Edgar Filing: CEC ENTERTAINMENT INC

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )

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[X] Definitive Proxy Statement Rule 14a-6(e)(2))

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12

CEC ENTERTAINMENT, INC.
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Name of Registrant as Specified In Its Charter)

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Notes:

CEC ENTERTAINMENT, INC.
4441 West Airport Freeway
Irving, Texas 75062
(972) 258-8507

May 24, 2001

Dear Stockholder:

You are cordially invited to attend the annual meeting of stockholders of
CEC Entertainment, Inc. to be held at 9:00 a.m. local time, Thursday, June
28, 2001, at the Harvey Hotel located at 4545 West John Carpenter Freeway,
Irving, Texas.

At the meeting you will be asked to re-elect two current directors, to
authorize amendments to the Company's 1997 Non-Statutory Stock Option Plan,
to authorize amendments to the Company's Non-Employee Directors Stock
Option Plan, to authorize an amendment to the Company's Incentive Bonus
Plan, and to transact such other business as may properly come before the
meeting.

The formal Notice of the Annual Meeting of Stockholders and Proxy Statement
accompanying this letter provide detailed information concerning matters to
be considered and acted upon at the meeting.

Your vote is important. I urge you to vote as soon as possible, whether or
not you plan to attend the Annual Meeting. You may vote over the internet,
as well as by telephone or by mailing a proxy card. Voting over the
internet, by telephone or by written proxy will ensure your representation
at the Annual Meeting if you do not attend in person. Please review the
instructions with the proxy card regarding each of these voting options.

Thank you for your continued support of and interest in CEC Entertainment,
Inc.

Sincerely,

RICHARD M. FRANK
Chairman and Chief Executive Officer

CEC ENTERTAINMENT, INC.
4441 West Airport Freeway
Irving, Texas 75062
(972) 258-8507

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 28, 2001

To the Stockholders of
CEC Entertainment, Inc.:

Notice is hereby given that the annual meeting of stockholders of CEC
Entertainment, Inc., a Kansas corporation (the "Company"), will be held at the
Harvey Hotel located at 4545 West John Carpenter Freeway, Irving, Texas on June
28, 2001, at 9:00 a.m. local time, for the following purposes:

1. To re-elect two Class I directors to serve for a term of three years
or until their successors are elected and qualified or until their
earlier resignation or removal

2. To authorize the amendment of the Company's Non-Employee Director's
Stock Option Plan by changing the ability to exercise options;

3. To authorize the amendment of the Company's Non-Employee Director's
Stock Option Plan by increasing the number of shares annually granted
to non-employee Directors;

4. To authorize the amendment of the Company's 1997 Non-Statutory Stock
Option Plan by changing the ability to exercise options;

5. To authorize the amendment of the Company's 1997 Non-Statutory Stock
Option Plan by adding 1,300,000 shares thereto;

6. To authorize the amendment of the Company's Incentive Bonus Plan; and

7. To transact such other business as may properly come before the
meeting.

Only stockholders of record at the close of business on May 10, 2001 are
entitled to notice of, and to vote at, the meeting, and any adjournments or
postponements thereof. A list of the stockholders entitled to vote at the
meeting shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of ten (10)
days prior to the meeting, at 4441 West Airport Freeway, Irving, Texas. The list
shall also be available for examination during the meeting by any stockholder
who is present at the meeting.

It is desirable that as large a proportion as possible of the stockholders'
interests be represented at the meeting. Whether or not you plan to be present
at the meeting, you are requested to vote as soon as possible so that your
shares may be voted in accordance with your wishes. The giving of such proxy
will not affect your right to revoke it later or vote in person in the event
that you should attend the meeting.

To make it easier for you to vote, internet and telephone voting is available.
The instructions included with the proxy card describe how to use these
services. Of course, if you prefer, you can vote through the mail service by
completing the proxy card and returning it in the enclosed postage-paid
envelope.

By Order of the Board of Directors,

MARSHALL R. FISCO, JR.
Secretary
Irving, Texas
May 24, 2001

CEC ENTERTAINMENT, INC.
4441 WEST AIRPORT FREEWAY
IRVING, TEXAS 75062
(972) 258-8507

PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 28, 2001

This proxy statement is furnished to stockholders of CEC Entertainment, Inc., a
Kansas corporation (the "Company"), in connection with the solicitation of
proxies by the Board of Directors of the Company (the "Board of Directors") for
use at the annual meeting of stockholders (the "Annual Meeting") to be held at
9:00 a.m. local time, on June 28, 2001 at the Harvey Hotel located at 4545 West
John Carpenter Freeway, Irving, Texas, and any adjournments or postponements
thereof. Proxies in the form enclosed will be voted at the Annual Meeting, if
completed in accordance with the instructions, tendered to the Company prior to
the Annual Meeting and not revoked. A proxy may be revoked at any time before it
is voted either by filing with the Secretary of the Company a written notice of
revocation or a duly executed proxy bearing a later date, or it may be revoked
by attending the Annual Meeting and voting in person. This proxy statement was
first mailed or given to the Company's stockholders on or about May 24, 2001.

OUTSTANDING CAPITAL STOCK

The record date for stockholders entitled to notice of, and to vote at, the
Annual Meeting is May 10, 2001. At the close of business on that date, the
Company had issued and outstanding and entitled to receive notice of and vote at
the Annual Meeting 27,948,921 shares of Common Stock, $0.10 par value (the
"Common Stock"), and 48,174 shares of Class A Preferred Stock, $60 par value
(the "Preferred Stock"). No other class of securities of the Company is entitled
to notice of, or to vote at, the Annual Meeting.

ACTION TO BE TAKEN AT THE ANNUAL MEETING

The accompanying proxy, unless the stockholder otherwise specifies in the proxy,
will be voted:

1. To re-elect two Class I directors to serve for a term of three years
or until their successors are elected and qualified or until their
earlier resignation or removal

2. To authorize the amendment of the Company's Non-Employee Director's
Stock Option Plan by changing the ability to exercise options;

3. To authorize the amendment of the Company's Non-Employee Director's
Stock Option Plan by increasing the number of shares annually granted
to non-employee Directors;

4. To authorize the amendment of the Company's 1997 Non-Statutory Stock
Option Plan by changing the ability to exercise options;

5. To authorize the amendment of the Company's 1997 Non-Statutory Stock
Option Plan by adding 1,300,000 shares thereto;

6. To authorize the amendment of the Company's Incentive Bonus Plan; and

7. To transact such other business as may properly come before the
meeting.

Proxies will be voted for any proposals pending at the Annual Meeting, unless
authorization to vote for a proposal is withheld or otherwise directed.
Proxyholders will vote in accordance with duly completed and tendered proxies.
Proxyholders will use their discretion to vote on any other matter or business
is brought before the Annual Meeting. The Board of Directors is not presently
aware of any other matters or business to be brought before the Annual Meeting.

QUORUM AND VOTING

Each stockholder of record on the Record Date is entitled to one vote for each
share of Common Stock and/or Preferred Stock held by them. A majority of the
outstanding shares of Common Stock and Preferred Stock, represented in person or
by proxy, will constitute a quorum at the Annual Meeting; provided, however, if
a quorum is not present or represented at the Annual Meeting, the stockholders
entitled to vote at the Annual Meeting, present in person or represented by
proxy, have the power to adjourn the Annual Meeting from time to time, without
notice, other than by announcement at the Annual Meeting, until a quorum is
present or represented. At any such adjourned Annual Meeting at which a quorum
is present or represented, any business may be transacted that might have been
transacted at the original date of the Annual Meeting.

Votes cast by proxy or in person shall be counted by a person or persons
appointed by the Company to act as inspector of election for the Annual Meeting.
The inspector of election will treat shares presented by proxies that reflect
abstentions as shares that are present and entitled to vote for the purpose of
determining the presence of a quorum. Abstentions will have no effect on other
proposals to be voted on at the Annual Meeting. Unless authorization to vote for
a proposal pending at the Annual Meeting is withheld, if no direction is made
for a vote cast by proxy, the proxy shall be voted for such proposals.

Broker non-votes occur where a broker holding shares in street name votes the
shares on some proposals but not others. Brokers are permitted to vote on
routine, non-controversial proposals in instances where they have not received
voting instructions from the beneficial owner of the shares, but are not
permitted to vote on non-routine proposals. The missing votes on non-routine
proposals are deemed to be "broker non-votes." The inspector of election shall
treat broker non-votes as shares that are present and entitled to vote for the
purpose of determining the presence of a quorum. However, for the purpose of
determining the outcome of any proposal as to which the broker has indicated on
the proxy that it does not have discretionary authority to vote, those shares
will be treated as not present and not entitled to vote with respect to that
proposal (even though those shares are considered entitled to vote for quorum
purposes and may be entitled to vote on other proposals). Except for the purpose
of determining the presence of a quorum, broker non-votes will have no effect on
the outcome of the proposal to be voted on at the Meeting.

REVOCABILITY OF PROXIES

Any person giving a proxy pursuant to this solicitation has the power to revoke
it at any time before it is voted at the Annual Meeting. It may be revoked by
filing with the Secretary of the Company, Marshall R. Fisco, Jr., CEC
Entertainment, Inc., 4441 West Airport Freeway, Irving, Texas 75062, a written
notice of revocation or duly completed and tendered proxy bearing a later date,
or it may be revoked by attending the Annual Meeting and voting in person.
Attendance at the Annual Meeting will not, by itself, revoke a proxy.

PRINCIPAL HOLDERS OF CAPITAL STOCK

The following table sets forth information, as of May 10, 2001, relating to the
beneficial ownership of the Company's Common Stock and Preferred Stock by: (i)
each director and executive officer (as hereinafter defined) of the Company as
of such date, (ii) the directors and the executive officers of the Company as a
group (13 persons) as of such date, and (iii) each person, as that term is used
in the Securities Exchange Act of 1934, as amended (the "Exchange Act"), known
to the Company to own beneficially 5% or more of the outstanding shares of
Common Stock or Preferred Stock. Except as otherwise indicated, each of the
persons named in the table is believed by the Company to possess sole voting and
investment power with respect to the shares of Common Stock or Preferred Stock
beneficially owned by such person. Information as to the beneficial ownership of
Common Stock and Preferred Stock by directors and executive officers of the
Company has been furnished by the respective directors and executive officers.

Percentage of Class Outstanding
-------------------------------
Name (and address for Number of Shares of Number of Shares of
5% beneficial owners) Common Stock Preferred Stock Common Stock Preferred Stock
-------------------- ------------ --------------- ------------ ---------------

Richard M. Frank 457,144 (A) 0 1.6% 0.0%

Michael H. Magusiak 161,822 (B) 0 (C) 0.0%

J. Roger Cardinale 33,344 (D) 0 (C) 0.0%

Rodney Carter 5,000 (E) 0 (C) 0.0%

Gene F. Cramm, Jr. 4,452 (F) 0 (C) 0.0%

Mark A. Flores 10,903 (G) 0 (C) 0.0%

Richard T. Huston 71,933 (H) 0 (C) 0.0%

Thomas W. Oliver 12,500 (I) 0 (C) 0.0%

Tim T. Morris 1,000 (J) 0 (C) 0.0%

Louis P. Neeb 5,625 (K) 0 (C) 0.0%

Cynthia I. Pharr 9,525 (L) 0 (C) 0.0%

Walter Tyree 5,625 (M) 0 (C) 0.0%

Raymond Wooldridge 20,625 (N) 0 (C) 0.0%

Directors and Executive 799,498 0 2.9% 0.0%
Officers as a Group

A I M Management Group 2,016,465 (O) 0 7.2% 0.0%
11 Greenway Plaza, Suite 100
Houston, TX 77046

FMR Corp. 3,825,540 (P) 0 13.7% 0.0%
82 Devonshire Street
Boston, MA 02109-3614

Mellon Financial Corporation 1,432,557 (Q) 0 5.1% 0.0%
One Mellon Center
Pittsburgh, PA 15258

Time Warner, Inc. 0 16,011 (R) 0.0% 33.2%
75 Rockefeller Plaza
New York, NY 10019

River Forest State Bank & Trust Co. 0 3,139 (S) 0.0% 6.5%
7727 West Lake Street
River Forest, IL 60305
(Footnotes appear on the following pages)

(A) Includes 232,175 shares purchasable pursuant to options issued under the
Company's Non-Statutory Stock Option Plan which are exercisable within 60
days of the date hereof, but excludes 415,325 shares purchasable pursuant
to options issued under the Company's Non-Statutory Stock Option Plan which
are not exercisable within 60 days of the date hereof. This number includes
224,969 shares beneficially owned by Frank Family Trust A2 and Richard M.
Frank Revocable Trust. Of his total shares, Mr. Frank has sole voting power
over 224,969 shares and sole dispositive power over 224,969 shares.

(B) Includes 112,500 shares purchasable pursuant to options issued under the
Company's Non-Statutory Stock Option Plan which are exercisable within 60
days of the date hereof, but excludes 305,000 shares purchasable pursuant
to options issued under the Company's Non-Statutory Stock Option Plan which
are not exercisable within 60 days of the date hereof.

(D) Includes 33,344 shares purchasable pursuant to options issued under the
Company's Non-Statutory Stock Option Plan which are exercisable within 60
days of the date hereof, but excludes 79,791 shares purchasable pursuant to
options issued under the Company's Non-Statutory Stock Option plan which
are not exercisable within 60 days of the date hereof.

(E) Includes 5,000 shares purchasable pursuant to options issued under the
Company's Non-Statutory Stock Option Plan which are exercisable within 60
days of the date hereof, but excludes 64,140 shares purchasable pursuant to
options issued under the Company's Non-Statutory Stock Option plan which
are not exercisable within 60 days of the date hereof.

(F) Includes 4,452 shares purchasable pursuant to options issued under the
Company's Non-Statutory Stock Option Plan which are exercisable within 60
days of the date hereof, but excludes 86,767 shares purchasable pursuant to
options issued under the Company's Non-Statutory Stock Option plan which
are not exercisable within 60 days of the date hereof.

(G) Includes 10,903 shares purchasable pursuant to options issued under the
Company's Non-Statutory Stock Option Plan which are exercisable within 60
days of the date hereof, but excludes 71,766 shares purchasable pursuant to
options issued under the Company's Non-Statutory Stock Option Plan which
are not exercisable within 60 days of the date hereof.

(H) Includes 42,345 shares purchasable pursuant to options issued under the
Company's Non-Statutory Stock Option Plan which are exercisable within 60
days of the date hereof, but excludes 102,047 shares purchasable pursuant
to options issued under the Company's Non-Statutory Stock Option Plan which
are not exercisable within 60 days of the date hereof.

(I) Includes 12,500 shares purchasable pursuant to options issued under the
Company's Non-Statutory Stock Option Plan which are exercisable within 60
days of the date hereof, but excludes 91,691 shares purchasable pursuant to
options issued under the Company's Non-Statutory Stock Option Plan which
are not exercisable within 60 days of the date hereof.

(J) Includes 0 shares purchasable pursuant to options issued under the Non-
Employee Directors Stock Option Plan which are exercisable within 60 days
of the date hereof, but excludes 6,875 shares purchasable pursuant to
options issued under the Company's Non-Employee Directors Stock Option Plan
which are not exercisable within 60 days of the date hereof.

(K) Includes 5,625 shares purchasable pursuant to options issued under the Non-
Employee Directors Stock Option Plan which are exercisable within 60 days
of the date hereof, but excludes 5,000 shares purchasable pursuant to
options issued under the Company's Non-Employee Directors Stock Option Plan
which are not exercisable within 60 days of the date hereof.

(L) Includes 9,375 shares purchasable pursuant to options issued under the Non-
Employee Directors Stock Option Plan which are exercisable within 60 days
of the date hereof, but excludes 6,875 shares purchasable pursuant to
options issued under the Company's Non-Employee Directors Stock Option Plan
which are not exercisable within 60 days of the date hereof.

(M) Includes 1,875 shares purchasable pursuant to options issued under the Non-
Employee Directors Stock Option Plan which are exercisable within 60 days
of the date hereof, but excludes 6,875 shares purchasable pursuant to
options issued under the Company's Non-Employee Directors Stock Option Plan
which are not exercisable within 60 days of the date hereof.

(N) Includes 5,625 shares purchasable pursuant to options issued under the Non-
Employee Directors Stock Option Plan which are exercisable within 60 days
of the date hereof, but excludes 6,875 shares purchasable pursuant to
options issued under the Company's Non-Employee Directors Stock Option Plan
which are not exercisable within 60 days of the date hereof.

(O) Based upon information in Schedule 13G dated February 9, 2001. This number
includes 2,016,465 shares beneficially owned by AIM Management Group, Inc.,
on behalf of itself and its wholly-owned subsidiaries, AIM Advisors, Inc.
and AIM Capital Management, Inc. Of its total shares, AIM Management Group,
Inc. has sole voting and dispositive power over 2,016,465 shares.

(P) Based upon information in Schedule 13G dated February 14, 2001. This number
includes the interests of various persons, including 1,477,550 shares
beneficially owned by Fidelity Small Cap Stock Fund. Of its total shares,
FMR Corp. has sole voting power over 1,208,640 shares and sole dispositive
power over 3,825,540 shares. Fidelity International Limited has sole voting
and dispositive power over 111,930 shares.

(Q) Based upon information in Schedule 13G dated January 17, 2001. This number
includes the interests of various direct and indirect subsidiaries of
Mellon Financial Corporation. Of its total shares, Mellon Financial
Corporation has sole voting power over 1,395,697 shares and sole
dispositive power over 1,406,547 shares.

(R) Based on information in Schedule 13D/A dated January 11, 2001. Of its total
shares, Time Warner, Inc. has shared voting and dispositive power over
16,011 shares.

(S) Based on information obtained from the Company's Transfer Agent on May 10,
2001.

PROPOSAL 1:
ELECTION OF DIRECTORS

The terms of the Class I directors expire at the Annual Meeting in 2001. The
Board of Directors has nominated Michael H. Magusiak, and Walter Tyree for re-
election at the Annual Meeting, to serve for a term of three years. Messrs.
Magusiak and Tyree have expressed their intention to serve the entire term for
which re-election is sought.

Directors will be elected by cumulative voting. To be elected as a director, a
candidate must be among the two candidates who receive the most votes out of all
votes cast for the election of directors at the Annual Meeting. See "Quorum and
Voting."

The following table lists the names and ages (as of May 10, 2001) of the
director nominees and the other directors whose terms of office will continue
after the Annual Meeting, the year in which each director was first elected as a
director of the Company, the class to which each director has been or will be
elected, and the Annual Meeting at which the term of each director will expire.

Director Term
Nominee Directors Age Since Class Expires
----------------- --- -------- ----- -------

Michael H. Magusiak .................................. 45 1988 I 2001

Walter Tyree ......................................... 49 1997 I 2001

Continuing Directors
--------------------

Richard T. Huston..................................... 55 1999 II 2002

Cynthia I. Pharr ..................................... 52 1994 II 2002

Raymond E. Wooldridge................................. 62 1997 II 2002

Richard M. Frank ..................................... 53 1985 III 2003

Tim T. Morris ........................................ 54 1997 III 2003

Louis P. Neeb ........................................ 62 1994 III 2003

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE NAMED NOMINEES.

ADDITIONAL INFORMATION ABOUT THE EXECUTIVE OFFICERS, BOARD OF
DIRECTORS AND COMMITTEES OF THE BOARD OF DIRECTORS

EXECUTIVE OFFICERS

The following table sets forth the names and certain other information regarding
the executive officers of the Company as of May 10, 2001.

Year First Elected
Name Age Position as Executive Officer
---- --- -------- --------------------

Richard M. Frank....... 53 Chairman of the Board 1985
and Chief Executive Officer

Michael H. Magusiak.... 45 President 1988

J. Roger Cardinale..... 41 Executive Vice President, 1999
Development and Purchasing

Rodney Carter.......... 43 Executive Vice President, 2000
Chief Financial Officer and Treasurer

Gene F. Cramm, Jr...... 43 Executive Vice President, 1997
Games, Entertainment and Concept Evolution

Mark A. Flores......... 43 Executive Vice President, 1999
Director of Operations

Richard T. Huston...... 55 Executive Vice President, 1986
Marketing

Thomas W. Oliver....... 61 Executive Vice President, 2000
General Counsel

BUSINESS HISTORY OF EXECUTIVE OFFICERS AND DIRECTORS

A brief description of the business history of the directors and executive offi
cers of the Company is provided 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.

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.

J. ROGER CARDINALE has served as Executive Vice President of the Company since
December 1999. He assumed the duties of Director of Development in April 2000,
Director of Real Estate in January 1999, and has served as Director of
Purchasing since September 1990. Mr. Cardinale has held various positions with
the Company since November 1986, including Staff Accountant and Cash Manager.

RODNEY CARTER has served as Executive Vice President, Chief Financial Officer
and Treasurer of the Company since June 12, 2000. From 1998 to 2000 Mr. Carter
was Chief Financial Officer of JCPenney Credit. From 1997 to 1998 Mr. Carter
served as a Director, EVA Initiative, a project of J. C. Penney Company, Inc.
From 1996 to 1997 Mr. Carter was a Senior Vice President, Chief Financial
Officer and Treasurer of J. C. Penney Direct Marketing Services, Inc.

GENE F. CRAMM, JR. has served as Executive Vice President of the Company since
September 1997. Prior to that time he had served as a Senior Vice President
since September 1989. Mr. Cramm has held various positions with the Company
since 1980, including Director of Construction, Director of Entertainment and
Games, Senior Vice President, International Development and Special Projects,
Senior Vice President, Operational Support, and Director of Purchasing.

MARK A. FLORES has served as Executive Vice President of the Company since May
1999. Prior to that he served as Senior Vice President of the Company since 1995
and Regional Manager of the Western Region since 1992. He joined the company in
1982.

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. He has also served as a Director of the Company since 1999. His
responsibilities as an officer of the Company were expanded from June 1994 to
March 1997 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, and as Director of Marketing from
October 1985 to October 1988. He joined the Company in 1985.

THOMAS W. OLIVER has served as Executive Vice President and General Counsel of
the Company since March 2000. Prior to joining the Company, Mr. Oliver was a
shareholder for 23 years in the Dallas office of the law firm of Winstead,
Sechrest and Minick. He joined the Company in 2000.

TIM T. MORRIS was elected as a Director of the Company in June 1997. Mr. Morris
is currently the President of River Associates, LLC, an investment firm; he has
been a Partner in that firm since 1990. From 1981 through 1990 Mr. Morris was an
Office Managing Partner of Deloitte & Touche, an accounting firm. From 1977
through 1981 Mr. Morris was a Partner of Rogers, Morris, Millsaps & Underwood,
CPA's, an accounting firm. From 1968 through 1977 Mr. Morris was a Partner of
Hazlett, Lewis & Bieter, CPA's, an accounting firm.

LOUIS P. NEEB was elected as a Director of the Company in August 1994. Mr. Neeb
has served as Chairman of the Board and Chief Executive Officer of Casa Ole'
Restaurants, Inc. from October 1995 to the present. From August 1982 to present,
Mr. Neeb has been President of Neeb Enterprises, Inc., a management consulting
firm specializing in consulting to restaurant companies. 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, and Silver Diner, Inc., a publicly-traded
restaurant company.

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 had served as a member of the Board of Directors of Spaghetti
Warehouse, Inc. from August 1991 until January 1999, and as as Chairman of the
Board of GuestCare, Inc., a privately held technology company, from February
1994 until June 1999.

WALTER TYREE was elected as a Director of the Company in June 1997. Mr. Tyree is
currently Division President of Boston Chicken, Inc. Mr. Tyree has served in
that position since October 1999. He previously held the position of Vice
President of Operations for Boston Chicken from October 1998 until October 1999.
Mr. Tyree had served as Chief Operating Officer of BCBM Southwest, Inc., a
Boston Market franchisee, from January 1993 until October 1998. From 1980 to
1992, Mr. Tyree served in various positions with Steak and Ale, a restaurant
company, most recently as a Regional Director.

RAYMOND E. WOOLDRIDGE was elected as a Director of the Company in June 1997. Mr.
Wooldridge currently serves as a member of the National Adjudicatory Committee
of the National Securities Dealers Association - Regulation and as a member of
the Board of Trustees of the University of Dallas. Mr. Wooldridge previously
served as Vice Chairman and Chairman of the Executive Committee of Southwest
Securities Group, Inc., a publicly owned holding firm. Mr. Wooldridge is also a
Director of Dadco, Inc., a subsidiary of D. A. Davidson & Company, a member of
NASD and the Pacific Stock Exchange. Mr. Wooldridge had served in these
positions from 1986 until 1996. From 1964 through 1986, Mr. Wooldridge served in
various positions with Eppler, Guerin and Turner, Inc., a regional brokerage and
investment banking firm, most recently as the firm's President and Chief
Executive Officer.

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

COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS

Four (4) regularly scheduled and four (4) special meetings of the Board of
Directors were held during 2000. Each of the directors attended at least 75% of
the meetings held by the Board of Directors, and by each committee on which he
or she served in 2000.

The Board of Directors has established an Executive Committee, an Audit
Committee, a Compensation Committee, a Nominating Committee, and a Stock Option
Committee. The responsibilities and composition of each of these committees are
described below.

The Executive Committee currently consists of four directors. The Executive
Committee is responsible for assisting the Board of Directors in carrying out
its duties and acts in the place of the Board of Directors when the Board of
Directors is not in session and may exercise substantially all of the powers of
the Board of Directors other than those powers specifically required by law or
by the Company's Bylaws to be exercised by the full Board of Directors. The
Executive Committee (comprised of Messrs. Frank, Magusiak, Neeb and Ms. Pharr in
2000) held a number of informal meetings in person and by telephone in 2000.

The Audit Committee currently consists of three directors. The Audit Committee
is responsible for carrying out various responsibilities relating to accounting,
reporting practices, and the quality and integrity of the financial reports of
the Company, as more completely described in the Audit Committee Charter. The
Audit Committee was comprised of Messrs. Morris, Tyree and Wooldridge until
January 31, 2000. Effective February 1, 2000, the Audit Committee was comprised
of Messrs. Morris and Tyree, and Ms. Pharr. The Audit Committee held three (3)
meetings in 2000.

The Compensation Committee currently consists of two directors. The Compensation
Committee is responsible for recommending the compensation, including
performance bonuses, payable to the Company's executive officers, and
recommending the performance bonuses for other employees of the Company. The
Compensation Committee was comprised of Ms. Pharr and Messrs. Neeb and
Wooldridge until January 31, 2000. Effective February 1, 2000, the Compensation
Committee was comprised of Messrs. Neeb and Wooldridge. The Compensation
Committee held two (2) meetings in 2000.

The Nominating Committee currently consists of two directors. The Nominating
Committee is responsible for recommending candidates for consideration by the
full Board of Directors to fill any vacancies on the Board, which may occur from
time to time. The Nominating Committee also considers sound and meritorious
nomination suggestions for directors from stockholders. All letters of
recommendation for nomination should be sent to the Corporate Secretary of the
Company at its principal executive offices and should include, in addition to
the nominee's name and address, a listing of the nominee's background and
qualifications. A signed statement from the nominee should accompany the letter
of recommendation indicating that he or she consents to being considered as a
nominee and that, if nominated by the Board of Directors and elected by the
stockholders, he or she will serve as a director. The Nominating Committee
(comprised of Messrs. Morris and Tyree in 2000) held no meetings in 2000.

The Stock Option Committee currently consists of two directors who are
responsible for administering the 1997 Non-Statutory Stock Option Plan. The
Stock Option Committee (comprised of Messrs. Neeb and Wooldridge in 2000) held
five (5) meetings in 2000.

SUMMARY COMPENSATION TABLE

The following table sets forth the compensation paid to the Chief Executive
Officer and to each of the other most highly paid executive officers of the
Company (the "Named Executive Officers") for the for the fiscal years ended
January 3, 1999, January 2, 2000, and December 31, 2000 (designated herein as
fiscal years 1998, 1999, and 2000 respectively.)

Long Term
Annual Compensation Compensation Awards
------------------- -------------------
Restricted Securities
Other Annual Stock Underlying
Name (and Fiscal Compensation Awards Options
Principal Position) Year Salary($) Bonus($) ($)(A) ($) (#)(B)
------------------ ---- -------- ------- ------------ ---------- ----------

Richard M. Frank 2000 1,000,000 297,600 (C) 34,230 -- 250,000
(Chief Executive Officer) 1999 1,000,000 380,800 (D) 41,681 -- 97,500
1998 1,000,000 433,700 (E) 39,988 -- 0

Michael H. Magusiak 2000 400,000 103,659 (C) 23,491 -- 50,000
(President) 1999 300,000 99,960 (D) 22,426 -- 150,000
1998 250,000 194,873 (E) 18,194 -- 0

Richard T. Huston 2000 182,000 40,622 (C) 19,829 -- 22,932
(Executive Vice President) 1999 175,000 49,949 (D) 17,866 -- 45,000
1998 167,600 54,521 (E) 16,771 -- 26,460

Thomas W. Oliver (F) 2000 147,462 95,692 (G) 17,281 -- 64,191
(Executive Vice President) 1999 -- -- (D) -- -- --
1998 -- -- (E) -- -- --

Gene F. Cramm, Jr. 2000 150,000 33,448 (C) 15,298 -- 18,900
(Executive Vice President) 1999 142,500 40,665 (D) 15,452 -- 22,444
1998 135,000 43,912 (E) 14,930 -- 21,262

__________________

(A) Includes annual car allowances for (i) Mr. Frank of $15,600 (in 1998, 1999
and 2000); (ii) Mr. Magusiak of $12,000 (in 1998, 1999 and 2000); (iii)
Messrs. Huston and Cramm of $10,200 (in 1998, 1999 and 2000); and (iv) Mr.
Oliver of $8,500 (in 2000).

(B) On July 23, 1999, the Common Stock of the Company split 3-for-2, resulting
in an additional amount of shares of Common Stock underlying options for
the Named Executive Officers for fiscal year 1999. The amounts listed above
have been adjusted to reflect the stock split.

(D) Includes bonus compensation earned in 1999 and paid in 2000.

(E) Includes bonus compensation earned in 1998 and paid in 1999.

(F) The amounts identified as part of Mr. Oliver's Annual Compensation are
actual amounts received in fiscal year 2000. These amounts are less than
his annualized compensation because his employment with the Company did not
commence until March 2000.

(G) Includes $50,000 bonus compensation earned and paid in 2000, and $45,692
bonus compensation earned in 2000 and paid in 2001.

EMPLOYMENT AGREEMENTS

On November 13, 2000, Richard M. Frank entered an employment agreement with the
Company providing for a 5-year term commencing on January 1, 2001. Pursuant to
the terms of the employment agreement, Mr. Frank receives an annual base salary
of $1,000,000, 250,000 shares of the Company's Common Stock issued under the
Company's 1997 Non-Statutory Stock Option Plan in the year 2000, a cash bonus,
payable annually, if earned, based upon the achievement of corporate objectives
pursuant to the Company's Incentive Bonus Plan, and such additional benefits
and/or compensation as may be determined by the Compensation Committee or the
Board of Directors. Mr. Frank may also receive additional shares of the
Company's Common Stock issued under the Company's 1997 Non-Statutory Stock
Option Plan after the year 2000 in such amounts as determined by the Stock
Option Committee.

On May 8, 2001, Michael H. Magusiak entered into an employment agreement with
the Company providing for a five-year term commencing on January 1, 2001.
Pursuant to the terms of the employment agreement, Mr. Magusiak receives an
annual base salary of $400,000, 150,000 shares of the Company's Common Stock
issued under the Company's 1997 Non-Statutory Stock Option Plan in the year
2001, a cash bonus, payable annually, if earned, based upon the achievement of
corporate objectives pursuant to the Company's Incentive Bonus Plan, and such
additional benefits and/or compensation as may be determined by the Compensation
Committee or the Board of Directors. Mr. Magusiak may also receive additional
shares of the Company's Common Stock issued under the Company's 1997 Non-
Statutory Stock Option Plan after the year 2001 in such amounts as determined by
the Stock Option Committee.

Under the terms of the respective employment agreements (the "Employment
Agreements"), if Mr. Frank's or Mr. Magusiak's (the "Covered Executive(s)")
employment with the Company is terminated by the Company (other than as a result
of death or "permanent disability" (as defined in the Employment Agreements)),
then Mr. Frank will be entitled to receive a severance amount equal to
$3,000,000, and Mr. Magusiak will be entitled to receive a severance amount
equal to two times his then current base salary (together, the "Severance
Amounts"). In the event of the Covered Executive's death, his estate is entitled
to receive his base salary through the date of his death.

The Employment Agreements also provide that each of Messrs. Frank and Magusiak
will receive his respective Severance Amount in the event there is a Change of
Control (as defined below) of the Company and the Covered Executive voluntarily
terminates his employment within one year after such a Change of Control. A
"Change of Control" is deemed to have occurred with respect to the Company if
(i) any person or group of persons acting in concert in which the Covered
Executive is not an investor, partner, officer, director or member, shall
acquire, directly or indirectly, the power to vote, or direct the voting of,
more than 33% of the then outstanding voting securities of the Company or (ii)
during any consecutive 18 month period a majority of the Board of Directors is
elected or appointed and consists of persons who were not directors of the
Company as of the date of the respective Employment Agreement and whose election
or appointment as directors of the Company is actively opposed by the Covered
Executive. In the event Messrs. Frank or Magusiak are subject to an excise tax
on their respective Severance Amounts, according to Sections 280 G and 4999 of
the Internal Revenue Code of 1986, as amended, the Company will gross-up their
respective Severance Amounts to satisfy the excise taxes.

INCENTIVE BONUS PLAN

The Company's Incentive Bonus Plan ("Bonus Plan") was approved by its
stockholders in June 2000. The Bonus Plan has been slightly modified and
restated. The purpose of the Bonus Plan is to secure for the Company and its
stockholders the benefits of the incentive inherent in performance based awards
by certain of its employees. All employees (excluding field operators) are
eligible for bonuses under the Bonus Plan. New hires of the Company who are
below management level must be full-time and employed by April the 1st of a
particular year to be eligible for a bonus for such year. New hires who are
management level and above will have their bonus prorated based on their hire
date. If an individual is promoted during the year, his or her bonus will be
prorated based upon the time and salary at each level. The bonuses will be an
amount equal to a specified percentage of the eligible employee's gross base
salary. For the Chief Executive Officer and the four highest compensated
officers other than the Chief Executive Officer, the term "gross base salary"
shall mean the gross base salary in effect on the first day of the fiscal year.
The term "four highest compensated officers other than the Chief Executive
Officer" shall mean any employee for whom total compensation is required to be
reported to stockholders under the Securities and Exchange Act of 1934 by reason
of such employee being among the four highest compensated officers for the
fiscal year. Under the Bonus Plan, the Compensation Committee (which administers
the Bonus Plan) will establish a Target Bonus for each eligible employee

no later than March 15 of the fiscal year for which the Target Bonus is
determined. For 2001, the Target Bonus may range from a high of 100% of gross
base salary to a low of 2% of gross base salary. For 2002 and thereafter, the
Target Bonus may range from a high of 200% of gross base salary to a low of 2%
of gross base salary.

Bonuses will be paid in the event the Company achieves the preestablished target
cash on cash return for the fiscal year. The Compensation Committee will
determine the target cash on cash return for the fiscal year not later than
March 15. The cash on cash return for purposes of this Bonus Plan means the
fiscal year's cash flow (income before taxes plus depreciation, amortization and
pre-opening expenses) minus the prior fiscal year's cash flow divided by the
weighted average increase in capital expenditures (including pre-opening
expenses). The employee's Bonus Potential will equal 100% of the Target Bonus
established by the Compensation Committee if the Company's actual cash on cash
return equals the target cash on cash return established by the Compensation
Committee. If the Company exceeds the target cash on cash return, each
employee's Bonus Potential will equal the employee's Target Bonus increased by
an additional four percent (4%) of the Target Bonus for each one percentage
point that the actual cash on cash return exceeds the target established by the
Compensation Committee. If the Company fails to attain the cash on cash return
established by the Compensation Committee, the Bonus Potential for each employee
will equal the employee's Target Bonus decreased by four percent (4%) of the
Target Bonus for each one percentage point that the actual cash on cash return
falls short of the target established by the Compensation Committee. In no event
will a bonus be paid if the actual cash on cash return is less than twenty
percent (20%) for a particular fiscal year.

The Incentive Bonus Plan was submitted to and approved by the stockholders in
June 2000, because approval by stockholders every five years is required to
satisfy the conditions necessary for the Company to exclude the bonuses under
the Incentive Bonus Plan from the $1,000,000 limit on deductibility of
compensation for certain executives according to Code Section 162(m). The
Incentive Bonus Plan is being submitted for stockholder approval of the slight
modification and restatement thereof.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information regarding stock options granted to
each of the Named Executive Officers in the fiscal year ended December 31, 2000.

Potential Realizable
Value at Assumed
Number of % of Total Annual Rates of
Securities Options Stock Price
Underlying Granted to Exercise Appreciation
Options Granted Employees in Price Expiration for Option Term($)
----------------------
(#) Fiscal Year ($/Share) Date 5% 10%
--------------- ------------- ----------- ----------- ---------- -----------

Richard M. Frank (A) 250,000 28.66% 23.2500 03/07/07 2,366,269 5,514,319
Michael H. Magusiak (B) 50,000 5.73% 23.2500 03/07/07 473,254 1,102,864
Richard T. Huston (C) 22,932 2.63% 25.5630 01/11/07 238,646 556,138
Thomas W. Oliver (D) 19,191 2.20% 23.2500 03/07/07 181,644 423,301
Thomas W. Oliver (E) 45,000 5.16% 23.2500 03/07/07 425,928 992,577
Gene F. Cramm, Jr. (F) 18,900 2.17% 25.5630 01/11/07 196,687 458,356

___________________

(A) Options are exercisable as follows: 20% after March 7, 2001; 40% after
March 7, 2002; 60% after March 7, 2003; 80% after March 7, 2004; and 100%
after March 7, 2005.

(B) Options are exercisable as follows: 100% after 12/05/03.

(D) Options are exercisable as follows: 50% after 03/07/02; 75% after 03/07/03;
and 100% after 03/07/04.

(E) Options are exercisable as follows: 50% after 03/07/01; 75% after 03/07/02;
and 100% after 03/07/03.

(F) Options are exercisable as follows: 50% after 01/11/02; 75% after 01/11/03;
and 100% after 01/11/04. 01/05/05.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

The following table sets forth, for each of the Named Executive Officers,
information regarding his exercise of stock options during the fiscal year ended
December 31, 2000 and the value of his unexercised stock options as of December
31, 2000. The closing price for the Company's Common Stock, as reported by the
New York Stock Exchange, on December 29, 2000 (the last trading day of the
fiscal year) was $34.125.

Shares Number of Unexercised Value of Unexercised In-
Acquired Options at the-Money Options at
on Value January 3, 1999 January 3, 1999
Exercise Realized (exercisable/unexercisable) (exercisable/unexercisable)
(#) ($)(A) (#) ($)(B)
---------- ------------ -------------------------- ---------------------------

Richard M. Frank 400,000 7,946,903 372,500 (E) 8,102,584 (E)
347,500 (U) 4,339,600 (U)

Michael H. Magusiak 36,235 920,569 187,500 (E) 4,160,824 (E)
200,000 (U) 3,037,365 (U)

Richard T. Huston 23,625 561,150 32,130 (E) 686,675 (E)
87,462 (U) 1,149,692 (U)

Thomas W. Oliver 0 0 0 (E) 0 (E)
64,191 (U) 698,077 (U)

Gene F. Cramm, Jr. 15,875 321,806 0 (E) 0 (E)
57,219 (U) 857,712 (U)

__________________

(A) Calculated by determining the difference between the fair market value of
the securities underlying the options and the exercise price of the options
at the time of exercise.

(B) Calculated by determining the difference between the exercise price of the
options and the fair market value of the securities underlying the options
at fiscal year-end.

(E) Options which are exercisable at December 31, 2000.

(U) Options which are not exercisable at December 31, 2000.

COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION

The executive compensation program of the Company is designed as a tool to
reinforce the Company's strategic principles -- to be a premier and progressive
growth company, with an objective of enhancing long term stockholder value. To
this end, the following principles have guided the development of the executive
compensation program:

. Provide competitive levels of compensation to attract and retain the
best qualified executive talent. The Compensation Committee strongly
believes that the caliber of the Company's management group makes a
significant difference in the Company's success over the long term.

. Embrace a "pay-for-performance" philosophy by placing significant
amounts of compensation "at risk" -- that is, a significant component
of the compensation payouts to executives must vary according to the
overall performance of the Company.

. Directly link executives' interests with those of stockholders by
providing opportunities for long term incentive compensation based on
changes in stockholder value.

The executive compensation program is intended to appropriately balance the
Company's short term operating goals with its long term strategy through a
careful mix of base salary, annual bonuses (payable upon the achievement of
corporate objectives pursuant to the Company's Incentive Bonus Plan) and long
term performance compensation through the issuance of stock options under the
1997 Non-Statutory Stock Option Plan.

The compensation of the executive officers of the Company (including Messrs.
Frank and Magusiak, except for those items that are fixed per their respective
employment agreements) is reviewed and determined annually by the Compensation
Committee. The compensation of such executive officers in 2000 was based on
individual and corporate performances as well as assigned responsibilities. In
establishing and reviewing executive compensation, consideration is also given
to executive salary ranges of comparable companies. Individual performance is
reflected in the executive officer's salary. Corporate performance is reflected
in a bonus, payable annually, if earned, to each executive officer, based on the
achievement of corporate objectives pursuant to the Company's Incentive Bonus
Plan. Messrs. Frank, Magusiak, Huston, and Cramm received no bonus compensation
in 2000 based upon performances in 2000. Mr. Oliver received a $50,000 bonus in
March, 2000 when he commenced his employment with the Company. Messrs. Frank and
the four most highly compensated executive officers (Magusiak, Huston, Oliver
and Cramm) received $297,600, $103,659, $40,622, $45,692, and $33,448,
respectively, and $521,021 (collectively), of bonus compensation in 2001 for
services rendered in 2000.

The Stock Option Committee is made up of the members of the Compensation
Committee, all of whom are non-employee directors. The Stock Option Committee
considers recommendations made by the Chief Executive Officer for option grants,
however, the Stock Option Committee makes the final decision in all such
matters. In 2000, the Stock Option Committee determined the number of options to
issue in accordance with the 1997 Non-Statutory Stock Option Plan based upon
base salaries and levels of responsibility.

CEO Performance Evaluation

Although Mr. Frank's salary is established by the terms of his Employment
Agreement (see "Employment Agreements"), the Compensation Committee nevertheless
annually evaluates his performance based on the same criteria as is applied to
the other executive officers of the Company. Stock option issuances to Mr.
Frank, and any increase in his annual base salary or the granting of a bonus,
are based on individual and corporate performance, applying the same factors for
him as described above for the Company's other executives.

The Compensation Committee has also considered the potential impact of Section
162(m) of the Code, adopted under the Omnibus Budget Reconciliation Act of 1993.
This section disallows a tax deduction for any publicly-held corporation for
individual compensation to certain executives of such corporation exceeding
$1,000,000 in any taxable year, unless compensation is performance-based. As
discussed above, Mr. Frank's annual base salary is $1,000,000. It is the intent
of the Company and the Compensation Committee to qualify to the maximum extent
possible its executives' compensation for deductibility under applicable tax
laws. The Compensation Committee will continue to monitor the impact of such
limitations on tax deductions and will take other appropriate actions if
warranted in the future.

The Compensation Committee was comprised of Ms. Pharr, and Messrs. Neeb and
Wooldridge until February 1, 2000. Thereafter, the Compensation Committee was
comprised of Messrs. Neeb and Wooldridge for the remainder of 2000. The Stock
Option Committee was comprised of Messrs. Neeb and Wooldridge in 2000, and is
currently comprised of Messrs. Neeb and Wooldridge.

Louis P. Neeb
Raymond E. Wooldridge

AUDIT COMMITTEE REPORT

The Audit Committee serves as the representative of the Board of Directors for
general oversight of the Company's financial accounting and reporting process,
system of internal control, audit process, and process for monitoring compliance
with laws and regulations and the Company's Code of Conduct. The Company's
management has primary responsibility for preparing the Company's financial
statements and the Company's financial reporting process. The Company's
independent public accountants, Deloitte & Touche LLP, are responsible for
expressing an opinion on the conformity of the Company's audited financial
statements to generally accepted accounting principles.

In this context, the Audit Committee hereby reports as follows:

1. The Audit Committee has reviewed and discussed the audited financial
statements with the Company's management.

2. The Audit Committee has discussed with the independent public
accountants the matters required to be discussed by Statement of
Auditing Standards 61 (Codification of Statements on Auditing
Standard, AU 380).

3. The Audit Committee has received the written disclosures and the
letter from the independent public accountants required by
Independence Standards Board Standard No. 1 (Independence Standards
Board Standards No. 1, Independence Discussions with Audit Committees)
and has discussed with the independent public accountants the
independent public accountants' independence.

4. Based on the review and discussion referred to in paragraphs (1)
through (3) above, the Audit Committee recommended to the Board of
Directors, and the Board of Directors has approved, that the audited
financial statements be included in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000, for filing with
the Securities and Exchange Commission.

Each of the members of the Audit Committee is independent as defined under the
listing standards of the New York Stock Exchange.

Tim T. Morris
Cynthia I. Pharr
Walter Tyree

COMPENSATION OF DIRECTORS

Non-employee directors of the Company or its affiliates, receive a retainer from
the Company at the rate of $10,000 per year, plus $750 for each regular meeting
of the Board of Directors attended. In addition thereto, on the day a non-
employee Director is first elected or appointed to the Board, such non-employee
Director shall be granted an option to purchase 7,500 shares of the Common Stock
of the Company. Each January thereafter, a non-employee Director who was
previously elected to the Board and who continues to serve in such capacity
shall be granted an option to purchase 2,500 shares of the Common Stock of the
Company. Other directors, who are either officers or employees of the Company or
its affiliates, do not receive separate compensation for their services as
directors of the Company.

PROPOSAL 2:
AMENDMENTS OF THE COMPANY'S NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN

The Non-Employee Directors Stock Option Plan ("Directors Plan") became effective
in June 1995. Options to purchase up to 225,000 shares of the Company's Common
Stock may be granted under the Directors Plan. The Directors Plan provides for
the granting of non-qualified stock options to non-employee directors of the
Company or its Affiliates (as defined in the Directors Plan). The goal of the
Directors Plan is to provide a means of retaining and attracting competent non-
employee personnel to serve on the Board of Directors by extending to such
individuals long-term incentives for high levels of performance and to award for
unusual efforts designed to improve the financial performance of the Company.
The Directors Plan is administered by a committee comprised of the President and
the Chief Financial Officer of the Company. In April, 2001, the committee
adopted, subject to the approval of the Company's stockholders, amendments to
the Directors Plan that would: (a) extend the time period in which the options
may be exercised from five (5) to seven (7) years after the options were
granted, (b) extend the time period in which the options may be exercised from
ninety (90) days to six (6) months after the death of an Optionee, and (c) grant
a limited right for Optionees to transfer options only to his or her Immediate
Family if the option contract or certificate allows for such a transfer, the
Optionee obtains the Committee's prior written consent for such transfer, and
the Optionee receives no consideration for such transfer. The description of the
Directors Plan contained herein is not intended to be complete and is qualified
in its entirety by reference to Exhibit "B" attached hereto, which contains the
complete text of the Directors Plan, as amended.

The Board of Directors believes that the proposed amendments to the Directors
Plan will enable the Company and its stockholders, through future grants and
stock options, to continue to secure the benefits of the incentive inherent in
stock ownership by its non-employee Directors.

THE BOARD OF DIRECTORS HAS APPROVED THE ABOVE DESCRIBED AMENDMENTS AND
UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE COMPANY'S NON-EMPLOYEE
DIRECTORS STOCK OPTION PLAN.

PROPOSAL 3:
AMENDMENT OF THE COMPANY'S NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN

The Non-Employee Directors Stock Option Plan ("Directors Plan") became effective
in June 1995. Options to purchase up to 225,000 shares of the Company's Common
Stock may be granted under the Directors Plan. The Directors Plan provides for
the granting of a fixed number of non-qualified stock options to non-employee
directors of the Company or its Affiliates (as defined in the Directors Plan).
The goal of the Directors Plan is to provide a means of retaining and attracting
competent non-employee personnel to serve on the Board of Directors by extending
to such individuals long-term incentives for high levels of performance and to
award for unusual efforts designed to improve the financial performance of the
Company. The Directors Plan is administered by a committee comprised of the
President and the Chief Financial Officer of the Company. In April, 2001, the
committee adopted, subject to the approval of the Company's stockholders, an
amendment to the Directors Plan providing an increase in the number of shares of
Common Stock that would annually be issued to non-employee Directors under the
Directors Plan from 2,500 to 4,000. The Company had not adjusted the number of
shares issued under the Directors Plan after the two stock splits that occurred
since its inception. This increase in the number of shares issued would reflect
some of the diminution in value caused by these splits. The description of the
Directors Plan contained herein is not intended to be complete and is qualified
in its entirety by reference to Exhibit "B" attached hereto, which contains the
complete text of the Directors Plan, as amended.

The Board of Directors believes that the proposed amendment to the Directors
Plan will enable the Company and its stockholders, through future grants and
stock options, to continue to secure the benefits of the incentive inherent in
stock ownership by its non-employee Directors.

THE BOARD OF DIRECTORS HAS APPROVED THE ABOVE DESCRIBED AMENDMENT AND
UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE COMPANY'S NON-EMPLOYEE
DIRECTORS STOCK OPTION PLAN.

PROPOSAL 4:
AMENDMENTS OF THE COMPANY'S 1997 NON-STATUTORY STOCK OPTION PLAN

The 1997 Non-Statutory Stock Option Plan ("Employee Plan") became effective in
September, 1997. The purpose of the Employee Plan is to secure for the Company
and its stockholders the benefits of the incentives inherent in stock ownership
by key employees of the Company and its subsidiaries. The Employee Plan
terminates on July 31, 2007, and no option may be granted after such date
pursuant to the Employee Plan. The Employee Plan is currently administered by
the Stock Option Committee. The Stock Option Committee determines, in its
discretion but subject to the limitations set forth in the Employee Plan, the
persons to whom options are granted, the number of shares covered by options and
the exercise price of options. The Stock Option Committee also determines the
conditions, if any, imposed upon the granting of options under the Employee
Plan. To date, the Stock Option Committee has issued options under the Employee
Plan to eligible employees in proportion to their respective responsibilities to
the Company. The Stock Option Committee provides for various periods of time to
pass before options become exercisable according to the Company's long term
strategic plans. In April, 2001, the Board of Directors adopted, subject to the
approval of the Company's stockholders, amendments to the Employee Plan that
would: (a) extend the time period in which the options may be exercised from ten
(10) business days to thirty (30) days after the termination of an Optionee's
employment, (b) extend the time period in which the options may be exercised
from three (3) months to six (6) months after the death of an Optionee, and (c)
grant a limited right for Optionees to transfer options only to his or her
Immediate Family if the option contract or certificate allows for such a
transfer, the Optionee obtains the Stock Option Committee's prior written
consent for such transfer, and the Optionee receives no consideration for such
transfer. The description of the Employee Plan contained herein is not intended
to be complete and is qualified in its entirety by reference to Exhibit "A"
attached hereto, which contains the complete text of the Employee Plan, as
amended.

The Board of Directors believes that the proposed amendments to the Employee
Plan will enable the Company and its stockholders, through future stock options,
to continue to secure the benefits of the incentive inherent in stock ownership
by certain of its employees.

THE BOARD OF DIRECTORS HAS APPROVED THE ABOVE DESCRIBED AMENDMENTS AND
UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENT TO COMPANY'S 1997 NON-
STATUTORY STOCK OPTION PLAN.

PROPOSAL 5:
AMENDMENT OF THE COMPANY'S 1997 NON-STATUTORY STOCK OPTION PLAN

The 1997 Non-Statutory Stock Option Plan ("Employee Plan") became effective in
September, 1997. The purpose of the Employee Plan is to secure for the Company
and its stockholders the benefits of the incentives inherent in stock ownership
by key employees of the Company and its subsidiaries. The Employee Plan
terminates on July 31, 2007, and no option may be granted after such date
pursuant to the Employee Plan. The Employee Plan is currently administered by
the Stock Option Committee. The Stock Option Committee determines, in its
discretion but subject to the limitations set forth in the Employee Plan, the
persons to whom options are granted, the number of shares covered by options and
the exercise price of options. The Stock Option Committee also determines the
conditions, if any, imposed upon the granting of options under the Employee
Plan. To date, the Stock Option Committee has issued options under the Employee
Plan to eligible employees in proportion to their respective responsibilities to
the Company. The Stock Option Committee provides for various periods of time to
pass before options become exercisable according to the Company's long term
strategic plans. In April, 2001, the Board of Directors adopted, subject to the
approval of the Company's stockholders, an amendment to the Employee Plan
providing that the number of shares of Common Stock which may be issued under
the Employee Plan would be increased from 3,087,500 to 4,387,500. The
description of the Employee Plan contained herein is not intended to be complete
and is qualified in its entirety by reference to Exhibit "A" attached hereto,
which contains the complete text of the Employee Plan, as amended.

The Board of Directors believes that the proposed amendment to the Employee Plan
will enable the Company and its stockholders, through future stock options, to
continue to secure the benefits of the incentive inherent in stock ownership by
certain of its employees.

THE BOARD OF DIRECTORS HAS APPROVED THE ABOVE DESCRIBED AMENDMENT AND
UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENT TO COMPANY'S 1997 NON-
STATUTORY STOCK OPTION PLAN.

PROPOSAL 6:
AMENDMENT OF THE COMPANY'S INCENTIVE BONUS PLAN

Bonuses will be paid in the event the Company achieves the preestablished
target cash on cash return for the fiscal year. The Compensation Committee will
determine the target cash on cash return for the fiscal year not later than
March 15. The cash on cash return for purposes of this Bonus Plan means the
fiscal year's cash flow (income before taxes plus depreciation, amortization and
pre-opening expenses) minus the prior fiscal year's cash flow divided by the
weighted average increase in capital expenditures (including pre-opening
expenses). The employee's Bonus Potential will equal 100% of the Target Bonus
established by the Compensation Committee if the Company's actual cash on cash
return equals the target cash on cash return established by the Compensation
Committee. If the Company exceeds the target cash on cash return, each
employee's Bonus Potential will equal the employee's Target Bonus increased by
an additional four percent (4%) of the Target Bonus for each one percentage
point that the actual cash on cash return exceeds the target established by the
Compensation Committee. If the Company fails to attain the cash on cash return
established by the Compensation Committee, the Bonus Potential for each employee
will equal the employee's Target Bonus decreased by four percent (4%) of the
Target Bonus for each one percentage point that the actual cash on cash return
falls short of the target established by the Compensation Committee. In no event
will a bonus be paid if the actual cash on cash return is less than twenty
percent (20%) for a particular fiscal year.

The Board of Directors believes that the proposed amendment of the Bonus
Plan will enable the Company and its stockholders, through future awards, to
continue to secure the benefits of the incentive inherent in performance based
awards by certain of its employees. Although already established by the
Compensation Committee, the amendment to the Bonus Plan is being submitted to
the stockholders because approval by stockholders every five years is required
to satisfy the conditions necessary for the Company to exclude the bonuses under
the Incentive Bonus Plan from the $1,000,000 limit on deductibility of
compensation for certain executives according to Code Section 162(m).

THE BOARD OF DIRECTORS HAS APPROVED THE ABOVE DESCRIBED AMENDMENT AND
UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENT TO COMPANY'S INCENTIVE BONUS
PLAN.

INDEMNIFICATION

The Bylaws of the Company provide for each director and officer of the Company
to be indemnified by the Company, as a 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
or incurred by such person in his capacity, or arising out of his status, as a
director or officer. The Company's Restated Articles of Incorporation include a
provision which eliminates director liability for monetary damages for breach of
the director's duty of due care, as permitted under Kansas law.

ADDITIONAL INFORMATION WITH RESPECT TO COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS

The Compensation Committee was comprised of Ms. Pharr, and Messrs. Neeb and
Wooldridge through January 31, 2000. Effective February 1, 2000, the
Compensation Committee was comprised of Messrs. Neeb and Wooldridge. None of
these Committee members have ever been officers or employees of the Company, nor
have they had any relationship requiring disclosure by the Company under any
paragraph of Item 404 of Regulation S-K. There have been no relationships during
the last fiscal year requiring disclosure by the Company under any paragraph of
Item 402 of Regulation S-K. The Board of Directors intends that transactions
with officers, directors and affiliates will be entered into on terms no less
favorable to the Company than could be obtained from unrelated third parties and
will be approved by at least a simple majority of the uninterested directors of
the Company.

STOCK PERFORMANCE GRAPHS

The following graphs compare the cumulative yearly total stockholder return
(change in share price plus reinvestment of any dividends) on the Company's
Common Stock since December 29, 1995 (the "Five-Year Cumulative Total Returns")
and January 3, 1989, the date the Company's Common Stock first traded on the
NASDAQ system (the "Twelve-Year Cumulative Total Returns"), each versus two
indexes. The graphs assume $100 was invested on December 29, 1995 for the Five-
Year Cumulative Total Returns, and January 3, 1989 for the Twelve-Year
Cumulative Total Returns. The Company has not paid any cash dividends on its
Common Stock during the applicable periods. The share price of the Company's
Common Stock has been adjusted for three-for-two stock splits in the form of
stock dividends distributed on March 26, 1991, March 20, 1992, May 22, 1996, and
July 23, 1999.

The Company's Common Stock is labeled on the graphs as "CEC Entertainment, Inc."
The index labeled "NYSE Stocks," which was prepared by the Center for Research
in Securities Prices ("CRSP") at The University of Chicago, Graduate School of
Business, 1101 East 58th Street, Chicago, Illinois 60637 (telephone
773-834-4606) measures the total return (weighted for the market capitalization
of the component companies) on the approximately 38 domestic and foreign
companies which operate restaurants or other eating and drinking places (SIC
Code 58) and whose equity securities are traded on the New York Stock Exchange.
The identities of the companies included in the "NYSE Stocks" index will be made
available in a prompt manner to any stockholder upon written request addressed
to Investor Relations at the Company's Irving address. The index labeled "NYSE
Stock Market," also prepared by CRSP, measures the total return on the
approximately 3,100 United States companies whose common stock is traded on the
New York Stock Exchange.

Five-Year Cumulative Total Returns

[GRAPHIC]

------------------------------------------------------------------------------------------------------------
Legend

Symbol CRSP Total Returns Index for: 12/1995 12/1996 01/1998 12/1998 01/2000 12/2000
------ ---------------------------- ------- ------- ------- ------- ------- -------

CEC Entertainment, Inc. 100.0 225.8 284.5 343.3 487.1 633.2

NYSE Stock Market (US Companies) 100.0 123.0 161.4 193.3 208.1 220.4

NYSE Stocks (SIC 5800-5899 US Companies) 100.0 103.9 114.1 167.1 159.2 152.3
Eating and Drinking Places

Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily using the market capitalization on
the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a
trading day, the preceding trading day is used.
D. The index level for all series was set to $100 on 12/29/95.
------------------------------------------------------------------------------------------------------------

Twelve-Year Cumulative Total Returns

[GRAPH]

----------------------------------------------------------------------------------------------------------------
Legend

Symbol CRSP Total Returns Index for: 01/1989 12/1990 12/1992 12/1996 12/1998 12/2000
------ ---------------------------- ------- ------- ------- ------- ------- -------

CEC Entertainment, Inc. 100.0 459.1 1370.5 1119.9 1702.8 3141.1
NYSE Stock Market (US Companies) 100.0 124.9 178.4 328.3 516.1 588.5
NYSE Stocks (SIC 5800-5899 US Companies) 100.0 98.0 168.0 286.2 460.4 419.7
Eating and Drinking Places

Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily using the market capitalization on
the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a
trading day, the preceding trading day is used.
D. The index level for all series was set to $100 on 01/03/1989.
----------------------------------------------------------------------------------------------------------------

COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors and the persons who own more than ten percent
of the Company's Common Stock to file initial reports of ownership of Common
Stock and reports of changes of ownership with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc. and to
furnish the Company with copies of such reports. Based on review of such copies
and other records of the Company, the Company has no reason to believe that any
reports were untimely filed or that any Form 5 filings were made by any
executive officers, directors or persons owning more than ten percent of the
Company's Common Stock.

INDEPENDENT PUBLIC ACCOUNTANTS

The firm of Deloitte & Touche LLP served as the Company's independent public
accountants for the fiscal year ending December 31, 2000. A representative of
Deloitte & Touche LLP is expected to be present and available at the Annual
Meeting of stockholders to respond to appropriate questions and will be given an
opportunity to make a statement, if desired.

Audit Fees. The aggregate fees billed for professional services rendered by
Deloitte & Touche for the audit of the Company's annual financial statements for
the 2000 fiscal year and the reviews of the financial statements included in the
Company's Forms 10-Q for that fiscal year was approximately $197,000.

Financial Information Systems Design and Implementation Fees. The aggregate fees
billed for professional services rendered by Deloitte & Touche for financial
information systems design and implementation for the 2000 fiscal year was $0.

All Other Fees. The aggregate fees billed for professional services rendered by
Deloitte & Touche for services other than those described above for the 2000
fiscal year was approximately $23,066. These fees can be sub-categorized as
follows:

Attestation Fees. The aggregate fees billed for professional services
rendered by Deloitte & Touche for attestation services rendered by Deloitte
& Touche for matters such as comfort letters and consents related to SEC
and other registration statements, audits of employee benefit plans,
agreed-upon procedures, due diligence pertaining to acquisitions and
consultation on accounting standards or transactions for the 2000 fiscal
year was approximately $15,546.

Other Fees. The aggregate fees billed for professional services rendered
by Deloitte & Touche for all other services, such as consultation related
to tax planning and compliance, improving business and operational
processes and regulatory matters for the 2000 fiscal year was $7,520.

SUBMISSION OF STOCKHOLDER PROPOSALS

Any stockholder who wishes to present a proposal for action at the 2002 annual
meeting of stockholders and who wishes to have it set forth in the proxy
statement and identified in the form of proxy prepared by the Company, must
deliver such proposal to the Company at its principal executive offices, not
less than 60 days nor more than 90 days prior to the date of the applicable
annual meeting of stockholders; provided, however, that in the event that less
-------- -------
than 70 days' notice or prior public disclosure of the date of the meeting is
given or made, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth (10th) day following the day on
which such notice of the date of the applicable annual meeting was mailed or
such public disclosure of the date of such annual meeting was made, whichever
first occurs. For purposes of this section, the date of a public disclosure
shall include, but not be limited to, the date on which such disclosure is made
in a press release reported by the Dow Jones News Services, the Associated Press
or any comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Sections 13,
14, or 15(d) (or the rules and regulations thereunder) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").

To be in proper written form, a stockholder's notice to the Secretary of the
Company must set forth (a) as to each person whom the stockholder proposes to
nominate for election as a director (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or employment of
the person, (iii) the class or series and number of shares of capital stock of
the corporation that are owned beneficially or of record by the person and (iv)
any other information relating to the person that would be required to be
disclosed in a proxy statement or other filing required to be made in connection
with solicitations of proxies for election of directors pursuant to Section 14
of the Exchange Act and (b) as to the stockholder giving the notice (i) the name
and record address of such stockholder, (ii) the class or series and number of
shares of capital stock of the corporation that are owned beneficially or of
record by such stockholder, (iii) a description of all arrangements or
understandings between such stockholder and each proposed nominee and any other
person or persons (including their names) pursuant to which the nomination(s)
are to be made by such stockholders, (iv) a representation that such stockholder
intends to appear in person or by proxy at the meeting to nominate the persons
named in its notice and (v) any other information relating to such stockholder
that would be required to be disclosed in

a proxy statement or other filing required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder. Such notice
must be accompanied by a written consent of each proposed nominee to being named
as a nominee and to serve as a director if elected.

EXPENSES OF SOLICITATION

The accompanying proxy is being solicited on behalf of the Board of Directors of
the Company. The expense of preparing, printing and mailing the proxy and the
material used in the solicitation thereof will be borne by the Company. In
addition to the use of the mails, proxies may be solicited by directors and
officers and employees of the Company by means of personal interview, telephone
or telegram. Arrangements may also be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation
materials to the beneficial owners of stock held of record by such persons, and
the Company may reimburse them for reasonable out-of-pocket expenses of such
solicitation.

ADDITIONAL INFORMATION AVAILABLE

The Company will furnish a copy of its Annual Report on Form 10-K for the fiscal
year ended December 31, 2000, filed with the Securities and Exchange Commission,
upon the written request of any stockholder of record at the close of business
on May 10, 2001. The written request should be sent to the Secretary of the
Company, Marshall R. Fisco, Jr., CEC Entertainment, Inc., 4441 West Airport
Freeway, Irving, Texas 75062. The written request must state that as of May 10,
2001, the person making the request was a beneficial owner of the capital stock
of the Company.

OTHER MATTERS

The Board of Directors is not presently aware of any other matters or business
other than that which is described above to be presented to the stockholders for
action at the Annual Meeting. In the event that other business comes before the
Annual Meeting, votes may be cast pursuant to proxies in respect to any such
business in the best judgment of the persons acting under the proxies.

Stockholders who do not expect to attend the meeting are urged to vote by
internet, telephone, or by mail. The instructions included with the proxy card
describe how to vote by internet or telephone. Of course, if you prefer, you can
vote through the mail service by completing the proxy card and returning it in
the enclosed postage-paid envelope.

By Order of the Board of Directors,

MARSHALL R. FISCO, JR.
Corporate Secretary
Irving, Texas
May 24, 2001

APPENDIX A

AUDIT COMMITTEE CHARTER

The Company has adopted an Audit Committee Charter which is designed to assist
the Audit Committee in carrying out its responsibilities relating to accounting,
reporting practices, and the quality and integrity of the financial reports of
the Company. The Audit Committee Charter provides as follows:

Organization

There shall be a committee of the Board of Directors to be known as the Audit
Committee. The Audit Committee shall be composed of Directors who are
independent of the management of the Company and are free of any relationship
that, in the opinion of the Board of Directors, would interfere with their
exercise of independent judgment as a committee member.

Statement of Policy

The Audit Committee shall provide assistance to the corporate directors in
fulfilling their responsibility to the shareholders, potential shareholders, and
investment community relating to corporate accounting, reporting practices of
the Company, and the quality and integrity of the financial reports of the
Company. In so doing, it is the responsibility of the Audit Committee to
maintain free and open means of communication between the directors, the
independent auditors, the internal auditors, and the financial management of the
Company.

Composition

The Audit Committee shall be comprised of three or more directors as determined
by the Board, each of whom shall be independent directors, and free from any
relationship that, in the opinion of the Board, would interfere with the
exercise of his or her independent judgement as a member of the committee. All
members of the Audit Committee shall have a working familiarity with basic
finance and accounting practices, and at least one member of the Audit Committee
shall have accounting or related financial management expertise.

Meetings

The Audit Committee shall meet at least twice annually, or more frequently as
circumstances dictate. As part of its job to foster open communications, the
Audit Committee should meet at least annually with management, the director of
the internal auditing department and the independent auditors in separate
executive sessions to discuss any matters that the Audit Committee or each of
these groups believe should be discussed privately.

Responsibilities

In carrying out its responsibilities the Audit Committee believes its policies
and procedures should remain flexible, in order to best react to changing
conditions and to ensure to the directors and shareholders that the corporate
accounting and reporting practices of the Company are in accordance with all
requirements and are of the highest quality. In carrying out these
responsibilities, the Audit Committee will:

. Recommend to the Board of Directors the selection of the independent
auditors, considering the independence and effectiveness and approve
the fees and other compensation to be paid to the independent
auditors. On an annual basis, the Audit Committee should review and
discuss with the auditors all significant relationships the auditors
have with the Company to determine the auditors' independence. Also,
the Audit Committee should obtain formal written affirmation of
independence from the independent auditors.

APPENDIX-A

. Meet with the independent auditors and financial management of the
Company to review the scope of the proposed audit for the current year
and at the conclusion thereof review such audit, including any
comments or recommendations of the independent auditors.

. Review with the independent auditors, the company's internal auditors,
and financial and accounting personnel, the quality of accounting
principles as well as the adequacy and effectiveness of the accounting
and financial controls of the Company, and elicit any recommendations
for the improvement of such accounting principles, internal control
procedures or particular areas where new or more detailed controls or
procedures are desirable. Particular emphasis should be given to the
adequacy of such internal controls to expose any payments,
transactions, or procedures that might be deemed illegal or otherwise
improper.

. Review and update this Charter periodically, at least annually, as
conditions dictate.

. Review the company's annual audited financial statements and recommend
that such statements be filed in Form 10K with the SEC and New York
Stock Exchange.

. Review with financial management the quarterly 10Q prior to its filing
and review earnings releases to the public prior to their release. The
chairman of the Audit Committee may represent the entire Audit
Committee for purposes of these reviews. In instances when the
Chairman of the Audit Committee is not available then another
independent member of the Board of Directors, as designated by the
Chairman of the Audit Committee, may conduct the reviews.

. Review the regular internal reports to management prepared by the
internal auditing department.

. Submit the minutes of all meetings of the Audit Committee to, or
discuss the matters discussed at each Audit Committee meeting with,
the Board of Directors.

. Investigate any matter brought to its attention within the scope of
its duties, with the power to retain outside counsel for this purpose
if, in its judgment, that is appropriate.

APPENDIX-A

Exhibit A
CEC ENTERTAINMENT, INC.
1997 NON-STATUTORY STOCK OPTION PLAN

CEC ENTERTAINMENT, INC., a corporation organized and existing under the
laws of the state of Kansas (the "Company"), hereby formulates and adopts, with
respect to the shares of common stock of the Company ("Common Stock"), a non-
statutory stock option plan for certain individuals who are key employees of the
Company or its subsidiaries, as follows:

1. Purpose of Plan. The purpose of this 1997 Non-Statutory Option Plan
---------------
(the "Plan") is to encourage certain individuals who are key employees to
participate in the ownership of the Company, and to provide additional incentive
for such individuals to promote the success of its business through sharing in
the future growth of such business.

2. Effective Date of the Plan. The provisions of this Plan became
--------------------------
effective on August 1, 1997.

3. Administration. This Plan shall be administered by the Stock Option
--------------
Committee of the Board of Directors of the Company (the "Committee"), which
shall be comprised of two (2) or more directors, each of whom shall be "Non-
Employee Directors," as defined in Rule 16b-3(c), promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and who are
also "Outside Directors," as defined in Section 162(m) of the Internal Revenue
Code of 1986, as amended from time to time (the "Code"), and any Treasury
Regulations that may be promulgated thereunder. The Committee shall have full
power and authority to construe, interpret and administer this Plan, and may
from time to time adopt such rules and regulations for carrying out this Plan as
it may deem proper and in the best interests of the Company. Subject to the
terms, provisions and conditions of this Plan, the Committee shall have the
authority to select the individuals to whom options shall be granted, to
determine the number of shares subject to each option, to determine the time or
times when options will be granted, to determine the option price of the shares
subject to each option, to determine the time when each option may be exercised,
to fix such other provisions of each option agreement as the Committee may deem
necessary or desirable, consistent with the terms of this Plan, and to determine
all other questions relating to the administration of this Plan. The
interpretation and construction of this Plan by the Committee shall be final,
conclusive and binding upon all persons.

4. Eligibility. Options to purchase shares of Common Stock shall be
-----------
granted under this Plan only to those individuals selected by the Committee from
time to time who, in the sole discretion of the Committee, are key employees of
the Company or its subsidiaries at the time of the grant and who have made
material contributions in the past, or who are expected to make material
contributions in the future, to the successful performance of the Company or its
subsidiaries.

5. Shares Subject to the Plan. Options granted under this Plan shall be
--------------------------
granted solely with respect to shares of Common Stock. Subject to any
adjustments made pursuant to the provisions of Section 12, the aggregate number
of shares of Common Stock which may be issued upon exercise of all the options
which may be granted under this Plan shall not exceed 4,387,500. If any option
granted under this Plan shall expire or terminate for any reason without having
been exercised in full, the unpurchased shares subject to such options shall be
added to the number of shares otherwise available for options which may be
granted in accordance with the terms of this Plan. The shares to be delivered
upon exercise of the options granted under this Plan shall be made available, at
the discretion of the Committee, from either the authorized but unissued shares
of Common Stock or any treasury shares of Common Stock held by the Company.

6. Option Certificate or Contract. Each option granted under this Plan
------------------------------
shall be evidenced by either a certificate or a non-statutory stock option
contract which shall be signed by an officer of the Company, and by the
individual to whom the option is granted (the "Optionee") in the event a
contract has been issued. The terms of said contract shall be in accordance with
the provisions of this Plan, but it may include such other provisions as may be
approved by the Committee. The grant of an option under this Plan shall be
deemed to occur on the date on which the certificate or contract evidencing such
option is executed by the Company, and every Optionee shall be bound by the
terms and restrictions of this Plan and such certificate or contract.

EXHIBIT-A

7. Option Price. The price at which shares of Common Stock may be
------------
purchased under an option granted pursuant to this Plan shall be determined by
the Committee, but in no event shall the price be less than 100 percent (100%)
of the fair market value of such shares on the date that the option is granted.
The fair market value of shares of Common Stock for purposes of this Plan shall
be determined by the Committee, in it sole discretion.

8. Period and Exercise of Option.
-----------------------------

(a) Period -- Subject to the provisions of Section 9 and 10 hereof
with respect to the death or termination of employment of an Optionee, the
period during which each option granted under this Plan may be exercised shall
be fixed by the Committee at the time such option is granted, provided that such
period shall expire no later than seven (7) years from the date on which the
option is granted (the "Grant Date").

(b) Employment -- The option may not be exercised to any extent
until the Optionee has been continuously, for a period of at least one (1) year
after the Grant Date, employed by the Company or a subsidiary of the Company.

(c) Exercise -- Any option granted under this Plan may be exercised
by the Optionee only by delivering to the Company, or its agent, written or
verbal notice, as may be specified by the Company from time to time, of the
number of shares with respect to which he or she is exercising his or her option
right, paying in full the option price of the purchased shares, and furnishing
to the Company, or its agent, a representation in writing signed by the Optionee
that he or she is familiar with the business and financial condition of the
Company, is purchasing the shares of stock in good faith for himself or herself
for investment purposes and not with a view towards the sale or distribution
thereof, and will not effect any sale in violation of any laws or regulations of
the United States or any state. Subject to the limitations of this Plan and the
terms and conditions of the respective stock option certificate or contract,
each option granted under this Plan shall be exercisable in whole or in part at
such time or times as the Committee may specify in such stock option certificate
or contract.

(d) Payment for Shares -- Payment for shares of Common Stock
purchased pursuant to an option granted under this Plan may be made in either
cash or in shares of Common Stock.

(e) Delivery of Certificates -- As soon as practicable after receipt
by the Company of the notice and representation described in Subsection (c), and
of payment in full of the option price for all of the shares being purchased
pursuant to an option granted under this Plan, a certificate or certificates, or
book entry with the Company's transfer agent, representing such shares of stock
shall be registered in the name of the Optionee and any such certificate(s)
shall be delivered to the Optionee. However, no certificate or book entry for
fractional shares of stock shall be issued or recorded by the Company
notwithstanding any request therefor. Neither any Optionee, nor the legal
representative, legatee or distributee of any Optionee, shall be deemed to be a
holder of any shares of stock subject to an option granted under this Plan
unless and until the certificate or certificates, or book entry with the
Company's transfer agent, for such shares have been issued or recorded,
respectively. All stock certificates issued upon the exercise of any options
granted pursuant to this Plan may bear such legend as the Committee shall deem
appropriate regarding restrictions upon the transfer or sale of the shares
evidenced thereby.

(f) Withholding -- The Company shall have the right to deduct any
sums that the Committee reasonably determines that Federal, state or local tax
law requires to be withheld with respect to the exercise of any option or as
otherwise may be required by those laws. The Company may require as a condition
to issuing shares of Common Stock upon exercise of the option that the Optionee
or other person exercising the option pay any sums that Federal, state or local
tax law required to be withheld with respect to the exercise. The Company shall
not be obligated to advise any Optionee of the existence of the tax or the
amount which the Company will be so required to withhold. Upon exercise of an
option, if tax withholding is required, an Optionee may, with the consent of the
Committee, have shares of Common Stock withheld ("Share Withholding") by the
Company from the shares otherwise to be received; provided, however, that if the
Optionee is subject to the provisions of Section 16 under the Exchange Act, no
Share Withholding shall be permitted unless such transaction complies with the
requirements of Rule 16b-3(e) promulgated under the Exchange Act. The number of
shares so withheld should have an aggregate fair market value (as determined

EXHIBIT-A

in accordance with the terms of this Plan) on the date of exercise sufficient to
satisfy the applicable withholding taxes.

9. Termination of Employment. If an Optionee shall cease to be an
-------------------------
employee of the Company or subsidiary of the Company for any reason other than
death after he or she shall have served in such capacity continuously for at
lease one (1) year from the Grant Date, he or she may, but only within thirty
(30) days next succeeding such cessation, exercise his or her option to the
extent that he or she was entitled to exercise it at the date of such cessation.
Nothing in this Plan or any stock option certificate or contract shall be
construed as an obligation on the part of the Company or of any of its
subsidiary corporations to continue the Optionee as an employee.

10. Death of Optionee. In the event of the death of an Optionee while
-----------------
serving as an employee of the Company or its subsidiary, any option or
unexercised portion thereof granted to him under this Plan which is otherwise
exercisable may be exercised by the person or persons to whom such Optionee's
rights under the option pass by operation of the Optionee's will or the laws of
descent and distribution, at any time within a period of six (6) months
following the death of the Optionee (even though such period is later than the
expiration date of the option as specified in Section 8(a) and in the respective
stock option certificate or contract). Such option shall be exercisable even
though the Optionee's death occurs before he or she has continuously served as
an employee of the Company or its subsidiary for a period of one (1) year after
the date of grant.

11. Transferability of Options. An option certificate or contract may
--------------------------
permit an Optionee to transfer his or her options to members of his or her
Immediate Family, to one or more trusts for the benefit of such Immediate Family
members, or to one or more partnerships where such Immediate Family members are
the only partners if (i) the certificate or contract setting forth such options
expressly provides that the options may be transferred, (ii) the Optionee
obtains the prior written consent of the Committee for such transfer, and (iii)
the Optionee does not receive any consideration in any form whatsoever for said
transfer. Any options so transferred shall continue to be subject to the same
terms and conditions in the hands of the transferee as were applicable to said
option immediately prior to the transfer thereof. Any option not (i) granted
pursuant to any certificate or contract expressly allowing the transfer of said
option or (ii) amended expressly to permit its transfer shall not be
transferable by the Optionee otherwise than by will or by the laws of descent
and distribution and such option shall be exercisable during the Optionee's
lifetime only by the Optionee. "Immediate Family" means the children,
grandchildren or spouse of the Optionee.

12. Adjustments upon Changes in Capitalization. In the event of any change
------------------------------------------
in the capital structure of the Company, including but not limited to a change
resulting from a stock dividend, stock split, reorganization, merger,
consolidation, liquidation or any combination or exchange of shares, and the
Company continues thereafter as the surviving entity, then the number of shares
of Common Stock subject to this Plan and the number of such shares subject to
each option granted hereunder shall be correspondingly adjusted by the
Committee. The option price for which shares of Common Stock may be purchased
pursuant to an option granted under this Plan shall be adjusted so that there
will be no change in the aggregate purchase price payable upon the exercise of
any option.

13. Amendment and Termination of Plan. No option shall be granted pursuant
---------------------------------
to this Plan after July 31, 2007, on which date this Plan shall expire except as
to options then outstanding under this Plan, which options shall remain in
effect until they have been exercised or have expired. The Committee may at any
time before such date, amend, modify or terminate this Plan; provided, however,
that any amendment to the Plan must be approved by the stockholders of the
Company if the amendment would (a) materially increase the aggregate number of
shares of Stock which may be issued pursuant to options granted under the Plan,
(b) materially modify the requirements as to eligibility for participation in
the Plan, or (c) materially increase the benefits accruing to holders of options
under the Plan. No amendment, modification or termination of this Plan may
adversely affect the rights of any Optionee under any then outstanding option
granted hereunder without the consent of such Optionee.

14. Grant of New Option and Repricing. An option may be granted under this
---------------------------------
Plan which may be conditioned upon the termination of a non-statutory stock
option certificate or contract previously granted to the Optionee which has not
yet been terminated or been exercised; provided, however, (a) the price for
which shares of Common Stock may be purchased under the new option may not be
less than the price of shares of Common Stock that were subject to purchase
under the terminated option unless the shareholders of the Company approve the
issuance at a lower price, and

EXHIBIT-A

(b) the Committee may not, without prior shareholder approval, re-price
underwater stock options by either lowering the exercise price of outstanding
options or canceling outstanding options and granting new replacement options
with a lower exercise price.

15. Change of Control. If while unexercised options remain outstanding
-----------------
under this Plan, a Change of Control (as hereinafter defined) shall have
occurred, then all such options shall be exercisable in full, notwithstanding
Section 8(b) hereof or any other provision in this Plan or option certificate or
contract to the contrary. For purposes of this Plan, a "Change of Control" shall
be deemed to have occurred with respect to the Company: (A) on the date in which
the Company executes an agreement or an agreement in principle (i) with respect
to any merger, consolidation or other business combination by the Company with
or into another entity and the Company is not the surviving entity, or (ii) to
sell or otherwise dispose of all or substantially all of its assets, or (iii) to
adopt a plan of liquidation; or (B) on the date in which public announcement is
made that the "beneficial ownership" (as defined in Rule 13d-3 under the
Exchange Act) of securities representing more than 50% of the combined voting
power of the Company is being acquired by a "person" within the meaning of
sections 13(d) and 14(d) of the Exchange Act; or (C) if, during any period of
eighteen (18) consecutive months, individuals who at the beginning of such
period were members of the Board of Directors cease for any reason to constitute
at least a majority thereof (unless the appointment or election, or the
nomination for election by the Company's shareholders, of each new director was
approved by a vote of at least a majority of the directors then still in office
who were directors at the beginning of such period); provided, however, that in
no event shall a change in the composition of the Company's Board of Directors
pursuant to an election of Board members pursuant to Section 4.6 of the
Company's Articles of Incorporation, as amended, constitute or result in a
Change of Control for purposes of this Section 15.

The Committee shall have the right, at the time of grant or subsequently,
in its sole discretion, to establish conditions under which a specific employee
may cease to be a full-time employee of the Company or any of its subsidiaries
but not be deemed to have terminated his or her employment with the Company or
any of its subsidiaries for purposes of this Plan, including but not limited to
conditions involving part-time employment or consulting services. Unless
otherwise specifically provided for in an employee's stock option certificate or
contract or in an amendment or supplement thereto, an employee's employment with
the Company or any of its subsidiaries shall be deemed to terminate when he or
she ceases to be a full-time employee of the Company or any of its subsidiaries.

In the event of a merger, consolidation, reorganization or recapitalization
of the Company, the Committee shall have the right to accelerate the vesting
schedule with respect to all or any portion of the shares of Common Stock
granted to any or all of the employees under this Plan, if and to the extent it
deems appropriate in its sole discretion.

16. Restrictions Applicable to Executive Officers. The provisions of this
---------------------------------------------
Section 16 shall apply only to those executive officers whose compensation is
required to be reported in the Company's proxy statement pursuant to Item
402(a)(3)(i) (or any successor thereto) and of Regulation S-K (or any successor
thereto) under the general rules and regulations under the Exchange Act
("Executive Officers"). In the event of any inconsistencies between this Section
16 and the other provisions of this Plan, as they pertain Executive Officers,
the provisions of this Section shall control.

No amendment of this Plan with respect to any Executive Officer may be made
which would (i) increase the maximum amount that can be paid to any one
Executive Officer pursuant to this Plan or (ii) modify the requirements as to
the Executive Officer's eligibility for participation in this Plan, unless the
Company's shareholders have first approved such amendment in a manner which
would permit the deduction under Section 162(m) (or any successor thereto) of
the Code of such payment in the fiscal year it is paid. The Committee shall
amend this Section 16 and such other provisions as it deems appropriate, to
cause amounts payable to certain Executive Officers to satisfy the requirements
of Section 162(m) (or any successor thereto) and the Treasury Regulations that
may be promulgated thereunder.

The maximum number of shares of Common Stock with respect to which options
may be granted hereunder to any Executive Officer during any calendar year may
not exceed two hundred and fifty thousand (250,000) shares, subject to any
adjustments made pursuant to the provisions of Section 12.

EXHIBIT-A

Exhibit B
CEC ENTERTAINMENT, INC.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN

ARTICLE I
PURPOSE AND ADMINISTRATION

1.1 Purpose. The purpose of the CEC Entertainment, Inc. Non-Employee
Directors Stock Option Plan (the "Plan") is to strengthen CEC Entertainment,
Inc. (the "Company") by providing a means of retaining and attracting competent
non-employee personnel to serve on its board of directors by extending such
individuals added long-term incentives for high levels of performance and for
unusual efforts designed to improve the financial performance of the Company. In
order to effectuate this intent, the Company will, pursuant to this Plan, grant
to each non-employee director the herein specified options to acquire shares of
common stock of the Company ("Common Stock"), which options shall vest over a
specified period of time.

1.2 Administration. The Plan shall be administered by a committee (the
"Committee") which shall be comprised of the President of the Company and the
Chief Financial Officer of the Company.

Subject to the express provisions of the Plan, the Committee shall have
powers and authorities which are exclusively ministerial in nature, including
the authority to construe and interpret the Plan, to define the terms used in
the Plan, to prescribe, amend and rescind rules and regulations relating to the
administration of the Plan, and to make all other determinations necessary or
advisable for the administration of the Plan. The determinations of the
Committee on all such matters referred to in this Plan shall be conclusive. No
member of the Committee shall be liable for any action, failure to act,
determination or interpretation made in good faith with respect to the Plan or
any transaction under the Plan.

1.3 Participation. Each member of the Board of Directors of the Company
(the "Board") who is not employed by the Company or any Affiliate (collectively,
the "Non-Employee Directors") shall be eligible and shall participate in the
Plan. For purposes of the Plan, the term "Affiliate" shall mean any entity in
which the Company directly or through intervening subsidiaries owns twenty-five
percent (25%) or more of the total combined vetoing power or value of all
classes of stock or, in the case of an unincorporated entity, a twenty-five
percent (25%) or more interest in the capital and profits.

1.4 Stock Subject to the Plan. Subject to adjustment as provided in
Section 3.1 hereof, the stock to be offered under the Plan shall be treasury
shares or shares of the Company's authorized but unissued Common Stock
(hereinafter collectively called "Stock"). The aggregate number of shares of
Stock to be issued upon exercise of all options granted under the Plan shall not
exceed 225,000 shares, subject to adjustments as set forth in Section 3.1
hereof. If any option granted hereunder shall lapse or terminate for any reason
without having been fully exercised, the shares subject thereto shall again be
available for purposes of the Plan.

1.5 Restrictions on Exercise. No option granted hereunder may be exercised
until a registration statement under the Securities Act of 1933, as amended (the
"Act"), relating to the Stock issuable upon exercise of such option has been
filed with, and declared effective by, the Securities and Exchange Commission
(the "Commission"), and there is available for delivery a prospectus meeting the
requirements of Section 10 of the Act, or until the Committee has determined
that the issuance of Stock upon such exercise is exempt from the registration
and prospectus requirements of the Act.

ARTICLE II
STOCK OPTIONS

2.1 Grant and Option Price. (a) On the day a Non-Employee Director is
first elected or appointed to the Board, such Non-Employee Director shall be
granted an option to purchase 7,500 shares of Stock.

EXHIBIT-B

(b) On the fifth Business Day in January of the year following the
effective date of the Plan, each Non-Employee Director who was previously
elected to the Board and who continues to serve in such capacity at such time
shall be granted an option to purchase 4,000 shares of Stock. For purposes of
the Plan, the term "Business Day" shall mean a day on which the New York Stock
Exchange is open for business and is conducting normal trading activity.

(c) The purchase of the Stock covered by each option granted under the
Plan shall be equal to the Fair Market Value of such Stock on the grant date.
For purposes of the Plan, the term "Fair Market Value" shall mean the average of
the closing prices of the Common Stock as reported by the New York Stock
Exchange for the five trading-day period ending on and including the date of
grant.

(d) The total grant under both paragraphs (a) and (b) above shall be
limited accordingly to the greatest number of whole shares of Stock which may
thus be granted thereunder.

2.2 Stock Option Agreement. Each option granted pursuant to the Plan shall
be evidenced by a Stock Option Agreement or Certificate ("Option Agreement"), in
such form as the Committee shall require, between the Company and the Non-
Employee Director to whom the option has been granted (the "Optionee").

2.3 Option Period. Each option and all rights or obligations thereunder
shall expire on the seventh anniversary of the grant date (the "Expiration
Date"); provided, however, the option shall be subject to earlier termination as
hereinafter provided.

2.4 Vesting and Exercise of Options. (a) Subject to Section 3.2 hereof, an
option granted pursuant to Sections 2.1(a) or (b) hereof shall be exercisable
only to the extent of shares that have vested in accordance with the following
schedule:

Portion of Shares That are Vested
On or After Such Anniversary
Annual Anniversary and Before
of Date of Grant Next Anniversary

First................................. 0%
Second................................ 50%
Third................................. 100%

(b) The purchase price of the stock purchased upon exercise of an option
shall be paid in full in cash or by check at the time of each exercise of an
option; provided, however, that if the Option Agreement so provides and upon
receipt of all regulatory approvals, the person exercising the option may
deliver in payment of a portion or all of the purchase price certificates for
Common Stock of the Company, which shall be valued at the Fair Market Value of
such Stock on the date of exercise of the option.

2.5 Transferability of Options. An option certificate or contract may
permit an Optionee to transfer his or her options to members of his or her
Immediate Family, to one or more trusts for the benefit of such Immediate Family
members, or to one or more partnerships where such Immediate Family members are
the only partners if (i) the certificate or contract setting forth such options
expressly provides that the options may be transferred, (ii) the Optionee
obtains the prior written consent of the Committee for such transfer, and (iii)
the Optionee does not receive any consideration in any form whatsoever for said
transfer. Any options so transferred shall continue to be subject to the same
terms and conditions in the hands of the transferee as were applicable to said
option immediately prior to the transfer thereof. Any option not (i) granted
pursuant to any certificate or contract expressly allowing the transfer of said
option or (ii) amended expressly to permit its transfer shall not be
transferable by the Optionee otherwise than by will or by the laws of descent
and distribution and such option shall be exercisable during the Optionee's
lifetime only by the Optionee. "Immediate Family" means the children,
grandchildren or spouse of the Optionee.

EXHIBIT-B

2.6 Termination of Directorship. (a) If the directorship of the Optionee
is terminated for any reason other than (i) death of the Optionee, or (ii) on
account of any act of fraud or intentional misrepresentation or embezzlement,
misappropriation or conversion of assets or opportunities of the Company or any
Affiliate, an option (to the extent otherwise exercisable on the date of such
termination) shall be exercisable by the Optionee at any time prior to the
Expiration Date of the option or within thirty (30) days after the date of such
termination of the directorship, whichever is the shorter period.

(b) If an Optionee dies while serving as a member of the Board, the option
shall be exercisable (whether or not exercisable on the date of the death of
such Optionee) by the person or persons entitled to do so under the Optionee's
will, or, if the Optionee shall fail to make testamentary disposition of said
option or shall die intestate, by the Optionee's legal representative or
representatives, at any time prior to the Expiration Date of the option or
within six (6) months after the date of such death, whichever is the shorter
period. If an Optionee dies during the thirty (30) day period described in
subsection (a) above, the option shall be exercisable (but only to the extent
exercisable on the date of death of such Optionee) by the person or persons
described above at any time within the thirty (30) day period described in
subsection (a) above or within six (6) months after the date of such death,
whichever is the longer period, but in no event after the Expiration Date of the
option.

(c) The option of a Non-Employee Director shall automatically terminate as
of the date his or her directorship is terminated, if the directorship is
terminated on account of any act of (a) fraud or intentional misrepresentation,
or (b) embezzlement, misappropriation or conversion of assets or opportunities
of the Company or any Affiliate.

2.7 Issuance of Stock Certificates. Upon exercise of an option, but
subject to the provisions of Section 3.5 of the Plan, the person exercising the
option shall be entitled to one stock certificate evidencing the shares acquired
upon such exercise; provided, however, that any person who tenders Common Stock
in payment of a portion or all of the purchase price of Stock purchased upon
exercise of the option shall be entitled to receive a separate certificate
representing the number of shares purchased in consideration of the tender of
such Common Stock.

ARTICLE III
OTHER PROVISIONS

3.1 Adjustments Upon Changes in Capitalization. (a) If a dividend or stock
split shall be hereinafter declared upon the Common Stock of the Company payable
in shares of Common Stock of the Company, the number of shares of Common Stock
(i) then subject to grant under Section 2.1 (a) and (b), (ii) then subject to
any option which has been granted, and (iii) then reserved for issuance pursuant
to the Plan but not yet covered by an option shall be adjusted by adding to each
such share the numbers of shares which would be distributable thereon if such
share had been outstanding on the date fixed for determining the stockholders
entitled to receive such stock dividend or stock split.

(b) If the outstanding shares of the Common Stock of the Company shall be
changed into or exchanged for a different number or kind of shares of stock or
other securities of the Company or of another corporation, whether through
reorganization, recapitalization, stock split, combination of shares, merger or
consolidation, and the Company continues thereafter as the surviving entity,
then there shall be substituted for each share of Stock subject to any such
option and for each share of Stock reserved for issuance pursuant to the Plan
but not yet covered by an option, the number and kind of shares of stock or
other securities into which each outstanding share of Common Stock shall be
changed or for which each such share shall be exchanged.

(c) If there shall be any change, other than as specified above in
subsection (a) and (b), in the number or kind or outstanding shares of Common
Stock of the Company or of any stock or other securities into which Common Stock
shall have been changed or for which it shall have been exchanged, then if the
Committee shall in its sole discretion determine that such change equitably
requires an adjustment in the number or kind of shares theretofore reserved for
issuance pursuant to the Plan but not yet covered by an option and of the shares
then subject to an option or options, such adjustment shall be made by the
Committee and shall be effective and binding for all purposes of the Plan and of
each Option Agreement.

EXHIBIT-B

(d) In the case of any such substitution or adjustment as provided for in
this Section 3.1, the option price in each Option Agreement for each share
covered thereby prior to such substitution or adjustment will be the option
price for all shares of stock or other securities which shall have been
substituted for such share or to which such adjustment provided for in this
Section 3.1 shall be made. No adjustment or substitution provided for in this
Section 3.1 shall require the Company pursuant to any Option Agreement to sell a
fractional share, and the total substitution or adjustment with respect to each
Option Agreement shall be limited accordingly.

3.2 Continuation of Directorship. Nothing contained in this Plan (nor in
any option granted pursuant to this Plan) shall confer upon any Non-Employee
Director any right to continue as a member of the Board or constitute any
contract or agreement or interfere in any way with the right of the Company to
remove such Non-Employee Director from the Board. Nothing contained herein or in
any Option Agreement shall affect any other contractual rights of a Non-Employee
Director.

3.25 Change of Control. If while any unexercised options remain outstanding
under the Plan, a Change of Control (as hereinafter defined) shall have
occurred, then all such options shall be exercisable in full, notwithstanding
Section 2.4 hereof or any other provision in the Plan or Option Agreement to the
contrary. For purposes of the Plan, a "Change of Control" shall be deemed to
have occurred with respect to the Company: (A) on the date in which the Company
executes an agreement or an agreement in principle (i) with respect to any
merger, consolidation or other business combination by the Company with or into
another entity and the Company is not the surviving entity, or (ii) to sell or
otherwise dispose of all or substantially all of its assets, or (iii) to adopt a
plan of liquidation; or (B) on the date in which public announcement is made
that the "beneficial ownership" [as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")], of securities
representing more than 50% of the combined voting power of the Company is being
acquired by a "person" within the meaning of sections 13(d) and 14(d) of the
Exchange Act; or (C) if, during any period of eighteen (18) consecutive months,
individuals who at the beginning of such period were members of the Board of
Directors cease for any reason to constitute at least a majority thereof (unless
the appointment or election, or the nomination for election by the Company's
stockholders, of each new director was approved by a vote of at least a majority
of the directors then still in office who were directors at the beginning of
such period); provided, however, that in no event shall a change in the
composition of the Company's Board of Directors pursuant to an election of Board
members pursuant to Section 4.6 of the Company's Articles of Incorporation, as
amended, constitute or result in a Change of Control for purposes of this
Section 3.25.

3.3 Amendment and Termination. The Board may at any time suspend or
terminate the Plan. No option may be granted during any suspension of the Plan
or after such termination. The amendment, suspension or termination of the Plan
shall not, without the consent of the Optionee, alter or impair any rights or
obligations under any option theretofore granted under the Plan.

The Board may at any time amend the Plan as it shall deem advisable without
further action on the part of the stockholders of the Company, provided, that
the Board may not amend any provision of the Plan relating to the amount and
price of Stock subject to the options granted hereunder or the timing of grants
hereunder more than once every six months, other than to comport with changes in
the Internal Revenue Code of 1986, as amended, the Employee Retirement Income
Security Act, or the rules thereunder, and provided further, that any amendment
to the Plan must be approved by the stockholders of the Company if the amendment
would (a) materially increase the aggregate number of shares of Stock which may
be issued pursuant to options granted under the Plan, (b) materially modify the
requirements as to eligibility for participation in the Plan, or (c) materially
increase the benefits accruing to holders of options under the Plan.

3.4 Time of Exercise. An option shall be deemed to be exercised when the
Secretary of the Company receives written notice of such exercise from the
person entitled to exercise the option together with payment of the purchase
price made in accordance with Section 2.4 of the Plan.

3.5 Privileges of Stock Ownership and Non-Distributive Intent. The holder
of an option shall not be entitled to the privilege of stock ownership as to any
shares of Stock not actually issued and delivered to the holder. Subject to the
provisions of Section 1.5 above, upon exercise of an option for Stock at a time
when there is not in effect under the

EXHIBIT-B

Act a registration statement relating to the Stock issuable upon exercise
thereof or not available for delivery a prospectus meeting the requirements of
Section 10 of the Act, the holder of the option shall execute a stock purchase
agreement in which he or she shall represent and warrant in writing to the
Company that, inter alia, the shares of Stock purchased are being acquired for
investment and not with a view to the resale or distribution thereof. No shares
of Stock shall be issued upon the exercise of any option unless and until there
shall have been compliance with any then applicable requirements of the
Commission, other regulatory agencies having jurisdiction and any exchanges upon
which securities subject to the option may be listed.

3.6 Effective Date of the Plan. The Plan shall be effective upon approval
by the affirmative vote of the holders of a majority of the outstanding shares
of Common Stock and the Company's outstanding shares of preferred stock, voting
as one class, present and entitled to vote at a meeting duly held or by the
written consent of the holders of a majority of the Common Stock and the
Company's outstanding shares of preferred stock, voting as one class, entitled
to vote.

3.7 Expiration. Unless previously terminated or extended by the Board,
the Plan shall expire at the close of business on the date which is the last day
of the fifteen (15) year period beginning on the date on which the stockholders
approve the Plan, and no option shall be granted under it thereafter, but such
expiration shall not affect any option theretofore granted.

3.8 Governing Law. The Plan and the options issued hereunder shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Texas applicable to contracts made and performed within that State.

3.9 Applications of Funds. The proceeds received by the Company from the
sale of shares pursuant to options shall be used for general corporate purposes.

3.10 No Liability for Good Faith Determinations. Neither the members of
the Board not any member of the Committee shall be liable for any act, omission
or determination taken or made in good faith with respect to the Plan or any
option granted under it.

3.11 Information Confidential. As partial consideration for the granting
of each option hereunder, the Optionee shall agree with the Company that he or
she will keep confidential all information and knowledge which he or she has
relating to the manner and amount of his or her participation in the Plan;
provided, however, that such information may be given in confidence to the
Optionee's spouse or to a financial institution to the extent that such
information is necessary.

3.12 Execution of Receipts and Releases. Any payment or any issuance or
transfer of shares of Stock to the Optionee, or to his or her legal
representative, heir, legatee or distributee, in accordance with the provisions
hereof, shall, to the extent thereof, be in full satisfaction of all claims of
such persons hereunder. The Board may required any Optionee, legal
representative, heir, legatee or distributee, as a condition precedent to such
payment, to execute a release and receipt therefor in such form as it shall
determine.

3.13 No Guarantee of Interests. Neither the Board nor the Company
guarantees the Stock from loss or depreciation.

3.14 Payment of Expenses. All expenses incident to the administration,
termination or protection of the Plan, including, but not limited to, legal and
accounting fees, shall be paid by the Company.

3.15 Company Records. Records of the Company and any Affiliate regarding
the Optionee's period of service, termination of service and the reason
therefor, leaves of absence, and other matters shall be conclusive for all
purposes hereunder, unless determined by the Board to be incorrect.

EXHIBIT-B

3.16 Information. The Company and any Affiliate shall, upon request or as
may be specifically required hereunder, furnish or cause to be furnished all of
the information or documentation which is necessary or required by
the Committee to perform its duties and functions under the Plan.

3.17 No Liability of Company. The Company assumes no obligation or
responsibility to the Optionee or his or her personal representatives, heirs,
legatees or distributees for any act of, or failure to act on the part of , the
Board or the Committee.

3.18 Company Action. Any action required of the Company shall be by
resolution of the Board or by a person authorized to act by Board resolution.

3.19 Severability. If any provision of this Plan shall be held to be
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining provisions hereof, but shall be fully severable and the Plan shall
be construed and enforced as if the illegal or invalid provision had never been
included herein.

3.20 Notice. Whenever any notice is required or permitted hereunder, such
notice must be in writing and personally delivered or sent by mail. Except as
otherwise provided in Section 3.4 of this Plan, any notice required or permitted
to be delivered hereunder shall be deemed to be delivered on the date on which
it is personally delivered or, whether actually received or not, on the third
(3rd) business day after it is deposited in the United States mail, certified or
registered, postage prepaid, addressed to the person who is to receive it at the
address which such person has theretofore specified by written notice delivered
in accordance herewith. The Company or an Optionee may change, at any time and
from time to time, by written notice to the other, the address which it or he or
she had theretofore specified for receiving notice. Until it is changed in
accordance herewith, the Company and each Optionee shall specify as its and his
or her address for receiving notice the address set forth in the Option
Agreement pertaining to the shares to which such notice relates.

3.21 Waiver of Notices. Any person entitled to notice hereunder may waive
such notice.

3.22 Successors. The Plan shall be binding upon the Optionee, his or her
heirs, legatees and legal representatives, upon the Company, its successors and
assigns and upon the Board and its successors.

3.23 Headings. The titles and headings of sections and paragraphs are
included for convenience of reference only and are not to be considered in
construction of the provisions hereof.

3.24 Word Usage. Words used in the masculine shall apply to the feminine
where applicable and, wherever the context of this Plan dictates, the plural
shall be read as the singular and the singular as the plural.

EXHIBIT-B

ZCECC7B DETACH HERE

PROXY

CEC ENTERTAINMENT, INC.

4441 West Airport Freeway
Irving, Texas 75062

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Mark A. Flores and Gene F. Cramm, and each
of them as proxies, with full power of substitution and revocation, and appoints
them to represent and vote, as designated on the reverse side, all of the shares
of Common Stock or Preferred Stock of CEC Entertainment, Inc. which the
undersigned is entitled to vote at the annual meeting of stockholders of CEC
Entertainment, Inc. to be held on June 28, 2001, or at any adjournment thereof.

PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY
USING THE ENCLOSED ENVELOPE

------------- -------------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
------------- -------------

------------------- ------------------
Vote by Telephone Vote by Internet
------------------- ------------------

It's fast, convenient, and immediate! It's fast, convenient, and your
Call Toll-Free on a Touch-Tone Phone vote is immediately confirmed
1-877-PRX-VOTE (1-877-779-8683). and posted.

------------------------------------------------- ------------------------------------------------
Follow these four easy steps: Follow these four easy steps:

1. Read the accompanying Proxy Statement and 1. Read the accompanying Proxy Statement and
Proxy Card. Proxy Card.

2. Call the toll-free number 2. Go to the Website
1-877-PRX-VOTE (1-877-779-8683). http://www.eproxyvote.com/cec

3. Enter your 14-digit Voter Control Number 3. Enter your 14-digit Voter Control Number
located on your Proxy Card above your name. located on your Proxy Card above your name.

4. Follow the recorded instructions. 4. Follow the instructions provided.
------------------------------------------------- ------------------------------------------------

Your vote is important! Your vote is important!
Call 1-877-PRX-VOTE anytime! Go to http://www.eproxyvote.com/cec anytime!

Do not return your Proxy Card if you are voting by Telephone or Internet

ZCEC7A DETACH HERE

[X] Please mark
votes as in
this example.

This proxy when properly executed will be voted in the manner directed herein
by the undersigned stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2, 3, 4, 5, AND 6.
---

FOR AGAINST ABSTAIN

1. ELECTION OF DIRECTORS 2. Proposal to amend the Non-Employee [_] [_] [_]
Nominees: (01) Michael H. Magusiak and (02) Walter Tyree. Director's Stock Option Plan by changing
the ability to exercise options.

FOR [_] [_] WITHHELD MARK HERE [_] 3. Proposal to amend the Non-Employee [_] [_] [_]
BOTH FROM IF YOU PLAN Director's Stock Option Plan by increasing
NOMINEES BOTH TO ATTEND the number of shares granted annually.
NOMINEES THE MEETING

MARK HERE [_] 4. Proposal to amend the 1997 Non-Statutory [_] [_] [_]
FOR ADDRESS Stock Option Plan by changing the ability
CHANGE AND to exercise options.
[_] _______________________________________ NOTE BELOW
For both nominees except as noted above

5. Proposal to amend the 1997 Non-Statutory [_] [_] [_]
Stock Option Plan by adding shares thereto.

6. Proposal to amend the Incentive Bonus Plan. [_] [_] [_]

7. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON
SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.

Please sign exactly as name appears at left. When shares are held
by joint tenants, both should sign. (Please make any address
corrections at left.) When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate name by president
or other authorized officer. If a partnership, please sign in
partnership name by authorized person.

Signature:_______________________________ Date:_______________ Signature:______________________________ Date:________________