1995 was partially offset by a net gain of
$100,000 from the sale of certain assets which had been held for resale.

Other operating expenses as a percentage of revenues decreased to 18.9% in
the 1996 Period from 20.7% in the 1995 Period primarily due to a decrease in
insurance costs, an increase in comparable store sales and the fact that a
significant portion of operating costs are fixed.

The Company had net income of $11.0 million in the 1996 Period compared to
$1.4 million in the 1995 Period due to the changes in revenues and expenses
discussed above. The Company's primary and fully diluted earnings per share was
$.58 per share in the 1996 Period compared to $.07 per share in the 1995 Period.

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.

1994 COMPARED TO 1993

Revenues declined 1.4% to $268.5 million in 1994 from $272.3 million in
1993 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.

14
<PAGE> 16

Cheese's restaurants increased to $262.0 million in 1994 from $253.3 million in
1993 due to the net addition of 11 Company restaurants in 1994 and 33 Company
restaurants in 1993. Comparable store sales declined 5.8% from 1993 to 1994
primarily due to increased competition and to a lesser extent a decrease in the
number of restaurants remodeled since 1992 and the impact of newly opened
restaurants on comparable store sales of existing restaurants in certain
markets. Revenues from the Company's Monterey's Tex-Mex Cafe restaurants
declined to $6.5 million in 1994 from $19.0 million in 1993 due to the sale of
the Monterey's restaurants mentioned above.

Cost of sales as a percentage of revenues increased to 51.3% in 1994 from
50.4% in 1993. Cost of food, beverage, prize and merchandise items for Chuck E.
Cheese's restaurants as a percentage of restaurant sales increased to 18.2% in
1994 from 18.0% in 1993 primarily due to increases in cheese costs and in costs
relating to the enhancement of certain prize and merchandise items. Labor
expenses for Chuck E. Cheese's restaurants as a percentage of restaurant sales
increased to 30.0% in 1994 from 29.0% in 1993 primarily due to the decline in
comparable store sales and enhancements in services provided to guests,
including child security.

Selling, general and administrative expenses as a percentage of revenues
increased to 17.6% in 1994 from 15.5% in 1993 due primarily to increased
advertising expense as a percentage of revenues.

Interest expense increased to $1.9 million in 1994 from $797,000 in 1993
due primarily to an increase in long-term debt of $18.5 million since the third
quarter of 1993 primarily to fund the Company's repurchase of its common stock
and an increase in interest rates.

In 1994, the Company established an allowance of approximately $1.1 million
related to deferred tax credit carryforwards which are estimated to expire in
1997. Income tax expense was increased by approximately $1.1 million as a result
of this allowance. The Company's net income decreased to $676,000 in 1994 from
$11.9 million in 1993 due to the changes in revenues and expenses discussed
above.

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 $40.3 million in the nine month
period ended September 27, 1996 (the "1996 Period") compared to $20.2 million in
the nine month period ended September 29, 1995 (the "1995 Period"). Cash
outflows from investing and financing activities for the 1996 Period were $38.6
million and $3.5 million, respectively. 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 the 1996 Period, 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

15
<PAGE> 17

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 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 $50 million in net operating loss carryforwards
to reduce its federal income tax liability. Such net operating loss
carryforwards expire from 1999 through 2002. 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 2008. 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 ending December 29, 1995 was approximately $48 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 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.

16
<PAGE> 18

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;

17
<PAGE> 19

- 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

18
<PAGE> 20

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

19
<PAGE> 21

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 derives approximately 15% of
its revenues from birthday parties.

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.

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<PAGE> 22

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.

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.

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<PAGE> 23

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. 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,
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 40
franchisees, the two largest being Family Entertainment Center with seven stores
and Mid-South Food Management, Inc. with five 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.

22
<PAGE> 24

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
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.

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<PAGE> 25

TRADEMARKS

The Company owns various trademarks, including "Chuck E. Cheese" and
"ShowBiz Pizza," 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.

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> 26

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

25
<PAGE> 27

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 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> 28

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 IBC International Business Consultant
Ltd.
80 Broad Street
Monrovia, Liberia
</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 prior to closing.

(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
prior to closing.

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, including fees and expenses of the underwriters and their legal
counsel, other than legal and accounting fees incurred by the Company and the
Company's out-of-pocket expenses.

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<PAGE> 29

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 1,430,441 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> 30

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-

29
<PAGE> 31

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> 32

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

31
<PAGE> 33

property 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.

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<PAGE> 34

UNDERWRITING

Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 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."

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<PAGE> 35

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.

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 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.

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<PAGE> 36

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 30,
1994 and December 29, 1995 and for each of the three years in the period ended
December 29, 1995, included in this Prospectus and incorporated by reference
herein, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports which are included and incorporated by reference herein,
and have been included and incorporated herein in reliance upon the report of
such firm as given upon their 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 for the fiscal year ended
December 29, 1995, as amended by Form 10-K/A filed with the Commission on
February 21, 1997;

(b) The Company's quarterly reports on Form 10-Q for the fiscal
quarters ended March 29, 1996, June 28, 1996 and September 27, 1996;

(d) 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
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.

35
<PAGE> 37

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.

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<PAGE> 38

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets at December 30, 1994 and
December 29, 1995......................................... F-3
Consolidated Statements of Earnings for the years ended
December 31, 1993, December 30, 1994 and December 29,
1995...................................................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1993, December 30, 1994 and
December 29, 1995......................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1993, December 30, 1994 and December 29,
1995...................................................... F-6
Notes to Consolidated Financial Statements for the years
ended December 31, 1993, December 30, 1994 and December
29, 1995.................................................. F-7
Consolidated Balance Sheets at September 29, 1995 and
September 27, 1996 (unaudited)............................ F-18
Consolidated Statements of Earnings for the nine months
ended September 29, 1995 and September 27, 1996
(unaudited)............................................... F-19
Consolidated Statements of Shareholders' Equity for the nine
months ended September 27, 1996 (unaudited)............... F-20
Consolidated Statements of Cash Flows for the nine months
ended September 29, 1995 and September 27, 1996
(unaudited)............................................... F-21
Notes to Consolidated Financial Statements for the nine
months ended September 29, 1995 and September 27, 1996
(unaudited)............................................... F-22
</TABLE>

F-1
<PAGE> 39

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 29, 1995 and December 30, 1994
and the related consolidated statements of earnings, shareholders' equity, and
cash flows for each of the three years in the period ended December 29, 1995.
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 29, 1995 and December 30, 1994 and the results of
their operations and their cash flows for each of the three years in the period
ended December 29, 1995, 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 23, 1996
(May 22, 1996
as to the last paragraph
in Note 1)

F-2
<PAGE> 40

SHOWBIZ PIZZA TIME, INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 1994 AND DECEMBER 29, 1995
(THOUSANDS, EXCEPT SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 29,
1994 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,381 $ 5,589
Accounts receivable, including receivables from related
parties of $416 and $415, respectively................. 3,361 3,327
Current portion of notes receivable, including receivables
from related parties of $300 and $327, respectively.... 529 608
Inventories............................................... 3,107 3,589
Prepaid expenses.......................................... 2,900 2,781
Current portion of deferred tax asset..................... 3,583 4,147
-------- --------
Total current assets.............................. 15,861 20,041
-------- --------
Investments in related parties.............................. 699 761
-------- --------
Property and equipment...................................... 130,190 137,181
-------- --------
Deferred tax asset.......................................... 29,414 28,582
-------- --------
Other assets:
Notes receivable, less current portion, including
receivables from related parties of $1,708 and $1,983,
respectively........................................... 6,705 7,072
Deferred charges, less amortization....................... 2,083 2,599
Other..................................................... 3,356 2,774
-------- --------
12,144 12,445
-------- --------
$188,308 $199,010
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Current portion of long-term debt......................... $ 10,060 $ 95
Accounts payable and accrued liabilities.................. 26,545 29,836
-------- --------
Total current liabilities.............................. 36,605 29,931
-------- --------
Long-term debt, less current portion........................ 19,947 35,753
-------- --------
Deferred credits............................................ 3,025 3,443
-------- --------
Other liabilities........................................... 1,314 1,391
-------- --------

Commitments and contingencies

Redeemable preferred stock, $60 par value, redeemable for
$2,974 in 2005............................................ 1,902 2,005
-------- --------
Shareholders' equity:
Common stock, $.10 par value; authorized 30,000,000
shares; 21,505,853 and 21,435,092 shares issued,
respectively........................................... 2,151 2,144
Capital in excess of par value............................ 155,815 153,515
Retained earnings......................................... 5,012 4,733
Deferred compensation..................................... (7,200) (3,642)
Less treasury shares of 3,109,176 at both dates, at
cost................................................... (30,263) (30,263)
-------- --------
125,515 126,487
-------- --------
$188,308 $199,010
======== ========
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE> 41

SHOWBIZ PIZZA TIME, INC.

CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1993,
DECEMBER 30, 1994 AND DECEMBER 29, 1995
(THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Food and beverage revenues.................................. $197,090 $189,257 $182,376
Games and merchandise revenues.............................. 70,242 74,331 76,969
Franchise fees and royalties................................ 4,321 4,078 3,464
Interest income, including related party income of $177,
$209, and $222, respectively.............................. 346 688 872
Joint venture income........................................ 345 161 102
-------- -------- --------
272,344 268,515 263,783
-------- -------- --------
Costs and expenses:
Cost of sales............................................. 137,343 137,729 136,700
Selling, general and administrative expenses, including
related party expenses of $125 in each year............ 42,129 47,263 44,794
Depreciation and amortization............................. 23,058 26,032 23,184
Interest expense, including related party expense of $99
in 1993................................................ 797 1,861 3,118
(Gain) loss on property transactions...................... 675 (2,597) 136
Other operating expenses.................................. 50,095 55,114 55,476
-------- -------- --------
254,097 265,402 263,408
-------- -------- --------
Income before income taxes.................................. 18,247 3,113 375
Income taxes:
Current expense........................................... 1,751 869 701
Deferred (benefit) expense................................ 4,605 1,568 (389)
-------- -------- --------
6,356 2,437 312
-------- -------- --------
Net income.................................................. $ 11,891 $ 676 $ 63
======== ======== ========
Earnings per common and common equivalent share:
Primary:
Net income (loss)...................................... $ .57 $ .02 $ (.02)
======== ======== ========
Weighted average shares outstanding.................... 20,183 18,191 18,098
======== ======== ========
Fully diluted:
Net income (loss)...................................... $ .57 $ .02 $ (.02)
======== ======== ========
Weighted average shares outstanding.................... 20,196 18,191 18,098
======== ======== ========
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE> 42

SHOWBIZ PIZZA TIME, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993,
DECEMBER 30, 1994 AND DECEMBER 29, 1995
(THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
COMMON TREASURY
STOCK CAPITAL IN RETAINED DEFERRED STOCK
------------------- EXCESS OF EARNINGS COMPEN- ------------------
SHARES PAR VALUE PAR VALUE (DEFICIT) SATION SHARES COST
------ --------- ---------- --------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1993...................... 19,448 $1,946 $142,570 $(6,872) $ (666) 318 $ (4,811)
Net income................................... 11,891
Redeemable preferred stock accretion......... (104)
Redeemable preferred stock dividends, $4.80
per share.................................. (238)
Stock options exercised...................... 72 8 570
Warrants exercised........................... 1,282 127 1,393
Stock grant plan............................. 621 62 11,979 (12,000)
Tax expense from exercise of stock options
and stock grants........................... (37)
Treasury stock acquired...................... 1,251 (11,939)
Amortization of deferred compensation........ 2,732
Stock issued under 401(k) plan............... 2 36
------ ------ -------- ------- -------- ----- --------
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)
====== ====== ======== ======= ======== ===== ========
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE> 43

SHOWBIZ PIZZA TIME, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993,
DECEMBER 30, 1994 AND DECEMBER 29, 1995
(THOUSANDS)

<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income................................................ $ 11,891 $ 676 $ 63
Adjustments to reconcile net income to cash provided by
operations:
Depreciation and amortization.......................... 23,058 26,032 23,184
Deferred income tax expense (benefit).................. 4,605 1,568 (389)
(Gain) loss on property transactions................... 675 (2,597) 136
Compensation expense under stock grant plan............ 2,756 2,734 1,821
Other.................................................. 399 619 418
Net change in receivables, inventories, prepaids,
payables and accrued liabilities..................... 1,521 1,787 2,577
-------- -------- --------
Cash provided by operations.......................... 44,905 30,819 27,810
-------- -------- --------
Investing activities:
Purchases of property and equipment....................... (44,600) (29,421) (28,277)
Proceeds from disposition of property and equipment....... 250 6,725 20
Payments received on notes receivable..................... 978 2,992 2,503
Additions to notes receivable............................. (724) (2,169) (3,047)
Change in deferred charges, investments and other
assets................................................. (1,813) (703) (1,747)
-------- -------- --------
Cash used in investing activities...................... (45,909) (22,576) (30,548)
-------- -------- --------
Financing activities:
Proceeds from line of credit.............................. 24,050 8,535 38,895
Payments on line of credit................................ (10,550) (5,235) (32,995)
Reduction of debt and capital lease obligations, including
payments to related parties of $1,658 in 1993.......... (1,692) (47) (59)
Redeemable preferred stock dividends...................... (238) (238) (238)
Acquisition of treasury stock............................. (11,939) (13,513)
Exercise of stock options and warrants, including exercise
by a related party of $1,488 in 1993................... 2,098 240 90
Other..................................................... 324 (115) 253
-------- -------- --------
Cash provided by (used in) financing activities........ 2,053 (10,373) 5,946
-------- -------- --------
Increase (decrease) in cash and cash equivalents............ 1,049 (2,130) 3,208
Cash and cash equivalents, beginning of year................ 3,462 4,511 2,381
-------- -------- --------
Cash and cash equivalents, end of year...................... $ 4,511 $ 2,381 $ 5,589
======== ======== ========
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE> 44

SHOWBIZ PIZZA TIME, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993,
DECEMBER 30, 1994 AND DECEMBER 29, 1995

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 1993, 1994 and 1995 are for the fiscal years ended
December 31, 1993, December 30, 1994 and December 29, 1995, respectively. Fiscal
years 1993, 1994 and 1995 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 (Note 5). 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 $.08 in 1995.

Deferred charges and related amortization:

Loan costs are deferred and amortized over the term of the respective
agreements. Franchise rights are amortized over the remaining life of the
franchise agreements. 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.

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> 45

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.

Reclassifications:

In 1995, the Company adopted the single step format for presenting its
Consolidated Statements of Earnings. Certain reclassifications of 1993 and 1994
amounts have been made to conform to the 1995 presentation.

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. Significant estimates are used in determining the realization
of the deferred tax asset, the liability for self-insured reserves and the
collectibility of receivables. 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.

Stock Split:

All share and per share amounts have been adjusted to reflect a
three-for-two stock split in the form of a 50% stock dividend of the Company's
Common Stock effected on May 22, 1996.

2. SIGNIFICANT TRANSACTIONS:

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 ten Chuck E. Cheese's
restaurants. The impairment in fair value of the ten restaurants is 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> 46

SHOWBIZ PIZZA TIME, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. ACCOUNTS RECEIVABLE:

<TABLE>
<CAPTION>
1994 1995
------ ------
(THOUSANDS)
<S> <C> <C>
Trade....................................................... $ 382 $ 516
Other....................................................... 3,454 2,886
------ ------
3,836 3,402
Less allowance for doubtful collection...................... (475) (75)
------ ------
$3,361 $3,327
====== ======
</TABLE>

4. NOTES RECEIVABLE:

The Company's notes receivable at December 30, 1994 and December 29, 1995
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 19), 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
2000, 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 $139,000 and
$354,000 at December 30, 1994 and December 29, 1995, respectively.

5. PROPERTY AND EQUIPMENT:

In 1995, the Company changed its estimate of the useful lives of certain
fixed assets.

<TABLE>
<CAPTION>
PREVIOUS NEW
LIVES LIVES 1994 1995
-------- ------- -------- --------
(IN YEARS) (THOUSANDS)
<S> <C> <C> <C> <C>
Land and improvements........................ 0-10 0-20 $ 4,650 $ 4,630
Leasehold improvements....................... 4-15 4-20 107,928 118,041
Buildings and improvements................... 4-15 4-25 8,789 8,789
Furniture, fixtures and equipment............ 2-10 2-15 87,756 97,703
Property leased under capital leases (Note
8)......................................... 10-15 10-15 1,328 1,328
-------- --------
210,451 230,491
Less accumulated depreciation and
amortization............................... (81,805) (94,781)
-------- --------
128,646 135,710
Construction in progress..................... 1,544 1,471
-------- --------
$130,190 $137,181
======== ========
</TABLE>

6. DEFERRED CHARGES:

<TABLE>
<CAPTION>
1994 1995
------- -------
(THOUSANDS)
<S> <C> <C>
Franchise rights............................................ $ 5,000 $ 5,000
Loan costs.................................................. 434 1,223
Other....................................................... 557 579
------- -------
5,991 6,802
Less accumulated amortization............................... (3,908) (4,203)
------- -------
$ 2,083 $ 2,599
======= =======
</TABLE>

F-9
<PAGE> 47

SHOWBIZ PIZZA TIME, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:

<TABLE>
<CAPTION>
1994 1995
------- -------
(THOUSANDS)
<S> <C> <C>
Accounts payable............................................ $10,819 $12,851
Salaries and wages.......................................... 3,990 4,215
Insurance................................................... 7,670 8,805
Taxes, other than income.................................... 2,528 2,561
Other....................................................... 1,538 1,404
------- -------
$26,545 $29,836
======= =======
</TABLE>

8. 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 seven to 30 years with various renewal options.

Following is a summary of property leased under capital leases: 1995 and
1994

<TABLE>
<CAPTION>
1994 1995
------ ------
(THOUSANDS)
<S> <C> <C>
Buildings and improvements.................................. $1,328 $1,328
Less accumulated depreciation............................... (771) (877)
------ ------
$ 557 $ 451
====== ======
</TABLE>

Scheduled annual maturities of the obligations for capital and operating
leases as of December 29, 1995, are:

<TABLE>
<CAPTION>
YEARS CAPITAL OPERATING
----- ------- ---------
(THOUSANDS)
<S> <C> <C>
1996........................................................ $ 292 $ 26,755
1997........................................................ 292 24,182
1998........................................................ 256 21,271
1999........................................................ 184 19,087
2000........................................................ 184 17,223
2001-2009 (aggregate payments).............................. 1,055 39,317
------ --------
Minimum future lease payments............................... 2,263 $147,835
========
Less amounts representing interest.......................... (1,115)
------
Present value of future minimum lease payments.............. 1,148
Less current portion........................................ (95)
------
$1,053
======
</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.

F-10
<PAGE> 48

SHOWBIZ PIZZA TIME, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
(THOUSANDS)
<S> <C> <C> <C>
Minimum............................................... $25,305 $28,003 $28,730
Contingent.......................................... 185 216 146
------- ------- -------
$25,490 $28,219 $28,876
======= ======= =======
</TABLE>

9. LONG-TERM DEBT:

<TABLE>
<CAPTION>
1994 1995
-------- -------
(THOUSANDS)
<S> <C> <C>
Term loan, 10.02%, due June 2001............................ $18,000
Term loan, LIBOR plus 3.5%, due June 2000................... 10,000
Term loans, LIBOR plus 3.5%, due October 1997............... 5,000
Revolving bank loan, prime plus 1/2% or LIBOR plus 3%,
due June 1997............................................. 1,700
Revolving bank loan, prime plus 1% to 2.75%, due January
1996...................................................... $ 28,800
Obligations under capital leases (Note 8)................... 1,207 1,148
-------- -------
30,007 35,848
Less current portion........................................ (10,060) (95)
-------- -------
$ 19,947 $35,753
======== =======
</TABLE>

In 1995, the Company refinanced its previous credit facility of $30.8
million expiring in January 1996 with an increased facility of $38 million. The
new credit facility consists of certain term notes totalling $33 million and a
$5 million revolving loan agreement. A 3/8% annual 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 29, 1995, scheduled annual maturities of all long-term debt
(exclusive of obligations under capital leases) are $6.7 million in 1997, $10
million in 2000 and $18 million in 2001.

10. 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 29, 1995, such guarantees aggregated approximately
$586,000.

11. LITIGATION:

The Company is involved in litigation arising in the normal course of its
business. Based on information presently available, the Company believes there
will be no material effects on the Company's financial position, results of
operations or cash flows as a result of such litigation.

12. REDEEMABLE PREFERRED STOCK:

As of December 29, 1995, 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 29, 1995, one
quarterly dividend, totaling $59,484 or $1.20 per share, was accrued but not yet
paid.

F-11
<PAGE> 49

SHOWBIZ PIZZA TIME, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

13. EARNINGS PER COMMON SHARE:

Earnings per common and common equivalent share were computed as follows
(thousands, except per share data):

<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Net income.............................................. $11,891 $ 676 $ 63
Accretion of redeemable preferred stock................. (104) (103) (104)
Redeemable preferred stock dividends.................... (238) (238) (238)
------- ------- -------
Adjusted income (loss) applicable to common shares...... $11,549 $ 335 $ (279)
======= ======= =======
Primary:
Weighted average common shares outstanding............ 19,224 18,117 18,098
Common stock equivalents:
Stock purchase warrants............................... 639
Other................................................. 320 74
------- ------- -------
Weighted average shares outstanding................... 20,183 18,191 18,098
======= ======= =======
Earnings (loss) per common and common equivalent
share.............................................. $ .57 $ .02 $ (.02)
======= ======= =======
Fully Diluted:
Weighted average common shares outstanding............ 19,224 18,117 18,098
Common stock equivalents:
Stock purchase warrants............................... 639
Other................................................. 333 74
------- ------- -------
Weighted average shares outstanding................... 20,196 18,191 18,098
======= ======= =======
Earnings (loss) per common and common equivalent
share.............................................. $ .57 $ .02 $ (.02)
======= ======= =======
</TABLE>

14. FRANCHISE FEES AND ROYALTIES:

At December 29, 1995, 93 Chuck E. Cheese's restaurants were operated by a
total of 57 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 $82,500, $315,000 and
$98,000 in 1993, 1994 and 1995, respectively.

F-12
<PAGE> 50

SHOWBIZ PIZZA TIME, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. COST OF SALES:

<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Food, beverage and related supplies................ $ 48,435 $ 46,328 $ 43,412
Games and merchandise.............................. 11,375 12,369 13,285
Labor.............................................. 77,533 79,032 80,003
-------- -------- --------
$137,343 $137,729 $136,700
======== ======== ========
</TABLE>

16. INCOME TAXES:

The significant components of income tax expense are as follows:

<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
(THOUSANDS)
<S> <C> <C> <C>
Current expense.......................................... $1,751 $ 869 $ 701
Deferred expense:
Utilization of operating loss carryforwards............ 6,078 2,204 1,138
Net tax benefits from exercise of stock options and
stock
grants.............................................. (37) (928) (654)
Increase in valuation of deferred tax asset............ (971)
Allowance for tax credit carryforwards expiring in
1997................................................ 1,104
Tax credits............................................ (465) (237) (127)
Other (primarily temporary differences related to
depreciation)....................................... (575) (746)
------ ------ ------
$6,356 $2,437 $ 312
====== ====== ======
</TABLE>

At December 29, 1995, the Company has recorded a deferred tax asset of
approximately $33.0 million reflecting the $24.7 million tax effect of $67.0
million in net operating loss carryforwards, $7.3 million in tax credit
carryforwards and tax effected net taxable deductions of $796,000. 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 29, 1995, 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 $1,513,000.

In August 1993, new federal tax legislation was enacted that increased the
Company's federal tax rate to 35% effective December 31, 1993. As a result, the
Company's deferred tax asset and net income were increased by approximately
$971,000 and deferred tax expense decreased by the same amount.

F-13
<PAGE> 51

SHOWBIZ PIZZA TIME, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
TAX
NOL'S CREDITS
------- -----------
(THOUSANDS)
<S> <C> <C>
1997........................................................ $1,104
1998........................................................ 4,007
1999........................................................ $34,000 395
2000........................................................ 19,000 149
2001........................................................ 14,000 19
2002 -- 2010................................................ 132
------- ------
$67,000 $5,806
======= ======
</TABLE>

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 29, 1995, no limitation of such carryforwards has
occurred.

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

<TABLE>
<CAPTION>
1993 1994 1995
----- ----- ------
<S> <C> <C> <C>
Statutory rate........................................... 35.0% 34.0% 34.0%
State income taxes....................................... 5.1% 14.8% 106.1%
Increase in valuation of deferred tax asset.............. (5.3%)
Allowance for tax credit carryforwards................... 35.5%
Tax credits earned....................................... (2.6%) (6.9%) (33.9%)
Other.................................................... 2.6% .9% (23.0%)
----- ----- ------
Income taxes provided.................................... 34.8% 78.3% 83.2%
===== ===== ======
</TABLE>

17. 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, notes payable and redeemable preferred stock
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.

F-14
<PAGE> 52

SHOWBIZ PIZZA TIME, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

18. SUPPLEMENTAL CASH FLOW INFORMATION:

<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
(THOUSANDS)
<S> <C> <C> <C>
Cash paid during the year for:
Interest............................................... $ 912 $1,781 $3,055
Income taxes........................................... 1,769 1,389 801
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>

19. RELATED PARTY TRANSACTIONS:

The Hallwood Group, Incorporated ("Hallwood") is the beneficial owner of
approximately 14.6% of the outstanding common stock of the Company. The
directors of Hallwood serve as a majority of the directors of the Company and
Integra -- A Hotel and Restaurant Company ("Integra").

In December 1993, the Company fully repaid approximately $1.7 million in a
term loan payable to a third party assigned by Integra. The Company made annual
payments to Hallwood of $125,000 for consulting services in 1993, 1994, and
1995. 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 subleased
to Integra with a fair value of approximately $120,000 per year. Integra vacated
this space in 1995.

The Company paid $99,000 in interest to Integra for 1993.

In 1993, Hallwood and its affiliate exercised warrants to purchase 835,873
shares of common stock. The exercise price of the warrants was $1.19 per share.

During 1993, the Company advanced $30,000 to joint ventures in which the
Company has a 50% interest or less. 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 $393,000 and $410,000 at December 30, 1994 and December 29, 1995,
respectively.

In September 1990, the Company entered into an agreement to grant the
International Association of ShowBiz Pizza Time Restaurants, Inc. (the
"Association") a $2.0 million line of credit, at prime. In December 1993, the
Company granted the Association a $1.0 million line of credit, at prime, for
advertising production. In November 1994, available borrowings under the lines
of credit were reduced to a total of $2.4 million at an annual interest rate of
prime plus 1/2%. In December 1995, the lines were renegotiated to provide the
Association with available borrowings of $3,750,000 at 10.5% which expire
December 31, 1996. The Association was established to develop and improve
entertainment attractions and produce system wide advertising. Two officers of
the Association are also officers of the Company. At December 29, 1995,
approximately $1,869,000 was outstanding under these lines of credit. The
Company also had a miscellaneous account receivable from the Association of
$22,000 and $5,000 at December 30, 1994 and December 29, 1995, respectively.

F-15
<PAGE> 53

SHOWBIZ PIZZA TIME, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

20. 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 and c) a stock
grant 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. Options are granted at the fair
market value of the Company's common stock at the date of grant.

<TABLE>
<CAPTION>
1993 1994 1995
------- -------- ---------
<S> <C> <C> <C>
Options outstanding, beginning of year................ 414,446 558,993 759,953
Granted............................................. 238,200 512,250 391,860
Exercised........................................... (71,828) (77,570) (19,239)
Terminated.......................................... (21,825) (233,720) (283,632)
------- -------- ---------
Options outstanding, end of year ($1.63-$22.33 per
share).............................................. 558,993 759,953 848,942
======= ======== =========
Options:
Exercisable......................................... 392,235 262,976 203,024
Available for grant................................. 536,337 257,807 1,049,579
</TABLE>

The options granted in 1995 are at exercise prices ranging from $5.67 to
$7.92 per share. In January 1996, the Company granted 270,992 additional options
at an exercise price of $8.29 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.
An aggregate of 621,762 shares were awarded pursuant to the plan in 1993. None
were awarded in 1995 and 1994. Compensation expense recognized by the Company
pursuant to this plan was $2,756,000, $2,734,000 and $1,821,000 in 1993, 1994
and 1995, respectively. All shares are subject to forfeiture upon termination of
the participant's employment by the Company over vesting periods ranging from 2
years to 6 years. 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 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 1993, the Company made a contribution of
approximately $36,000 in common stock for the 1992 plan year. No contributions
were made for the 1993 and 1994 plan years. The Company plans to contribute
$23,000 in common stock for the 1995 plan year.

F-16
<PAGE> 54

SHOWBIZ PIZZA TIME, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

21. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):

The following summarizes the unaudited quarterly results of operations for
the years ended December 30, 1994 and December 29, 1995 (thousands, except per
share data).

<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 30, 1994
---------------------------------------
APRIL 1 JULY 1 SEPT. 30 DEC. 30
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues...................................... $76,469 $64,175 $68,502 $59,369
Income (loss) before income taxes............. 5,481 2,255 1,696 (6,319)
Net income (loss)............................. 3,425 1,248 1,024 (5,021)
Per Share:
Primary and fully diluted:
Net income (loss)........................ $ .18 $ .07 $ .05 $ (.28)
</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>

In the second quarter of 1994, the Company recognized a gain of $5.5
million from the sale of its Monterey's Tex-Mex Cafe restaurants. This was
partially offset by a $2.0 million loss associated with the impairment in fair
value of certain Chuck E. Cheese's restaurants.

The fourth quarter of 1994 includes a $1.1 million increase in income tax
expense due to a reduction in deferred tax credit carryforwards which are
estimated to expire in 1997, a write-off of approximately $900,000 for
pre-opening expenses due to a change in the estimated future benefit of such
expenses and a reserve of approximately $400,000 for the impairment in fair
value of certain Chuck E. Cheese's restaurants.

F-17
<PAGE> 55

SHOWBIZ PIZZA TIME, INC.

CONSOLIDATED BALANCE SHEETS
SEPTEMBER 29, 1995 AND SEPTEMBER 27, 1996
(UNAUDITED)
(THOUSANDS, EXCEPT SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
SEPTEMBER 29, SEPTEMBER 27,
1995 1996
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 3,366 $ 3,798
Accounts receivable, including receivables from related
parties of $326 and $1,422, respectively............... 2,311 3,577
Current portion of notes receivable, including receivables
from related parties of $370 and $228, respectively.... 678 474
Inventories............................................... 4,107 3,791
Prepaid expenses.......................................... 2,575 3,145
Current portion of deferred tax asset..................... 916 9,635
-------- --------
Total current assets.............................. 13,953 24,420
-------- --------
Investments in related parties.............................. 761 817
-------- --------
Property and equipment...................................... 133,827 157,919
-------- --------
Deferred tax asset.......................................... 31,216 17,341
-------- --------
Other assets:
Notes receivable, less current portion, including
receivables from related parties of $1,998 and $2,269,
respectively........................................... 6,899 7,207
Deferred charges, less amortization....................... 2,980 2,010
Other..................................................... 2,494 2,627
-------- --------
12,373 11,844
-------- --------
$192,130 $212,341
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Current portion of long-term debt......................... $ 69 $ 945
Accounts payable and accrued liabilities.................. 26,666 34,599
-------- --------
Total current liabilities......................... 26,735 35,544
-------- --------
Long-term debt, less current portion........................ 31,046 31,735
-------- --------
Deferred credits............................................ 3,435 3,713
-------- --------
Other liabilities........................................... 1,399 1,010
-------- --------

Commitments and contingencies

Redeemable preferred stock, $60 par value, redeemable for
$2,974 in 2005............................................ 1,979 2,082
-------- --------
Shareholders' equity:
Common stock, $.10 par value; authorized 50,000,000
shares; 21,431,942 and 21,470,881 shares issued,
respectively........................................... 2,143 2,147
Capital in excess of par value............................ 153,551 153,194
Retained earnings......................................... 6,202 15,455
Deferred compensation..................................... (4,097) (2,276)
Less treasury shares of 3,109,176 at both dates, at
cost................................................... (30,263) (30,263)
-------- --------
127,536 138,257
-------- --------
$192,130 $212,341
======== ========
</TABLE>

See notes to consolidated financial statements.

F-18
<PAGE> 56

SHOWBIZ PIZZA TIME, INC.

CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------------------
SEPTEMBER 29, 1995 SEPTEMBER 27, 1996
------------------ ------------------
<S> <C> <C>
Food and beverage revenues................................ $138,903 $152,984
Games and merchandise revenues............................ 60,128 66,158
Franchise fees and royalties.............................. 2,604 2,945
Interest income, including related party income of $172
and $183, respectively.................................. 654 843
Joint venture income...................................... 81 147
-------- --------
202,370 223,077
-------- --------
Costs and expenses:
Cost of sales........................................... 105,078 108,290
Selling, general and administrative expenses, including
related party expenses of $94 in both periods........ 33,975 32,982
Depreciation and amortization........................... 16,535 18,306
Interest expense........................................ 2,239 2,635
Loss on property transactions........................... 102 193
Other operating expenses................................ 41,851 42,067
-------- --------
199,780 204,473
-------- --------
Income before income taxes................................ 2,590 18,604
-------- --------
Income taxes:
Current expense......................................... 880 2,403
Deferred expense........................................ 264 5,224
-------- --------
1,144 7,627
-------- --------
Net income................................................ $ 1,446 $ 10,977
======== ========
Earnings per common and common equivalent share:
Primary:
Net income........................................... $ .07 $ .58
======== ========
Weighted average shares outstanding.................. 18,146 18,494
======== ========
Fully diluted:
Net income........................................... $ .07 $ .58
======== ========
Weighted average shares outstanding.................. 18,177 18,565
======== ========
</TABLE>

See notes to consolidated financial statements.

F-19
<PAGE> 57

SHOWBIZ PIZZA TIME, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
COMMON
STOCK
-------------------- CAPITAL IN TREASURY
EXCESS OF DEFERRED STOCK
PAR PAR RETAINED COMPEN- -------------------
SHARES VALUE VALUE EARNINGS SATION SHARES COST
------ ----------- ------------ ---------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 29, 1995............... 21,435 $2,144 $153,515 $ 4,733 $(3,642) 3,109 $(30,263)
Net income.............................. 10,977
Redeemable preferred stock accretion.... (77)
Redeemable preferred stock dividends,
$3.60 per share....................... (178)
Stock options exercised................. 29 2 204
Tax expense from the exercise of stock
options and stock grants.............. (529)
Stock issued under 401K plan............ 8 1 52
Stock split costs....................... (31)
Cash redemption of fractional shares.... (1) (17)
Amortization of deferred compensation... 1,366
------ ------ -------- ------- ------- ----- --------
Balances, September 27, 1996.............. 21,471 $2,147 $153,194 $15,455 $(2,276) 3,109 $(30,263)
====== ====== ======== ======= ======= ===== ========
</TABLE>

See notes to consolidated financial statements.

F-20
<PAGE> 58

SHOWBIZ PIZZA TIME, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 29, SEPTEMBER 27,
1995 1996
------------- -------------
<S> <C> <C>
Operating activities:
Net income................................................ $ 1,446 $ 10,977
Adjustments to reconcile net income to cash provided by
operations:
Depreciation and amortization.......................... 16,535 18,306
Deferred tax expense................................... 264 5,224
Loss on property transactions.......................... 102 193
Compensation expense under stock grant plan............ 1,366 1,366
Other.................................................. 411 270
Net change in receivables, inventory, prepaids,
payables and accrued liabilities...................... 113 3,947
-------- --------
Cash provided by operations....................... 20,237 40,283
-------- --------
Investing activities:
Purchases of property and equipment....................... (19,273) (38,650)
Additions to notes receivable............................. (2,293) (1,868)
Payments received on notes receivable..................... 1,851 1,867
(Increase) decrease in investments, deferred charges and
other assets........................................... (633) 48
-------- --------
Cash used in investing activities................. (20,348) (38,603)
-------- --------
Financing activities:
Payments on debt and line of credit....................... (30,495) (6,700)
Proceeds from debt and line of credit..................... 31,645 3,600
Reduction of capital lease obligations.................... (42) (68)
Reduction of minority interest............................ (364)
Exercise of stock options................................. 69 206
Redeemable preferred stock dividends...................... (178) (178)
Other..................................................... 97 33
-------- --------
Cash provided by (used in) financing activities... 1,096 (3,471)
-------- --------
Increase (decrease) in cash and cash equivalents............ 985 (1,791)
Cash and cash equivalents, beginning of period.............. 2,381 5,589
-------- --------
Cash and cash equivalents, end of period.................... $ 3,366 $ 3,798
======== ========
</TABLE>

See notes to consolidated financial statements.

F-21
<PAGE> 59

SHOWBIZ PIZZA TIME, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
(UNAUDITED)

1. INTERIM FINANCIAL STATEMENTS:

In the opinion of management, the accompanying financial statements for the
periods ended September 27, 1996 and September 29, 1995 reflect all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the Company's financial condition, results of operations and cash flows.

Certain information and footnote disclosures normally included in the
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been omitted. The unaudited consolidated financial
statements referred to above should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-K filed with the
Securities and Exchange Commission for the year ended December 29, 1995. Results
of operations for the periods ended September 27, 1996 and September 29, 1995
are not necessarily indicative of the results for the year.

2. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE:

Earnings per common and common equivalent share were computed based on the
weighted average number of common and common equivalent shares outstanding
during the period. Net income available per common share has been adjusted for
the items indicated below, and 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>
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 29, SEPTEMBER 27,
1995 1996
------------- -------------
<S> <C> <C>
Net income.................................................. $ 1,446 $10,977
Accretion of redeemable preferred stock..................... (78) (77)
Redeemable preferred stock dividends........................ (178) (178)
------- -------
Adjusted income (loss) applicable to common and common
equivalent shares......................................... $ 1,190 $10,722
======= =======
Primary:
Weighted average number of common shares outstanding...... 18,069 18,226
Common stock equivalents:
Stock purchase options................................. 77 268
------- -------
Weighted average number of shares outstanding............. 18,146 18,494
======= =======
Earnings per common and common equivalent share........... $ .07 $ .58
======= =======
Fully diluted:
Weighted average number of common shares outstanding...... 18,069 18,226
Common stock equivalents:
Stock purchase options................................. 108 339
------- -------
Weighted average number of shares outstanding............. 18,177 18,565
======= =======
Earnings per common and common equivalent share........... $ .07 $ .58
======= =======
</TABLE>

3. SIGNIFICANT TRANSACTIONS:

In September 1996, the Company purchased all of the Chuck E. Cheese's
restaurants owned by its largest franchisee, McBiz Corporation ("McBiz"). Under
the terms of the transaction, the Company purchased 19 restaurants operated by
McBiz plus the 49% minority interest of one restaurant previously operated as a
joint venture by the two companies. In addition to the cash purchase price of
$2.6 million, the Company reimbursed

F-22
<PAGE> 60

SHOWBIZ PIZZA TIME, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

McBiz for remodeling costs for three restaurants which had been recently
remodeled. The transaction was structured as an asset purchase with the Company
assuming no liabilities.

In August 1996, the Company's line of credit agreement was amended to
provide the Company with available borrowings of up to $15 million and extended
the maturity date to June 1998. In September 1996, the Company prepaid $5
million in term notes. As a result of these transactions, 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 amended line of credit is
dependent on earnings and debt levels of the Company and ranges from prime plus
0% to .5% or at the Company's option, LIBOR plus 2% to 3%. Currently, any
borrowings under this line of credit would be at prime plus 0% or, at LIBOR plus
2%. At September 27, 1996, $3.6 million was outstanding under the line of
credit. The Company is required to comply with certain financial ratio tests
during the terms of the loan agreements. These tests did not change
significantly with the recent amendment to increase the line of credit.

F-23
<PAGE> 61

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

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........................... 7
Use of Proceeds........................ 9
Capitalization......................... 9
Price Range of Common Stock and
Dividend Policy...................... 10
Selected Historical Consolidated
Financial and Operating Data......... 11
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 12
Business............................... 17
Management............................. 25
Selling Stockholders................... 27
Description of Capital Stock........... 28
Certain United States Tax Consequences
to Non-United States Holders......... 31
Underwriting........................... 33
Notice to Canadian Residents........... 34
Legal Matters.......................... 35
Experts................................ 35
Incorporation of Certain Documents by
Reference............................ 35
Additional Information................. 36
Index to Consolidated Financial
Statements........................... F-1
</TABLE>

======================================================
[SHOWBIZ PIZZA TIME, INC.
NAME AND LOGO]
3,200,000 SHARES

COMMON STOCK
($.10 PAR VALUE)
PROSPECTUS

CREDIT SUISSE FIRST BOSTON

PRINCIPAL FINANCIAL SECURITIES, INC.

------------------------------------------------------
<PAGE> 62

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.................................................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky filing fees and expenses (including counsel
fees)..................................................... *
Transfer Agent and Registrar fees and expenses.............. *
Miscellaneous...............................................
-------
Total............................................. $
=======
</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> 63

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> 64

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> 65

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. None

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> 66

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> 67

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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Irving, State of Texas, on February 21, 1997.

SHOWBIZ PIZZA TIME, INC.

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

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Michael H. Magusiak or Richard M. Frank or
either of them, his or her attorneys-in-fact and agents, each with full power of
substitution and resubstitution for him or her in any and all capacities, to
sign any or all amendments or post-effective amendments to this Registration
Statement and to sign a Registration Statement pursuant to Section 462(b) of the
Securities Act of 1933, and to file the same, with exhibits thereto and other
documents in connection therewith with the Commission, granting unto each of
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary in connection with such
matters and hereby ratifying and confirming all that each of such
attorneys-in-fact and agents or his substitutes may do or cause to be done by
virtue hereof.

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 February 21, 1997
- ----------------------------------------------------- Directors, Chief Executive
Richard M. Frank Officer and Director
(Principal Executive
Officer)

/s/ MICHAEL H. MAGUSIAK President and Director February 21, 1997
- -----------------------------------------------------
Michael H. Magusiak

/s/ LARRY G. PAGE Executive Vice President, February 21, 1997
- ----------------------------------------------------- Chief Financial Officer and
Larry G. Page Treasurer (Principal
Financial and Accounting
Officer)

/s/ ANTHONY J. GUMBINER Director February 21, 1997
- -----------------------------------------------------
Anthony J. Gumbiner

Director
- -----------------------------------------------------
Brian M. Troup

Director February , 1997
- -----------------------------------------------------
J. Thomas Talbot
</TABLE>

II-6
<PAGE> 68
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ CHARLES A. CROCCO, JR. Director February 21, 1997
- -----------------------------------------------------
Charles A. Crocco, Jr.

/s/ ROBERT L. LYNCH Director February 21, 1997
- -----------------------------------------------------
Robert L. Lynch

/s/ LOUIS P. NEEB Director February 21, 1997
- -----------------------------------------------------
Louis P. Neeb

/s/ CYNTHIA I. PHARR Director February 21, 1997
- -----------------------------------------------------
Cynthia I. Pharr
</TABLE>

II-7
<PAGE> 69

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 (included on page II-6).
</TABLE>

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

* To be filed by amendment.

<PAGE> 1
Exhibit 3.1

RESTATED ARTICLES OF INCORPORATION
OF
SHOWBIZ PIZZA TIME INC.

The undersigned, ShowBiz Pizza Time, Inc., a Kansas corporation
originally incorporated on April 30, 1980 as ShowBiz Pizza Place, Inc., for the
purpose of amending and restating its Articles of Incorporation in accordance
with the Kansas General Corporation Code, does hereby make and execute these
Restated Articles of Incorporation of ShowBiz Pizza Time, Inc., and does hereby
certify (i) that such Restated Articles of Incorporation only restate and
integrate and do not further amend the provisions of the corporation's Articles
of Incorporation, as heretofore amended or supplemented, and that there is no
discrepancy between those provisions and the provisions of these Restated
Articles of Incorporation, and (ii) that such Restated Articles of
Incorporation were duly adopted by the directors in accordance with the
provisions of K.S.A. Section 17-6605.

FIRST. The name of the corporation is:

ShowBiz Pizza Time, Inc.

SECOND. The address of its registered office in the State of Kansas is
The Corporation Company, Inc., 515 S. Kansas Avenue, Topeka, Shawnee County,
Kansas 66603. The name of its registered agent at such address is The
Corporation Company, Inc.

THIRD. The nature of the business or objects or purposes to be
conducted, transacted, promoted or carried on by the corporation is to engage
in any lawful act or activity for which corporations may be organized under the
General Corporation Code of the State of Kansas.

In addition to the powers and privileges conferred upon the
corporation by law and those incidental thereto, the corporation shall possess
and may exercise all the powers and privileges which are necessary or
convenient to the conduct, promotion or attainment of the business, objects or
purposes of the corporation.

FOURTH. The total number of shares of stock that the corporation shall
have authority to issue is Fifty Million Five Hundred Forty-Nine Thousand Five
Hundred Seventy (50,549,570) shares, which shall be divided into three (3)
classes as follows: (i) Forty-Nine Thousand Five Hundred Seventy (49,570)
shares of Class A Preferred Stock, of the par value of Sixty Dollars ($60.00)
each (hereinafter "Preferred A Shares"); (ii) Five Hundred Thousand (500,000)
shares of Class B Preferred Stock, of the par value of One Hundred Dollars
($100.00) each (hereinafter "Preferred B Shares"); and Fifty Million
(50,000,000) shares of Common Stock, of the par value of Ten Cents ($0.10) each
(hereinafter "Common Shares"). The designations, powers, preferences, and
rights of each class, and the qualifications, limitations, or restrictions
thereof, shall be as set forth in this ARTICLE FOURTH.

1
<PAGE> 2
Section 4.1. Dividends.

4.1.1. Dividend Rate on Preferred A Shares. The holders of
Preferred A Shares shall be entitled to receive, when, as, and if declared by
the Board of Directors of the corporation to the extent and out of funds
legally available for the payment of dividends, cash dividends at the rate of
(a) Ninety Cents ($0.90) per share per quarter for each of the eight full
fiscal quarters of the corporation following the Preferred Dividend
Commencement Date (as defined in subsection 4.1.2 hereof), and (b) One Dollar
and Twenty Cents ($1.20) per share per quarter for each full fiscal quarter
thereafter.

4.1.2. Preferred Dividend Commencement Date. The Preferred
Dividend Commencement Date shall be the first day of the fifth full fiscal
quarter of the corporation beginning after the first issuance of Preferred A
Shares (which date for reference purposes is May 21, 1985).

4.1.3. Accrual and Cumulation of Preferred Dividends.
Dividends on the Preferred A Shares shall (a) accrue at the rates set forth in
subsection 4.1.1 hereof, whether or not earned or declared; (b) be payable
before any dividends (other than a dividend payable solely in Common Shares or
Preferred B Shares) on Common Shares or Preferred B Shares are paid, declared,
or set aside for, payment; and (c) be cumulative, so that if dividends accrued
under this Section on the outstanding Preferred A Shares have not been paid or
set aside for payment, for any fiscal quarter or quarters, the amount of the
deficiency shall first be declared and fully paid or set aside for payment, but
without interest, before any distribution, by dividend or otherwise (other than
a distribution solely in Common Shares or Preferred B Shares) is declared,
paid, or set aside for payment on the Common Shares or Preferred B Shares.
Unless otherwise declared by the Board of Directors, no dividends shall accrue
or cumulate on the Preferred A Shares before the Preferred Dividend
Commencement Date.

4.1.4. Restriction on Dividends on Other Stock. The
corporation shall not declare, pay, or set aside for payment any dividend or
other distribution with respect to the Common Shares or Preferred B Shares
(other than a distribution solely in Common Shares or Preferred B Shares) (a)
until after the first dividend required to be paid on the Preferred A Shares
pursuant to subsection 4.1.1 hereof has been declared and paid or set aside for
payment; and (b) unless an amount equal to all dividends on the Preferred A
Shares required to be paid under this Section, including an unpaid cumulated
dividends, has been declared and paid or set aside for payment.

4.1.5. Definition of "Set Aside for Payment". For the purpose
of this ARTICLE FOURTH, a dividend or other distribution to the holders of the
Preferred A Shares shall be deemed to have been "set aside for payment" if and
only if funds sufficient for the payment in full of such dividend or
distribution have been deposited with a bank or trust company in the States of
Texas, New York, or California, as a trust fund, with irrevocable instructions
and authority to the bank or trust company to pay said amounts to the holders
of the Preferred A Shares on the date for payment thereof and to pay to the
corporation all interest and other income earned with respect to such amounts
so deposited.

2
<PAGE> 3
4.1.6. Record Date: Payment Date. With respect to each fiscal
quarter of the corporation for which the holders of the Preferred A Shares are
entitled to receive a dividend and for which the Board of Directors of the
corporation has declared a dividend on the Preferred A Shares ('Dividend
Quarter"), such dividend shall be payable to the holders of record of Preferred
A Shares on the last day of the Dividend Quarter and shall be paid no later
than 90 days after the last day of the Dividend Quarter (the "Preferred
Dividend Payment Date").

4.1.7. Dividends on Common Shares. Subject to all the
provisions hereof and of any resolution or resolutions (the "Preferred B
Resolutions") of the Board of Directors of this corporation providing for the
issuance of any series of Preferred B Shares, and further subject to the prior
rights and privileges of the holders of Preferred A Shares and Preferred B
Shares, the holders of Common Shares shall be entitled to receive dividends
when, as, and if declared by the Board of Directors of the corporation, to the
extent and out of funds legally available for the payment of dividends.

Section 4.2. Liquidation Preference. In the event of the voluntary
or involuntary liquidation, dissolution, or winding up of the corporation, the
holders of Preferred A Shares shall be entitled to be paid out of the net
assets of the corporation an amount equal to the sum of Sixty Dollars ($60.00)
per share, plus all unpaid dividends cumulated in respect of the outstanding
Preferred A Shares, before any distribution or payment is made to the holders
of Preferred B Shares or Common Shares. In the event that the net assets of
the corporation are insufficient to pay the full amount then due to the holders
of Preferred A Shares, the entire net assets of the corporation shall be
distributed among the holders of Preferred A Shares in direct proportion to the
number of Preferred A Shares held by each. The consolidation or merger of the
corporation into or with any other corporation or corporations, in the manner
provided by law, shall not be deemed to be a liquidation, dissolution, or
winding up of the affairs of the corporation. After the payment to the holders
of Preferred A Shares of all amounts to which they are entitled, as hereinabove
provided, the holders of the shares of each series of the Preferred B Shares
then outstanding shall be entitled to receive out of the remaining net assets
of the corporation, but, only in accordance with the preferences, if any,
provided for such series, before any distribution or payment shall be made to
the holders of the Common Shares, the amount per share fixed by the Preferred B
Resolutions to be received by the holders of shares of each such series on such
voluntary or involuntary liquidation, dissolution, or winding-up, as the case
may be. If such payment shall have been made in full to the holders of all
outstanding Preferred B Shares of all series, or duly provided for, the
remaining net assets of the corporation, if any, shall be distributed to the
holders of the Common Shares in direct proportion to the number of Common
Shares held by each. However, if upon any such liquidation, dissolution, or
winding-up, the net assets of the corporation available for distribution among
the holders of any one or more series of the Preferred B Shares, that (a) are
entitled to a preference over the holders of the Common Shares upon such
liquidation, dissolution, or winding-up, and (b) rank equally in connection
therewith, shall be insufficient to make payment in full of the preferential
amount to which the holders of such shares shall be entitled, then such assets
shall be distributed among the holders of each such series of the Preferred B
Shares ratably according to the respective amounts to which they would be
entitled with respect to the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full.

3
<PAGE> 4
Section 4.3. Redemption of Preferred A Shares.

4.3.1. Optional Redemption. The corporation may, at any time
or from time to time at its sole option, redeem all or part of the outstanding
Preferred A Shares. The redemption price of a Preferred A Share under this
subsection is Sixty Dollars ($60.00) plus the amount of all unpaid dividends
cumulated with respect to such share under subsection 4.1.3 hereof.

4.3.2. Mandatory Purchase. The corporation shall redeem, at
the price specified in subsection 4.3.1 above, or purchase in the open market,
such number of Preferred A Shares at such time or times, if any, as may be
necessary to reduce the number of. Preferred A Shares outstanding on the last
day of each of the corporation's fiscal years set forth below to not more than
the number of shares set forth opposite such year, as follows:

Maximum
Number of
Year Shares Outstanding

1990 483,333
1991 466,666
1992 450,006
1993 433,333
1994 416,666
1995 400,000
1996 383,333
1997 366,666
1998 350,000
1999 333,333
2000 316,666
2001 300,000
2002 283,333
2003 266,666
2004 250,000
2005 -0-

4.3.3. Mandatory Purchase Upon Payment of Guaranteed Debt.

4.3.3.1. Definitions.

(a) For purposes hereof, the term "BHC
Affiliate" shall mean and refer to (i) Brock
Hotel Corporation, a Delaware corporation
("BHC"), (ii) any corporation, partnership, or
other entity in which BHC has an interest,
(iii) any individual or any corporation,
partnership, or other entity owning at least
ten percent (10%) of the issued and outstanding

4
<PAGE> 5
voting stock of BHC or (iv) any other entity
controlling, controlled by, or under common
control with BHC.

(b) For purposes hereof, the term
"Approved Loan" shall mean and refer to a loan,
capitalized or other lease, or other financing
arrangement with respect to which (i) the
proceeds are used to prepay Guaranteed
Obligations (as hereinafter defined), (ii) the
interest rate does not exceed the blended
interest rates of the Guaranteed Obligations
that are prepaid with such proceeds, and (iii)
the amortization of which is no less favorable
to the corporation than the aggregate schedule
of payments or mandatory prepayments (other
than by reason of a default on a Guaranteed
Obligation) required pursuant to the Guaranteed
Obligations so prepaid.

(c) For purposes hereof, the term "Equity
Holder" shall mean and refer to any party
having an equity interest in the corporation.

4.3.3.2. Mandatory Purchase.

(a) In the event that the corporation
prepays (as opposed to any regularly scheduled
payment or mandatory prepayment, other than by
reason of' a default on a Guaranteed
Obligation) or refinances for any reason (other
than out of the proceeds of (i) any capital
contributions or Approved Loans made to the
corporation by a BHC Affiliate or by any Equity
Holder, or (ii) any loans made to the
corporation that are guaranteed by BHC or any
Equity Holder), at any time prior to January 1,
1988, any debt, liability or obligation of the
corporation that is guaranteed by BHC or any
Equity Holder (such debts, liabilities and
obligations collectively, the "Guaranteed
Obligations"), so that immediately following
such prepayment or refinancing there remains
outstanding Guaranteed Obligations in an
aggregate amount of less than Fifty Million
Dollars ($50,000,000), the corporation shall
repurchase, either through redemption or
through purchase on the open market, that
number of Preferred A Shares with an aggregate
par value equal to the product of (a) the
amount of Guaranteed Obligations reduced by
such prepayment or refinancing (but only in the
amount such prepaid or refinanced Guaranteed
Obligations reduce the total Guaranteed
Obligations below $50,000,000, or thereafter
continue to reduce the Guaranteed Obligations)
multiplied by (b) thirty-five percent (35%).

(b) In addition, if, prior to January 1,
1988, any event occurs which, either under
applicable law or under the provisions of any
agreement governing any Guaranteed Obligation
(whether or not such provision

<PAGE> 6

is enforceable as a matter of law), would,
either immediately, or with the passage
of time or giving of notice (or both),
accelerate the time that payment on such
Guaranteed Obligation is due and payable, or
otherwise result in such Guaranteed Obligation
being deemed to have matured, in whole or in
part, before its regularly scheduled due date,
and if, at any time after such event occurs,
and prior to the reinstatement, if any, of the
regular payment schedule on such Guaranteed
Obligation by the agreement of the creditor
thereon, any payment or distribution is made
out of assets of the corporation on account of
such Guaranteed Obligation (whether before or
after January 1, 1988), so that, immediately
following such payment or distribution, there
remains Outstanding Guaranteed Obligations in
an aggregate amount of less than Fifty Million
Dollars ($50,000,000), the corporation shall
repurchase, either through redemption or
through purchases on the open market, that
number of Preferred A Shares with an aggregate
par value equal to the product of (a) the
amount of the Guaranteed Obligations so reduced
(but only in the amount such payment or
distribution reduces the total Guaranteed
Obligations below $50,000,000, or thereafter
continues to reduce the Guaranteed Obligations)
multiplied by (b) thirty-five percent (35%).

(c) Furthermore, in the event that prior
to January l, 1988 the corporation pays, or
assets of the corporation are used to repay,
BHC or any Equity Holder (other than out of
positive cash flow generated by the corporation
from operations in accordance with past
practices, which past practices shall not be
deemed to include the sale of real estate or
the sale of any entire restaurant as a unit),
on account of funds advanced to the corporation
by BHC or such Equity Holder to repay any
Guaranteed Obligations, and such repayment to
BHC or such Equity Holder occurs at a time when
the remaining outstanding Guaranteed
Obligations are in an aggregate amount of less
than $50,000,000, then the corporation shall
repurchase, either through redemption or
purchases on the open market, that number of
Preferred A Shares with an aggregate par value
equal to the product of (a) the amount of such
repayment to BHC or such Equity Holder (but not
to exceed the amount by which the Guaranteed
Obligations total less than $50,000,000)
multiplied by (b) thirty five percent (35%).
For purposes of this paragraph (c): (1) any
funds advanced by BHC or such Equity Holder to
the corporation from and after the date on
which Preferred A Shares are first issued (the
"Beginning Date") to fund negative cash flow
(other than funds specifically advanced and
earmarked for the upgrading of existing
restaurants or the construction of new
restaurants) shall be deemed to have been
advanced to repay

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<PAGE> 7
Guaranteed Obligations repaid by the
corporation since the Beginning Date up to the
amount of the Guaranteed Obligations paid by
the corporation after the Beginning Date; (2)
an amount equal to the net proceeds of any
sales of assets made after the Beginning Date
that are not consistent with the corporation's
past practices (which past practices shall not
be deemed to include the sale of real estate or
the sale of any entire restaurant as a unit)
shall be deemed to have been advanced by BHC or
an Equity Holder to the corporation after the
Beginning Date to repay Guaranteed obligations,
and repaid by the corporation to BHC or such
Equity Holder after the Beginning Date; (3) any
repayments made to BHC or an Equity Holder on
account of advances made by BHC or such Equity
Holder to the corporation shall be deemed to
have been applied first to repay advances made
by BHC or such Equity Holder to the corporation
to repay Guaranteed Obligations; and (4) any
repayments of Approved Loans made to any BHC
Affiliate other than BHC shall be deemed to
have been repaid to BHC on account of funds
advanced by BHC to repay Guaranteed
Obligations.

(d) The corporation's obligation to redeem
or repurchase Preferred A Shares in accordance
with any of the foregoing subparagraphs (a),
(b), and (c) of this subsection 4.3.3.2 shall
not be affected by any prior purchase or
redemption of Preferred A Shares by the
corporation or any BHC Affiliate other than a
redemption or purchase of Preferred A Shares
made within twenty (20) days prior to the time
such obligation arises and made for the
specific purpose of satisfying such obligation,
as evidenced by a statement to such effect
included in any written confirmations regarding
such redemption or purchase forwarded to a
selling broker by the corporation, any
purchasing BHC Affiliate, or their purchasing
broker.

4.3.4. Procedure-for Redemption.

4.3.4.1. Date and Place of Redemption. The
Board of Directors of the corporation
may, by resolution, fix the date and
place of redemption (which place may
be within or without the State of
Kansas).

4.3.4.2. Notice. The corporation shall notify
each holder of Preferred A Shares to
be redeemed of the amount of his
shares to be redeemed and the date and
place of redemption by United States
Mail, first-class postage prepaid,
addressed to each such stockholder at
his last known post office address as
shown on

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<PAGE> 8
the stock record books of the
corporation, mailed no later than
twenty (20) days before the date of
redemption.

4.3.4.3. Effectiveness of Redemption. If the
notice required by subsection 4.3.4.2
above has been duly given and, on or
before the date fixed for redemption,
the funds necessary to effect such
redemption have been set aside for
payment to the holders of the
Preferred A Shares to be redeemed,
then, whether or not a certificate
evidencing shares to be redeemed has
been surrendered, the shares evidenced
thereby shall no longer be
outstanding, and the right to receive
dividends thereon, the right to vote
the same, and all other rights with
respect to such shares shall cease and
terminate on the date so fixed for
redemption, except only the right of
the holder of such Preferred A Shares
to receive the redemption price
therefor, without interest, upon
surrender of the certificate or
certificates evidencing the same, duly
endorsed for transfer.

4.3.4.4. Selection of Shares for Redemption. If
at any time less than all of the
outstanding Preferred A Shares are to
be redeemed, the shares to be redeemed
shall be selected by lot or in such
other manner as the Board of Directors
of the corporation may deem fair and
appropriate.

4.3.4.5. Board of Directors' Authority.
Subject to the limitations and
provisions hereof, the Board of
Directors shall have the full power
and authority to prescribe the manner
in which, and the terms and conditions
upon which, Preferred A Shares shall
be redeemed.

4.3.5. Cancellation. All Preferred A Shares redeemed,
purchased, or otherwise acquired by the corporation in any manner shall be
cancelled and shall not be reissued.

Section 4.4. Voting Rights.

4.4.1. Generally. The holders of the Common Shares have one
(1) vote for each Common Share so held. The holders of the Preferred A Shares
have one (1) vote for each Preferred A Share so held, and shall vote along with
the holders of Common Shares and not as a separate class (except as hereafter
provided or as otherwise provided by law), upon each and any matter submitted
to a vote of the stockholders of the corporation. Subject to Section 4.10
hereof, the holders of the Preferred B Shares shall have such voting rights as
are provided in the Preferred B Resolutions.

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<PAGE> 9
4.4.2. Upon Default. Upon the occurrence and during the
continuance of any Event of Default (as defined at Section 4.5 below), the
holders of the Preferred A Shares, voting separately as a class, shall be
entitled to elect the smallest number of directors that then shall constitute a
majority of the directors of all of the then authorized number of directors of
the corporation. The holders of the Common Shares and the holders of the
Preferred B Shares (to the extent provided by the Preferred B Resolutions)
shall elect the remaining directors. In such event, only holders of Preferred
A Shares may vote for directors to be elected by holders of the Preferred A
Shares and only holders of Common Shares and the holders of the Preferred B
Shares (to the extent provided by the Preferred B Resolutions) may vote for
directors to be elected by holders of the Common Shares and the holders of the
Preferred B Shares (to the extent provided by the Preferred B Resolutions).

4.4.3. Approval for Certain Transactions.

4.4.3.1. Certain Transactions. Unless the
corporation has first obtained the approval of the holders of
two-thirds (2/3) of the outstanding Preferred A Shares, the
corporation shall not:

(a) amend these Articles of
Incorporation in a manner that would
materially adversely affect the holders of
the Preferred A Shares; or

(b) increase the authorized number of
Preferred A Shares; or

(d) sell, convey, or otherwise, dispose
of all or substantially all of the property
or business of the corporation; or

(e) amend Sections 4.1 and 4.2 above if
such amendment would materially adversely
affect the holders of the Preferred A Shares.

4.4.3.2. Junior Preferred Stock.
Unless the corporation has first obtained the approval of the holders
of two-thirds (2/3) of the outstanding Preferred A Shares, the
corporation shall not, whether in the Preferred B Resolutions or
otherwise:

(a) create any class of preferred stock
having preferences over or being on a par
with the Preferred A Shares as to dividends,
redemption, or liquidation; or

(b) create any class of preferred stock
that are subject to redemption while any of
the Preferred A Shares are outstanding; or

(c) create any class of preferred stock
upon which dividends are to be paid at any
time in an amount that, when calculated as a

9
<PAGE> 10
percentage of the par value of such preferred
stock, is in excess of the dividends payable
at such time pursuant to subsection 4.1.1
hereof on the Preferred A Shares, when
calculated as a percentage of the par value
of the Preferred A Shares, or

(d) create any class of preferred
stock upon which dividends shall by payable
prior to the Preferred Dividend Commencement
Date or upon which dividends shall be payable
if dividends accrued under subsection 4.1.3
on the outstanding Preferred A Shares have
not been paid or set aside for payment for
any fiscal quarter or quarters; or

(e) create any class of preferred stock
that is convertible into Common Shares at a
price below the greater of (i) Three Dollars
and Fifty Cents ($3.50) per Common Share or
(ii) an amount that is one hundred fifty
percent (150%) of the average of the mean
between the bid and asked prices of the
Common Shares during the twenty (20) trading
days prior to the issuance of such junior
preferred stock.

Section 4.5. Default.

4.5.1. Events of Default. The occurrence of any of the
following events shall be deemed to be an "Event of Default" for purposes of
this ARTICLE FOURTH:

(a) any failure to redeem or purchase Preferred A Shares as
required by subsections 4.3.2 and 4.3.3 hereof in the manner and
amount and at the time and place specified in Section 4.3 hereof, if
such shares are not otherwise purchased in the manner and amount and
at the time and place specified in Section 4.3 hereof by a BHC
Affiliate; and

(b) the failure of the corporation, whether or not declared and
whether or not funds are legally available, for the payment thereof,
on or before any Preferred Dividend Payment Date, to pay the lesser
of: (i) the dividends cumulated in respect of the Preferred A Shares
at the end of the fiscal quarterly accounting period ended next
preceding such Preferred Dividend Payment Date; or (ii) twenty-five
percent (25%) of the Available Cash Flow (as hereinafter defined) of
the corporation during the four (4) consecutive fiscal quarterly
accounting periods ending with the next preceding fiscal quarterly
accounting period prior to such Preferred Dividend Payment Date. The
term "Available Cash Flow," as used herein with respect to any given
period of four (4) fiscal quarterly accounting periods shall mean and
refer to an amount equal to: (A) the after-tax net income of the
corporation during such period, plus (B) the depreciation,
amortization and other similar non- cash charges deducted by the
corporation during such period in determining its after tax net
income, minus (C) mandatory (as opposed to voluntary) payments during
such period of the principal portion (as opposed to interest) of
rental payments under leases capitalized on the books of the
corporation for financial reporting purposes minus (D) all dividends
paid by the corporation on Preferred A Shares

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<PAGE> 11
during such period, minus (E) all principal and interest payments, if
any, made by the corporation to Pizza Time Theatre, Inc., or its
successors and assigns, with respect to indebtedness with an original
term in excess of six (6) months, and minus (F) the sum of Seven
Million Five Hundred Thousand Dollars ($7,500,000.00).

4.5.2. Effect of Failure to Redeem or Purchase. The sole
effect of the occurrence and continuance of any such Event of Default (as
hereinafter defined) shall be:

(a) the adjustment of voting rights of the holders of
Preferred A Shares as provided in subsection 4.4.2 hereof; and

(b) the continuance of all dividend, voting and other
rights of the holders of Preferred A Shares not so redeemed as
herein required, including, without limitation, the right to
receive dividends pursuant to Section 4.1 hereof and to be
redeemed pursuant to Section 4.3 hereof, to the extent that
the corporation has funds legally available for such purposes.

4.5.3. Cure. An Event of Default shall be deemed to
continue until such time as (a) the number. of Preferred A Shares then held by
holders other than the corporation or a BHC Affiliate does not exceed the
maximum number of Preferred A Shares then permitted to be outstanding pursuant
to subsections 4.3.2 and 4.3.3 hereof; and (b) the corporation shall have
declared, and paid or set aside for payment, such aggregate amount as would
have been theretofore required to have been declared and paid on all past
Dividend Payment Dates to prevent an Event of Default from having occurred with
respect to any Preferred A Shares then outstanding.

4.5.4. Certain Shares Purchased by a BHC Affiliate.

4.5.4.1. Redemption Restriction. In the
event any of the Preferred A Shares required to be redeemed or
purchased pursuant to Section 4.3 hereof are purchased by a BHC
Affiliate other than the corporation, as permitted in paragraph (a) of
subsection 4.5.1 or in subsection 4.5.3 hereof, then such Preferred A
Shares shall not be later redeemed or purchased pursuant to subsection
4.3 hereof until all other Preferred A Shares have been redeemed or
purchased from all holders other than a BHC Affiliate.

4.5.4.2. Resale Restriction. In the even
any Preferred A Shares required to be redeemed or purchased pursuant
to Section 4.3 hereof are purchased by a BHC Affiliate other than the
corporation, as permitted in paragraph (a) of subsection 4.5.1 or in
subsection 4.5.3 hereof, then such Preferred A Shares shall not be
sold by such purchaser so long as any Preferred A Shares are held by
any holder that is not a BHC Affiliate. A legend setting forth such
restriction shall be placed on each certificate representing the
Preferred A Shares subject to the restriction imposed by this
subsection 4.5.4.2.

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<PAGE> 12
Section 4.6. Election of New Directors Upon Default.

4.6.1. Number of Directors. Upon the occurrence of
any Event of Default and the election held pursuant to subsection 4.6.4 hereof,
the number of the corporation's directors shall be five (5).

4.6.2. New Election.

4.6.2.1. Notice. Within ten (10) days after
receipt of a written request or requests for a shareholder's meeting
from the holder or holders of five percent (5%) or more of the
Preferred A Shares after the occurrence of an Event of Default, the
Secretary of the corporation shall notice and call a meeting of the
shareholders of the corporation for the purpose of electing new
directors.

4.6.2.2. Time and Place. Such meeting shall
occur at the principal office of the corporation or such other
location as the Board of Directors in good faith determines to be
convenient to the majority of the shareholders. The meeting shall
occur within fifty (50) days after the last day the Secretary is
required to notice and call the meeting. The meeting may be a special
meeting or an annual meeting.

4.6.2.3. Other Matters. The shareholders
may consider other matters as they are permitted to consider by these
Articles, the bylaws of the corporation, or by law, provided that
nomination and election of new directors by the holders of the
Preferred A Shares shall be the first item of business.

4.6.2.4. Quorum. Holders of one-third (1/3)
of the Preferred A Shares shall constitute a quorum for the election
of directors to be elected by the holders of the Preferred A Shares.

4.6.3. Resignations of Directors During Continuance of an
Event of Default. All members of the Board of Directors shall be deemed to have
resigned on the date of the meeting held pursuant to subsection 4.6.2.2 hereof.

4.6.4. Election of Directors During Continuance of an Event
of Default. At the meeting held pursuant to subsection 4.6.2.2 hereof, the
holders of Preferred A Shares, Preferred B Shares, and Common Shares shall be
entitled to vote for the election of directors of the corporation as provided
in subsection 4.4.2 hereof.

4.6.5. Vacancies. During the continuance of an Event of
Default, vacancies on the Board of Directors created other than by the
operation of subsection 4.6.3 may be filled only by action of directors who
were elected by holders of shares of stock of the same class as those who
elected the director whose successor is to be chosen. All other vacancies
shall be filed as provided in the Bylaws of the corporation.

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<PAGE> 13
4.6.6. Termination of Event of Default. The terms of the
directors elected or appointed by or on behalf of the holders of Preferred A
Shares shall expire, and the number of the corporation's directors shall revert
to the number that existed immediately prior to the Event of Default that
resulted in the election of directors by classes, automatically at such time as
there is no Event of Default continuing under this ARTICLE FOURTH.

Section 4.7. No Conversion Rights. The Preferred A Shares shall
not be convertible into Common Shares.

Section 4.8. All Shares Nonassessable. All shares of stock of the
corporation of any class shall be nonassessable.

Section 4.9. No Preemptive Rights. No holder of any shares of the
corporation shall be entitled as such, as a matter of right, to purchase or
subscribe for any shares of -stock of the corporation of any class, whether now
or hereafter authorized or whether issued for cash, property bonds, notes,
debentures, other securities, or stock convertible into shares of stock of the
corporation or carrying or evidencing any right to purchase shares of stock of
any class.

Section 4.10. No Nonvoting Equity Securities. The corporation
shall not authorize or issue any class or series o f non-voting equity
securities.

Section 4.11. Preferred B Shares.

4.11.1. Issuance. Preferred B Shares may be issued in one or
more series at such time or times as the Board of Directors may determine.
All shares of any one series shall be of equal rank and identical in all
respects. Preferred B Shares may be issued for such consideration or
considerations as the Board of Directors may determine, provided that the value
of such consideration or considerations shall equal or exceed, in the good
faith business judgment of the Board of Directors, the greater of (i) the
aggregate par value of the Preferred B Shares to be issued or (ii) the fair
market value of the Preferred B Shares to be issued, if an active trading
market has developed for the series of Preferred B Shares being so issued.

4.11.2. Authorization. Subject to the restrictions set forth
in subsection 4.4.3.2 hereof, authority is hereby expressly granted to the
Board of Directors to fix from time to time, by resolution or resolutions
providing for the issue of any series of Preferred B Shares, the powers,
designations, preferences, and relative, participating, optional, or other
rights, if any, and the qualifications, limitations, or restrictions thereof,
if any, of such series, including, without limiting the generality of the
foregoing, the following:

(a) The distinctive designation and number of shares
comprising such series, which number may (except where otherwise
provided by the Board of Directors in creating such series) be
increased or decreased (but not below the number of shares then
outstanding) from time to time by action of the Board of Directors;

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<PAGE> 14
(b) The dividend rate or rates on the shares of such
series and the preferences, if any, over any other series of Preferred
B Shares (or of any other series of Preferred B Shares over such
series) with respect to dividends, the terms and conditions upon which
and the periods with respect to which dividends shall be payable,
whether and upon what conditions such dividends shall be cumulative
and, if cumulative, the date or dates from which dividends shall
cumulate;

(c) Whether or not the shares of such series shall be
redeemable, the limitations and restrictions with respect to such
redemptions, the time or times when, the price or prices at which, and
the manner in which such shares shall be redeemable, including the
manner of selecting shares of such series for redemption if less than
all shares of such series are to be redeemed;

(d) The rights to which the holders of shares of such
series shall be entitled, and the preferences if any, over any other
series of Preferred B Shares (or of any other series of Preferred B
Shares over such series), upon the voluntary or involuntary
liquidation, dissolution, or winding-up of the corporation, which
rights may vary depending on whether such liquidation, dissolution, or
winding-up is voluntary or involuntary, and, if voluntary, may vary at
different dates;

(e) Whether or not the shares of such series shall be
subject to the operation of a purchase, retirement, or sinking fund,
and, if so, whether and upon what conditions such purchase,
retirement, or sinking fund shall be cumulative or noncumulative, the
extent to which and the manner in which such fund shall be applied to
the purchase or redemption of the shares of such series for retirement
or to other corporate purposes and the terms and provisions relative
to the operation thereof;

(f) Whether or not the shares of such series shall be
convertible into or exchangeable for shares of stock of any other
class or classes, or of any other series of the same class and, if so
convertible or exchangeable, the price or prices or the rate or rates
of conversion or exchange and the method, if any, of adjusting the
same, and any other terms and conditions of such conversion or
exchange;

(g) The voting powers, full and/or limited, if any, of
the shares of such series; and whether or not and under what
conditions the shares of such series (alone or together with the
shares of one or more other series of Preferred B Shares having
similar provisions) shall be entitled to vote separately as a single
class for the election of one or more directors of the corporation in
case of dividend arrearages or other specified events, or upon other
matters;

(h) Whether or not the issuance of any additional shares
of such series, or of any shares of any other series, shall be subject
to restrictions as to issuance, or as to the powers, preferences, or
rights of any such other series; and

<PAGE> 15

(i) Any other preferences, privileges, and powers, and
relative, participating, optional, or other special rights, and
qualifications, limitations, or restrictions of such series, as the
Board of Directors may deem advisable and as shall not be inconsistent
with the provisions of these Articles of Incorporation or law.

4.11.3. Dividends. After the requirements with respect to
preferential dividends on the Preferred A Shares (fixed pursuant to Section 4.1
hereof) shall have been met:

4.11.3.1. Fixing of Dividends. The shares of
each series of Preferred B Shares shall entitle the holders thereof to
receive, when, as, and if declared by the Board of Directors out of
funds legally available for dividends, cash dividends at the rate,
under the conditions, for the periods, and on the dates fixed by the
resolution or resolutions of the Board of Directors pursuant to
authority granted in this Section 4., for each series, and no more,
before any dividends on the Common Shares (other than a distribution
solely in Common Shares) shall be paid, declared, or set apart for
payment.

4.11.3.2. Restrictions on Dividends on Common
and other Junior Stock. Unless dividends on all outstanding shares of
each series of the Preferred B Shares shall have been fully paid or
declared and set aside for payment, for all past quarterly dividend
periods, and unless all required sinking fund payments, if any, shall
have been made or provided for, no dividend (except a dividend payable
in Common Shares and/or shares of any other class of stock ranking
junior to the Preferred B Shares) shall be paid upon or declared. or
set apart for the Common Shares or any other class of stock ranking
junior to the Preferred B Shares.

4.11.4. Reissuance of Preferred B Shares. Preferred B Shares
redeemed, converted, exchanged, purchased, retired, or surrendered to the
corporation, or which have been issued and reacquired in any manner, shall have
the status of authorized and unissued Preferred B Shares and may be reissued by
the Board of Directors as shares of the same or any other series of Preferred B
Shares.

4.12. Share Combination. Each ten (10) shares of previously
authorized Common Stock, par value $.10 per share, of the Corporation ("Old
Common Stock"), shall be hereby combined into one (1) share of Common Stock,
par value $.10 per share of the Corporation ("New Common Stock"). Each
previously issued certificate which represented shares of Old Common Stock
shall hereafter represent the number of shares of New Common Stock into which
the shares of Old Common Stock represented by such certificate shall be
combined; provided, however, that each person holding of record a stock
certificate or certificate which represented shares of Old Common Stock, shall
receive, upon surrender of such certificate or certificate, a new certificate
or certificates evidencing and representing the number of shares of New Common
Stock to which such person is entitled and provided further that the
Corporation shall not issue fractional shares of New Common Stock with respect
to this combination. In lieu of fractional shares, the Corporation shall pay
stockholders cash for such fractional shares, on the basis of the fair value of
such fractional shares as of the date of effectiveness of this Section. The
Board of Directors (or the Executive Committee

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<PAGE> 16
thereof) shall determine in good faith the fair value for such fractional
shares, and such determination shall be conclusive evidence thereof.

4.13. Restrictions on Transfer.

4.13.1. Certain Transfers Prohibited. Until December 31,
2002, (i) any attempted or purported transfer or registration of transfer of
any shares of the Common Stock, to any person or entity (or group of persons or
entities in concert) who directly or indirectly owns, or whose shares are or
would be attributed to any person, entity or group who directly or indirectly
owns, in either case prior to the transfer and after giving effect to the
applicable attribution rules of the Internal Revenue Code of 1986, as amended
(the "Code"), more than 4.75% of the value of the outstanding capital stock
(within the meaning of Section 382 of the code) of the corporation shall be
void ab initio insofar as it purports to transfer ownership to the transferee
and (ii) any attempted or purported transfer or registration of transfer of any
shares of the Common Stock, to any person or entity (or group of persons or
entities acting in concert) not described in clause (i) who directly or
indirectly would own, or whose shares would be attributed to any person, entity
or group who directly or indirectly would own, in either case as a result of an
immediately after the transfer and after giving effect to the applicable
attribution rules of the Code, more than 4.75% of the value of the outstanding
capital stock (within the meaning of Section 382 of the Code) of the
corporation shall, as to the number of shares representing such excess ever
4.75%, be void ab initio insofar as it purports to transfer ownership to the
transferee; provided, however, that neither clause (i) nor clause (ii)shall
prevent a transfer if the transferor or purported transferee obtains the
written approval of the Board of Directors of the corporation. The Board of
Directors may require, as a condition to any transfer, that the transferor or
the purported transferee provide the corporation with an opinion of counsel
satisfactory to the corporation to the effect that the transfer will not result
in an "ownership change" within the meaning of Section 382 of the Code. No
employee or agent of the corporation shall be permitted to register in the
stock register maintained by the Company or its transfer agent any attempted or
purported transfer made in violation of this Section 4.13. Any unpermitted
registration of a transfer made in violation of this Section 4.13 will be void
ab initio. No intended transferee of shares of the Common Stock in any such
attempted or purported transfer or unpermitted registration shall be recognized
as a stockholder of the corporation for any purpose whatsoever.

4.13.2. Effect of Attempted Transfer. In the event of an attempted or
purported transfer or unpermitted registration in violation of this Section
4.13, the corporation shall be deemed to be the exclusive and irrevocable agent
for the transferor of the shares of Common Stock that are subject to the
restrictions set forth in Section 4.13.1 above. The corporation shall be such
agent for the limited purpose of consummating a sale of such shares to an
eligible transferee, which may include without limitation the transferor. The
record ownership of the subject shares shall remain in the name of the
transferor until the shares have been sold by the corporation or its assignee,
as agent, to an eligible transferee. The corporation shall be entitled to
assign its agency hereunder to any person or entity including, but not limited
to, the intended transferee of the shares, for the purpose of effecting a
permitted sale of such shares. Neither the corporation, as agent, nor any
assignee of its agency hereunder, shall be deemed to be a stockholder of the
corporation nor be entitled to any rights of a

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stockholder of the corporation, including, but not limited to, any right to
vote such Common Stock or to receive dividends or liquidating distributions in
respect thereof, if any, but the corporation or its assignee shall only have
the right to sell and transfer such shares on behalf of and as agent for the
transferor to another person or entity, provided that a transfer to such other
person or entity does not violate the provisions of this Section 4.13. The
rights to vote and to receive dividends and liquidating distributions with
respect to such shares shall remain with the transferor. In the event of a
permitted sale and transfer, whether by the corporation or its assignee, as
agent, the proceeds of such sale shall be applied first to reimburse the
corporation or its assignee for any expenses incurred by the corporation acting
in its role as the agent for the sale of such shares, second, to the extent of
any remaining proceeds, to reimburse the intended transferee for any payments
made to the transferor by such intended transferee for such shares, and the
remainder, if any, to the original transferor.

4.13.3. Corporation's Right to Acquire Shares. For a period of 90
days after its receipt of knowledge of an attempted or purported transfer or
unpermitted registration of shares in violation of this Section 4.13, the
corporation may elect to acquire such shares at the same purchase price agreed
to be paid by the intended. transferee, in which case the corporation shall be
obligated to pay to the intended transferee of such shares, as restitution on
behalf of the transferor out of the purchase price, the amount of any payments
made by such intended transferee to the transferor for such shares and to pay
any remainder of the purchase price to the transferor; such amounts shall be
payable to the intended transferee and the transferor , as the may be, in three
equal installments, without interest, each installment to be paid to the
intended transferee and the transferor pro rata in accordance with the total
amount payable to each. The first such installment shall be payable within 10
days after the corporation exercises such right and the remaining installments
all be payable on the first and second anniversaries, respectively, of such
exercise. The corporation may exercise such election by giving written notice
thereof to the transferor and to the intended transferee.

4.13.4. Stock Certificate Legend. All certificates hereafter issued
evidencing ownership of shares of Common Stock shall bear a conspicuous legend
as follows:

"THE SHARES OF COMMON STOCK REPRESENTED HEREBY ARE SUBJECT TO TRANSFER
RESTRICTIONS PURSUANT TO ARTICLE FOURTH OF THE RESTATED ARTICLES OF
INCORPORATION OF THE COMPANY, REFERENCE TO WHICH IS MADE FOR ALL
PURPOSES."

4.13.5. Enforcement. The Board of Directors shall have the discretion
to issue instructions to, or make suitable arrangements with, the transfer
agent, if any for the corporation's Common Stock, whereby the transfer agent
would establish and enforce a mechanism for policing the transfer prohibitions
established by this Section 4.13. The Board of Directors shall also have
authority to delegate to one or more officers of the corporation the power and
authority to police and enforce the provisions of this Section 4.13 on behalf
of the corporation.

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FIFTH. The number of directors of the corporation shall be as
provided in the Bylaws of the corporation.

Commencing with the annual meeting of stockholders in 1988, in lieu of
electing the whole number of directors annually, the directors shall be divided
into three (3) classes, Class I, Class II and Class III, with three (3)
directors in Class I and two in each of Classes II and III. At the annual
meeting of stockholders of 1988, directors of Class I shall be elected to hold
office for a term expiring at the next succeeding annual meeting of
stockholders; directors of Class II shall be elected to hold office for a term
expiring at the second succeeding annual meeting of stockholders; and directors
of Class III shall be elected to hold office for a term expiring at the third
succeeding annual meeting of stockholders. At each annual meeting of
stockholders subsequent to the annual meeting of stockholders in 1988, the
successors to the class of directors whose term shall then expire shall be
elected to hold office for a term expiring at the third succeeding annual
meeting. Each director shall hold office for the term for which he was elected
and until his successor is elected and qualified or until his earlier
resignation or removal. Any increase or decrease in the authorized number of
directors shall be apportioned by the Board of Directors among the classes so
as to make all classes as nearly equal in number as possible. No decrease in
the authorized number of directors shall shorten the term of any incumbent
director. A director who is chosen in the manner provided in the Bylaws to
fill a vacancy in the Board of Directors or to fill a newly-created
directorship resulting from an increase in the authorized number of directors
shall hold office until the next election of the class for which such director
shall have been chosen and until his successor is elected and qualified or
until his earlier resignation or removal. Directors of the corporation may be
removed only for cause.

Upon the occurrence of any Event of Default (as defined in the
Restated Articles of Incorporation of the corporation) and the election held
pursuant to Subsection 4.6.4. of the Restated Articles of Incorporation of the
corporation, the effectiveness of the provisions of the immediately preceding
paragraph shall be suspended, and the five (5) directors elected in accordance
with Section 4.6 of the Restated Articles of Incorporation shall serve until
the next annual meeting of stockholders and until their respective successors
are elected and qualified or until their successors are elected and qualified
or until their earlier registration or removal. Upon the discontinuance of an
Event of Default, the suspension of the effectiveness of the provisions of the
immediately preceding paragraph shall automatically cease; the directors whose
terms shall not have expired by reason of the discontinuance of such Event of
Default shall be designated as Class III directors; the remaining directors,
subject to applicable Kansas law, may appoint directors in accordance with the
provisions of Section 14 of the Bylaws or may call a special meeting of
stockholders to elect directors to fill the vacancies created by the expiration
of the terms of directors elected or approved by or on behalf of the holders of
the Class A Preferred Stock of this corporation and to fill any newly created
directorships resulting from an increase in the number of directors due to a
cessation in such suspension; and the terms of each class of directors shall be
determined by the provisions of the immediately preceding paragraph as though
such directors had been elected at the 1988 annual meeting of stockholders.

SIXTH. The corporation is to have perpetual existence.

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SEVENTH. The private property of the stockholders shall not be
subject to the payment of corporate debts to any extent whatsoever.

EIGHTH. Elections of directors need not be by ballot unless the Bylaws
of the corporation so provide.

NINTH. The provisions of the Bylaws of this corporation contained in
Section 13 of 14 thereof may be amended, altered, changed or repealed from time
to time by directors constituting at least two-thirds ( 2/3) of the authorized
number of directors of the corporation; provided, however, that the
stockholders at an annual meeting, or special meeting, may also amend, alter,
change or repeal such provisions by the affirmative vote of the holders of
two-thirds ( 2/3) of the issued and outstanding shares of all classes of stock
of the corporation entitled to vote thereon, voting as one class. All
provisions of the Bylaws, other than those referred to above in this paragraph,
may be amended or repealed and new Bylaws not inconsistent or in conflict with
those provisions referred to above in this paragraph may be added from time to
time by a majority of the Board of Directors then in office; provided, however,
that the stockholders at an annual meeting, or special meeting, may also from
time to time amend all provisions of the Bylaws, other than those referred to
above in this paragraph, and add new Bylaws not inconsistent or in conflict
with those provisions referred to above in this paragraph by the affirmative
vote of the holders of a majority of all classes of stock of the corporation
entitled to vote thereon, voting as one class. Any amendment to the Bylaws
adopted by the stockholders as aforesaid may thereafter be further amended by
the directors as aforesaid unless the stockholders shall have provided
otherwise in such amendment.

TENTH. 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, employer 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.

ELEVENTH. Whenever a compromise or arrangement is proposed
between this corporation and its creditors or any class of them or between this
corporation and its stockholders or any class of them, any court of competent
jurisdiction within the State of Kansas, on the application in a summary way of
this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 104 of the General Corporation Code of Kansas or on
the application of trustees in dissolution or of any receiver or receivers
appointed for this corporation under the provisions of Section 98 of the
General Corporation Code of Kansas, may order a meeting of the creditors or
class of creditors, or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three-fourths in value of
the creditors or class of creditors, or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any compromise
or arrangement and to any reorganization of this corporation as a consequence
of such compromise or arrangement, the said compromise or

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arrangement and the said reorganization, if sanctioned by the court to which
the said application has been made, shall be binding on all the creditors or
class of creditors, or on all the stockholders or class of stockholders, of
this corporation, as the case may be, and also on this corporation.

TWELFTH. Except as may be otherwise provided by statute, the
corporation shall be entitled to treat the registered holder of any shares of
the corporation as the owner of such shares and of all rights derived from such
shares for all purposes, and the corporation shall not be obligated to
recognize any equitable or other claim to or interest in such shares or rights
on the part of any other person, including, but without limiting the generality
of the term "person," a purchaser, pledgee, assignee or transferee of such
shares or rights, unless and until such person becomes the registered holder of
such shares. The foregoing shall apply whether or not the corporation shall
have either actual or constructive notice of the interest of such person.

THIRTEENTH. Meetings of stockholders may be held within or
without the State of Kansas, as the Bylaws may provide. The books of the
corporation may be kept (subject to any provision contained in the statutes of
Kansas) outside the State of Kansas at such place or places as may be
designated from time to time by the Board of Directors or in the Bylaws of the
corporation.

FOURTEENTH. The corporation reserves the right to amend, alter,
change or repeal any provisions contained in these Restated Articles of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation. The provisions contained in the Articles FIFTH,
NINTH and FOURTEENTH of these Restated Articles of Incorporation may be
amended, altered, changed or repealed from time to time only upon (1) the
approval of directors constituting at least two-thirds ( 2/3) of the authorized
number of directors of the corporation, and (2) the affirmative vote of the
holders of two-thirds ( 2/3) of the issued and outstanding shares of all
classes of stock of the corporation entitled to vote thereon, voting as one
class at any annual or special meeting of the stockholders. All provisions of
these Restated Articles of Incorporation, other than those referred to above in
this Article, may be amended, altered, changed or replaced in the manner now or
hereafter prescribed by statute.

FIFTEENTH. 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.

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IN WITNESS WHEREOF, these Restated Articles of Incorporation of
ShowBiz Pizza Time, Inc. have been executed on behalf of the corporation by its
Chief Executive Officer and attested by its Secretary on this 26th day of
November, 1996.

SHOWBIZ PIZZA TIME, INC.

By:/s/ RICHARD M. FRANK
------------------------
[CORPORATE SEAL] Richard M. Frank
Chief Executive Officer
ATTEST:

/S/ MARSHALL R. FISCO
- ----------------------
Marshall R. Fisco, Jr., Secretary

STATE OF TEXAS )
)
COUNTY OF DALLAS )

BEFORE ME, the undersigned authority, on this day personally appeared
Richard M. Frank, known to me to be the person and officer whose name is
subscribed to the foregoing instrument and acknowledged to me that the same was
the act of ShowBiz Pizza Time, Inc., a corporation, and that he executed the
same as the act of such corporation.

Given under my hand and seal of office this 26th day of November,
1996.

/S/ SHERI L. HALL
------------------------
Notary Public in and for
the State of Texas
My commission expires:

June 17, 1997
- ----------------------

SHERI L. HALL
[Seal] MY COMMISSION EXPIRES
JUNE 17, 1997

<PAGE> 1

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in this Registration Statement
of ShowBiz Pizza Time, Inc. on Form S-3 of our reports dated February 23, 1996
(May 22, 1996 as to the last paragraph of Note 1) included in the Annual Report
on Form 10-K of ShowBiz Pizza Time, Inc. for the year ended December 29, 1995
(as amended), and to the use of our report dated February 23, 1996 (May 22, 1996
as to the last paragraph of Note 1), appearing in the Prospectus, which is part
of this Registration Statement. We also consent to the reference to us under the
headings "Selected Financial Data" and "Experts" in such Prospectus.

DELOITTE & TOUCHE LLP
Dallas, Texas
February 21, 1997