CASA OLE RESTAURANTS INC, 8-K, 1997-07-17

CASA OLE RESTAURANTS INC
8-K, 1997-07-17
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<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of Earliest Event Reported): July 2, 1997

CASA OLE RESTAURANTS, INC.

(Exact name of registrant as specified in its charter)

TEXAS 0-28234 76-0493269
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification Number)

1135 Edgebrook
Houston, Texas 77034
(Address of principal executive offices)

(713) 943-7574
(Registrant's Telephone No.)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.

On July 2, 1997, Casa Ole Restaurants, Inc. (the "Company")
consummated the acquisition pursuant to that certain Stock Purchase Agreement
dated July 1, 1997 (the "Agreement") by and among the Company, Monterey's
Acquisition Corp., a Delaware corporation ("Monterey's"), and the shareholders
of Monterey's listed on Annex "A" to the Agreement (each a "Seller" and
collectively, "Sellers"), pursuant to the terms of which the Company purchased
from the Sellers all of the issued and outstanding shares of common stock, no
par value, of Monterey's (the "Shares") owned by them. Using $3 million cash
on hand and its amended credit facility with NationsBank of Texas, N.A., the
Company purchased the Shares for $4 million, paid off outstanding debt and
accrued interest with two creditors of Monterey's totaling $7.1 million and
funded various other agreed upon items approximating $500,000. As purchased,
Monterey's has a working capital deficit of $750,000 that will be funded by the
Company.

Louis P. Neeb, the Chairman of the Board and Chief Executive Officer
of the Company currently sits on the Board of Directors of ShowBiz Pizza Time,
Inc., a minority selling shareholder of Monterey's.

The assets represented by the Shares (the "Assets") were used by
Monterey's in conducting the business of owning and operating a total of 26
Mexican restaurants in Texas and Oklahoma. The Company intends to continue
such use of the Assets in the course of conducting its business.

Page 2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.

(a) Financial Statements of Businesses Acquired.

Page 3
<PAGE> 4
MONTEREY'S ACQUISITION CORP.

FINANCIAL STATEMENTS AND AUDIT REPORT

DECEMBER 29, 1996

<PAGE> 5

MONTEREY'S ACQUISITION CORP.
CONTENTS
- -------------------------------------------------------------------------------

<TABLE>
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS 1

BALANCE SHEETS 2

STATEMENTS OF OPERATIONS 3

STATEMENT OF STOCKHOLDERS' EQUITY 4

STATEMENTS OF CASH FLOWS 5/6

NOTES TO FINANCIAL STATEMENTS 7/14

SUPPLEMENTARY INFORMATION

Schedules of Tortuga Operations 16
</TABLE>

<PAGE> 6

A TENNESSEE REGISTERED LIMITED LIABILITY PARTNERSHIP

PRIVATE COMPANIES PRACTICE SECTION MEMBER AICPA DIVISION FOR CPA FIRMS
SEC PRACTICE SECTION

REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors and Stockholders
Monterey's Acquisition Corp.
Houston, Texas

We have audited the accompanying balance sheets of Monterey's Acquisition Corp.
as of December 29, 1996 and December 31, 1995, and the related statements of
operations, stockholders' equity and cash flows for the years ended December
29, 1996 and December 31, 1995 and the period from May 4, 1994 (date operations
commenced) through January 1, 1995. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Monterey's Acquisition Corp.
as of December 29, 1996 and December 31, 1995, and the results of its
operations and its cash flows for the years ended December 29, 1996 and
December 31, 1995 and the period from May 4, 1994 through January 1, 1995, in
conformity with generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplementary
information is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.

Chattanooga, Tennessee
January 24, 1997

<PAGE> 7

MONTEREY'S ACQUISITION CORP.
BALANCE SHEETS
DECEMBER 29, 1996 AND DECEMBER 31, 1995

<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
<S> <C> <C>
ASSETS

CURRENT ASSETS
Cash and Cash Equivalents $ 349,868 $ 183,443
Receivables 143,667 88,072
Inventories 176,586 190,443
Prepayments 233,990 284,925
------------ ------------

Total Current Assets 904,111 746,883

PROPERTY AND EQUIPMENT, net 6,626,958 7,090,486

OTHER ASSETS 3,475,670 3,857,545
------------ ------------

TOTAL ASSETS $ 11,006,739 $ 11,694,914
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Bank Overdraft $ 71,837 $ 177,536
Current Portion of Long-Term Debt 988,638 891,141
Accounts Payable and Accrued Liabilities 1,583,010 1,530,402
------------ ------------

Total Current Liabilities 2,643,485 2,599,079
------------ ------------

LONG-TERM DEBT 6,253,810 7,104,271
------------ ------------

OTHER LONG-TERM LIABILITIES 368,405 301,346
------------ ------------

STOCKHOLDERS' EQUITY
Common Stock - no par value - 1,500,000
shares authorized; 1,149,321 shares issued 2,946,273 2,946,273
Accumulated Deficit (1,205,234) (1,256,055)
------------ ------------

Total Stockholders' Equity 1,741,039 1,690,218
------------ ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,006,739 $ 11,694,914
============ ============
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE> 8

MONTEREY'S ACQUISITION CORP.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 29, 1996 AND DECEMBER 31, 1995 AND
PERIOD FROM MAY 4, 1994 THROUGH JANUARY 1, 1995

<TABLE>
<CAPTION>
PERIOD FROM
MAY 4, 1994
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
<S> <C> <C> <C>
REVENUES $ 20,625,946 $ 20,116,312 $ 12,675,340
------------ ------------ ------------

COSTS AND EXPENSES
Cost of Sales 12,805,734 12,593,548 7,846,065
Selling, General and Administrative
Expenses 3,112,575 3,241,441 2,024,484
Depreciation and Amortization 1,263,482 1,435,479 755,684
Other Operating Expenses 2,393,332 2,355,404 1,567,898
------------ ------------ ------------
19,575,123 19,625,872 12,194,131
------------ ------------ ------------

OPERATING INCOME 1,050,823 490,440 481,209
------------ ------------ ------------

OTHER INCOME (EXPENSES)
Management and Consulting Fees (145,096) (131,731) (84,135)
Interest Income 16,139 14,249 6,297
Interest Expense (871,045) (946,033) (657,942)
Transaction Costs -- -- (428,409)
------------ ------------ ------------
(1,000,002) (1,063,515) (1,164,189)
------------ ------------ ------------

NET INCOME (LOSS) $ 50,821 $ (573,075) $ (682,980)
============ ============ ============
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE> 9

MONTEREY'S ACQUISITION CORP.
STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 29, 1996 AND DECEMBER 31, 1995 AND
PERIOD FROM MAY 4, 1994 THROUGH JANUARY 1, 1995

<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
SHARES AMOUNT DEFICIT
<S> <C> <C> <C>
Issuance of Common Stock 1,097,855 $ 2,796,721 $ --

Net Loss (682,980)
----------- ----------- -----------

BALANCE - January 1, 1995 1,097,855 2,796,721 (682,980)

Net Loss (573,075)

Issuance of Common Stock 51,466 149,552
----------- ----------- -----------

BALANCE - December 31, 1995 1,149,321 2,946,273 (1,256,055)

Net Income 50,821

BALANCE - December 29, 1996 1,149,321 $ 2,946,273 $(1,205,234)
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE> 10

MONTEREY'S ACQUISITION CORP.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 29, 1996 AND DECEMBER 31, 1995 AND
PERIOD FROM MAY 4, 1994 THROUGH JANUARY 1, 1995

<TABLE>
<CAPTION>
PERIOD FROM
MAY 4, 1994
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ 50,821 $ (573,075) $ (682,980)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operating Activities -
Depreciation 786,905 717,258 398,902
Amortization 476,577 718,221 356,782
Common Stock Issued for Consulting Services -- -- 35,000
Changes in Operating Assets and Liabilities,
net of effects from acquisition -
Decrease (Increase) in -
Receivables (55,595) (20,858) (67,214)
Inventories 13,857 (12,704) (27,096)
Prepayments 50,935 60,669 (264,468)
Increase in -
Accounts Payable and Accrued Liabilities 97,535 160,363 664,339
----------- ----------- -----------

NET CASH PROVIDED BY OPERATING ACTIVITIES 1,421,035 1,049,874 413,265
----------- ----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (390,427) (740,073) (877,296)
Payment for Purchase of Company, net of
cash acquired -- -- (5,828,824)
Payments for Acquisition Costs and
Other Assets (5,520) (109,461) (710,892)
----------- ----------- -----------

NET CASH USED BY INVESTING ACTIVITIES (395,947) (849,534) (7,417,012)
----------- ----------- -----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE> 11

MONTEREY'S ACQUISITION CORP.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 29, 1996 AND DECEMBER 31, 1995 AND
PERIOD FROM MAY 4, 1994 THROUGH JANUARY 1, 1995

<TABLE>
<CAPTION>
PERIOD FROM
MAY 4, 1994
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in Bank Overdraft $ (105,699) $ (58,729) $ 236,265
Proceeds from Issuance of Term Loan 60,000 195,814 4,200,000
Repayment of Long-Term Debt (812,964) (823,621) (226,781)
Proceeds from Issuance of Common Stock -- 149,552 3,300,000
----------- ----------- -----------

NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (858,663) (536,984) 7,509,484
----------- ----------- -----------

NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 166,425 (336,644) 505,737

CASH AND CASH EQUIVALENTS - beginning
of period 183,443 520,087 14,350
----------- ----------- -----------

CASH AND CASH EQUIVALENTS - end
of period $ 349,868 $ 183,443 $ 520,087
=========== =========== ===========

SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash Paid for Interest $ 936,905 $ 1,040,902 $ 385,003

SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Liabilities Assumed in Connection
with Acquisition $ -- $ -- $ 1,064,549
Subordinated Notes Payable
Issued to Sellers $ -- $ -- $ 4,650,000
Deemed Dividend to Sellers $ -- $ -- $ 1,000,804
Exchange of Stock by Sellers $ -- $ -- $ 437,500
Exchange of Stock for Acquisition Costs $ -- $ -- $ 25,025
Property and Equipment Additions
Included in Accounts Payable $ 54,853 $ -- $ --
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE> 12

MONTEREY'S ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies and practices followed by the company are
as follows:

DESCRIPTION OF BUSINESS - Monterey's Acquisition Corp. operates 26 Monterey's
Tex-Mex Cafe and Tortuga Cantina restaurants in Texas and Oklahoma, primarily
in the Houston, Texas metropolitan area. The restaurants were acquired
effective May 4, 1994. The company's receivables primarily include credit card
receivables from customers.

YEAR END - The company's year end is the 52 or 53-week period ending on the
Sunday closest to December 31.

CASH AND CASH EQUIVALENTS - Cash and cash equivalents include currency on hand
and demand deposits with financial institutions. The company considers all
highly liquid investments which are readily convertible into cash to be cash
equivalents. The company maintains cash and cash equivalents at various
financial institutions which may exceed federally insured amounts.

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

PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation and amortization are provided by charges to operations over the
estimated useful lives of the assets, or the lease term if less, by the
straight-line method.

OTHER ASSETS - Other assets include goodwill which is amortized over fifteen
years. Preopening costs are amortized over one year. Costs associated with the
initial purchase of the restaurants are amortized over five years. Other
deferred charges are amortized over five years. All amortization is provided by
the straight-line method.

INCOME TAXES - Income taxes are computed based on the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Deferred tax assets and liabilities are recognized for the estimated future tax
effects attributed to temporary differences between the book and tax bases of
assets and liabilities and for carryforward items. The measurement of current
and deferred tax assets and liabilities is based on enacted law. Deferred tax
assets are reduced, if necessary, by a valuation allowance for the amount of
tax benefits that may not be realized.

ADVERTISING COSTS - Advertising costs are charged to operations when incurred.
Advertising expense totaled $905,747 for 1996, $1,090,717 for 1995 and $715,864
for 1994.

<PAGE> 13

MONTEREY'S ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

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

Significant estimates were made in the preparation of the financial statements.
The following calculations required significant estimates:

Valuation Allowance for Deferred Taxes
Realizability of Goodwill

It is reasonably possible that the significant estimates used will change
materially within the next year.

RECLASSIFICATIONS - Certain reclassifications have been made to prior years'
financial statements to conform with the current year presentation.

INCORPORATION AND ACQUISITION OF COMPANY

The company was incorporated in the state of Delaware on December 15, 1993, and
authorized 1,000,000 shares of no par value stock which were issued on May 4,
1994. The company later amended its charter to increase the authorized shares
to 1,500,000. The purpose of the corporation was to acquire the operating
assets of 26 Monterey's Tex-Mex Cafes which were wholly owned by BHC
Acquisition Corporation (BHC). The asset purchase agreement was entered into on
May 4, 1994. As part of the asset purchase agreement, BHC obtained a 12.5%
equity interest in the company.

The company paid approximately $12 million for the assets of the Monterey's
Tex-Mex Cafes. The purchase price included $4,650,000 in notes payable to BHC
and stock issued to BHC. The company also assumed liabilities of $1,064,549 in
conjunction with the acquisition.

The company incurred certain costs relating to the transaction including legal,
accounting and loan fees. These costs are nonrecurring expenses related to the
transaction and have been separately reported on the statement of operations.

<PAGE> 14

MONTEREY'S ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS

INCORPORATION AND ACQUISITION OF COMPANY - continued

The acquisition was accounted for as a purchase and resulted in the purchase
price being allocated to the assets acquired and liabilities assumed based on
their estimated fair market values. After closing balance sheet adjustments and
related acquisition costs, the opening balance sheet of the company is
summarized as follows:

<TABLE>
<S> <C>
Current Assets $ 585,908
Property and Equipment 6,963,221
Other Assets 4,849,334
-----------

TOTAL ASSETS $12,398,463
===========

Current Liabilities $ 860,493
Long-Term Liabilities 9,041,249
Equity 2,496,721
-----------

TOTAL LIABILITIES AND EQUITY $12,398,463
===========
</TABLE>

The asset purchase was accounted for under the provisions of Emerging Issues
Task Force Issue No. 88-16 which require that the basis of the stock held by
BHC prior to the acquisition be used to value their investment in the company.
This resulted in a reduction in equity of $1,000,804 as of the acquisition
date.

The initial capitalization of the company is as follows:

<TABLE>
<S> <C>
Cash Contributed for Common Stock $ 3,000,000
Common Stock Issued for Services 60,025
Common Stock Issued to BHC 437,500
-----------
3,497,525
Deemed Dividend to Selling Stockholder (1,000,804)

Initial Capitalization $ 2,496,721
===========
</TABLE>

RECEIVABLES

Receivables consist of the following:

<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
<S> <C> <C>
Credit Card Receivables from Customers $ 85,277 $ 79,682
Insurance Refund 50,000 --
Due from Stockholder 8,390 8,390
------------ ------------
$ 143,667 $ 88,072
============ ============
</TABLE>

<PAGE> 15

MONTEREY'S ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS

PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
<S> <C> <C>
Land and Improvements $ 1,483,304 $ 1,483,304
Buildings and Improvements 1,191,696 1,191,696
Leasehold Improvements 2,762,313 2,642,427
Furniture, Fixtures and Equipment 2,800,040 2,474,645
Property Leased under Favorable Lease Agreements 650,235 650,235
----------- -----------
8,887,588 8,442,307
Accumulated Depreciation and Amortization (2,260,630) (1,351,821)
----------- -----------
$ 6,626,958 $ 7,090,486
=========== ===========
</TABLE>

OTHER ASSETS

Other assets consist of the following:

<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
<S> <C> <C>
Goodwill $ 3,904,709 $ 3,904,709
Acquisition Costs 523,833 523,833
Trademarks 25,333 25,333
Preopening Expenses 6,209 294,206
Other 2,755 3,254
----------- -----------
4,462,839 4,751,335
Accumulated Amortization (987,169) (893,790)
----------- -----------
$ 3,475,670 $ 3,857,545
=========== ===========
</TABLE>

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of the following:

<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
<S> <C> <C>
Accounts Payable $ 888,823 $ 670,003
Salaries and Wages 342,497 327,032
Taxes, other than income 364,887 384,072
Rent 87,835 82,135
Interest 112,209 178,069
Other 50,605 52,937
---------- ----------
$1,846,856 $1,694,248
========== ==========
</TABLE>

<PAGE> 16
MONTEREY'S ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS

LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
<S> <C> <C>
10% Subordinated Term Note - payable to
BHC Acquisition Corporation - interest due
quarterly, principal due April, 1999 $4,450,000 $4,450,000
10% Subordinated Term Note - payable to
BHC Acquisition Corporation - principal and
interest due April, 2000 200,000 200,000
11.38% Term Loan - payable at varying
amounts approximating $100,000 monthly including
interest through May, 1999 - collateralized
by all the assets of the company 2,592,448 3,345,412
---------- ----------
7,242,448 7,995,412
Less Current Portion 988,638 891,141
---------- ----------
$6,253,810 $7,104,271
========== ==========
</TABLE>

Aggregate maturities of long-term debt for the years subsequent to December 29,
1996, are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
<S> <C>
December 28, 1997 $ 988,638
January 3, 1999 $1,107,203
January 2, 2000 $4,946,607
January 1, 2001 $ 200,000
</TABLE>

The provisions of the company's loan agreements contain various restrictive
covenants which include minimum net worth and maintenance of debt service
ratios.

<PAGE> 17

MONTEREY'S ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS

OPERATING LEASES

The company leases certain restaurants and related property and equipment under
operating leases. All leases require the company to pay property taxes,
insurance and maintenance of the leased assets. The leases generally have
initial terms of one to 18 years with various renewal options.

Minimum lease commitments as of December 29, 1996, are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
<S> <C>
December 28, 1997 $ 559,145
January 3, 1999 499,318
January 2, 2000 350,606
January 1, 2001 255,948
December 31, 2002 245,348
Later Years 1,489,833
----------
$3,400,198
==========
</TABLE>

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

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

<TABLE>
<CAPTION>
PERIOD FROM
MAY 4, 1994
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
<S> <C> <C> <C>
Minimum $ 620,794 $ 599,729 $ 354,169
Contingent 195,065 180,319 94,005
---------- ---------- ----------
$ 815,859 $ 780,048 $ 448,174
========== ========== ==========
</TABLE>

OTHER LONG-TERM LIABILITIES

Other long-term liabilities consist of:

<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
<S> <C> <C>
Unfavorable Leases $ 103,783 $ 136,504
Deferred Rent 776 996
Accrued Management Fees 263,846 163,846
---------- ----------
$ 368,405 $ 301,346
========== ==========
</TABLE>

<PAGE> 18

MONTEREY'S ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS

INCOME TAXES

There is no federal or state income tax for 1996 due to the realization of
federal and state net operating loss carryforwards.

The company implemented Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," as of the date of acquisition. The statement
establishes standards for financial accounting and reporting for income taxes
that are currently payable and for provisions for deferred taxes. The standard
requires an asset and liability method of accounting for income taxes.

A deferred tax asset of $400,000 was recorded as of the acquisition date which
resulted from differences in the carrying amounts of intangible assets and
accrued liabilities for financial reporting purposes and the amounts used for
income tax purposes.

At December 29, 1996, the company had a net loss carryforward, which will
expire December 31, 2010, of approximately $1,100,000 available to reduce
future taxable income.

A valuation allowance of $850,000 has been recognized for 1996 and 1995 to
offset the deferred tax assets because of the uncertainty of realizing the
related benefits. This valuation allowance could be reduced in the future if it
appears more likely than not the deferred tax asset will be realized.

The following is a summary of the significant components of the company's
deferred tax assets.

<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
<S> <C> <C>
DEFERRED TAX ASSETS
Net Operating Loss Carryforward $ 435,000 $ 430,000
Depreciation and Amortization 440,000 400,000
Accrued Expenses 38,000 100,000
Inventory 8,000 --
---------- ----------
921,000 930,000
DEFERRED TAX LIABILITIES
Prepaid Expenses (71,000) (80,000)
---------- ----------
850,000 850,000

VALUATION ALLOWANCE (850,000) (850,000)
---------- ----------

NET DEFERRED TAX ASSETS $ -- $ --
========== ==========
</TABLE>

<PAGE> 19
MONTEREY'S ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS

401(k) PLAN

The company has a defined contribution 401(k) plan. The plan covers
substantially all full-time employees meeting certain age and service
requirements. Participating employees may elect to defer a percentage of their
qualifying compensation as voluntary employee contributions. The company may
contribute additional amounts at the discretion of management. The company did
not make any contributions to the plan in 1996 or 1995.

RELATED PARTY TRANSACTIONS

Transactions and balances with related parties are summarized as follows:

<TABLE>
<CAPTION>
PERIOD FROM
MAY 4, 1994
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
<S> <C> <C> <C>
GENERAL PARTNER OF PARTNERSHIP HOLDING
MAJORITY OF COMPANY'S STOCK
Transaction Costs $ -- $ -- $ 175,000
Management Fees Expensed $ 100,000 $ 100,000 $ 67,308
Management Fees Accrued $ 263,846 $ 163,846 $ 67,308

SHAREHOLDER AND FORMER OWNER
Accounting Fees $ 289,423 $ 252,404 $ 168,270
Interest Expense $ 464,751 $ 461,919 $ 312,136
Consulting Fees $ 45,096 $ 31,731 $ 16,827
Notes Payable $4,650,000 $4,650,000 $4,650,000
Accounts Payable and Accrued Liabilities $ 247,381 $ 178,469 $ 308,396
Accounts Receivable $ 8,390 $ 8,390 $ --

SHAREHOLDERS AND EMPLOYEES
Acquisition Costs $ -- $ -- $ 200,000
Consulting Fees $ 51,166 $ 22,872 $ 82,308
Accounts Payable and Accrued Liabilities $ -- $ -- $ 42,308
</TABLE>

<PAGE> 20
SUPPLEMENTARY INFORMATION

<PAGE> 21

MONTEREY'S ACQUISITION CORP.
SCHEDULES OF TORTUGA OPERATIONS
YEARS ENDED DECEMBER 29, 1996 AND DECEMBER 31, 1995 AND
PERIOD FROM MAY 4, 1994 THROUGH JANUARY 1, 1995

<TABLE>
<CAPTION>
PERIOD FROM
MAY 4, 1994
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
<S> <C> <C> <C>
REVENUES $ 3,477,928 $ 3,212,483 $ 1,384,598
----------- ----------- -----------

COST OF SALES
Cost of Sales 936,066 895,080 409,444
Labor Cost 1,180,182 1,208,626 510,497
Other Controllables 110,706 99,573 25,670
----------- ----------- -----------
2,226,954 2,203,279 945,611
----------- ----------- -----------

Gross Profit 1,250,974 1,009,204 438,987

SELLING, GENERAL AND
ADMINISTRATIVE 235,986 238,404 107,447

DEPRECIATION AND AMORTIZATION 278,219 487,783 128,210

OTHER OPERATING EXPENSES 541,191 515,033 222,326
----------- ----------- -----------

PROFIT CONTRIBUTION $ 195,578 $ (232,016) $ (18,996)
=========== =========== ===========
</TABLE>

<PAGE> 22
(b) Pro Forma Financial Information.

Page 4
<PAGE> 23
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS

(b) PRO FORMA FINANCIAL INFORMATION

CASA OLE' RESTAURANTS, INC.

PRO FORMA COMBINED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
COMPANY MONTEREY'S PRO FORMA PRO FORMA
ASSETS 4/18/97 3/30/97 ADJUSTMENTS COMBINED
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 4,540 $ 577 $ (3,297)(a) $ 1,820
Marketable securities (approximates fair value) 1,032 -- -- 1,032
Royalties receivable 174 -- -- 174
Receivables from affiliates 18 -- -- 18
Other receivables 177 139 -- 316
Notes receivable from related parties 115 0 -- 115
Inventory 208 177 -- 385
Prepaid expenses and other current assets 316 133 -- 449
-------- -------- ----------- --------
Total current assets 6,580 1,026 (3,297) 4,309
-------- -------- ----------- --------

Property, plant and equipment, net 5,640 6,481 434(b) 12,555
Goodwill, net 575 3,375 1,983(c) 5,933
Other assets 82 9 837(b) 928
-------- -------- ----------- --------
$ 12,877 $ 10,891 $ (43) $ 23,725
======== ======== =========== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current installments of long-term debt $ 184 $ 989 $ (156)(d) $ 1,017
Accounts payable 448 1,678 -- 2,126
Income taxes payable 43 -- -- 43
Accrued sales and liquor taxes 107 -- -- 107
Accrued payroll and taxes 265 -- -- 265
Accrued expenses 57 -- -- 57
-------- -------- ----------- --------
Total current liabilities 1,104 2,667 (156) 3,615
-------- -------- ----------- --------

Long-term debt 450 6,017 2,150(d) 8,617
Deferred income taxes 36 -- 65(b) 101
Deferred franchise fees 43 -- -- 43
Other long-term liabilities -- 386 (281)(e) 105

Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized -- -- -- --
Capital stock, $0.01 par value, 20,000,000 shares 47 2,946 (2,946)(f) 47
authorized, 4,732,705 shares issued --
Additional paid-in capital 20,686 -- -- 20,686
Retained earnings 1,861 (1,125) 1,125(f) 1,861
Treasury stock, cost of 1,135,000 shares (11,350) -- -- (11,350)
-------- -------- ----------- --------
Total stockholders' equity 11,244 1,821 (1,821) 11,244
-------- -------- ----------- --------

$ 12,877 $ 10,891 $ (43) $ 23,725
======== ======== =========== ========
</TABLE>

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

(a) Cash used for certain acquisition-related costs.
(b) Adjustment of acquired assets and liabilities to fair value.
(c) Adjustment of goodwill to reflect purchase price less the fair value
of acquired assets.
(d) Use of the Company's credit facility to fund the acquisition.
(e) Funding of certain agreeed upon long-term liabilities and accrual of
transaction related expenditures.
(f) Equity adjustments to effect acquisition.

<PAGE> 24

CASA OLE' RESTAURANTS, INC.

PRO FORMA COMBINED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
COMPANY MONTEREY'S
16-WEEK 13-WEEK
PERIOD ENDED PERIOD ENDED PRO FORMA PRO FORMA
4/18/97 3/30/97 ADJUSTMENTS COMBINED
----------- ------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Restaurant sales $ 6,668 $ 5,091 $ $ 11,759
Franchise fees 333 333
Other 21 21
----------- ------- -------- -----------
7,022 5,091 12,113
----------- ------- -------- -----------

Costs and expenses:
Cost of sales 1,462 1,348 2,810
Restaurant operating expenses 3,905 2,724 6,629
General and administrative 743 419 (50)(a) 1,112
Depreciation and amortization 133 322 (31)(b) 424
----------- ------- -------- -----------
6,243 4,813 (81) 10,975
----------- ------- -------- -----------

Operating income 779 278 81 1,138
----------- ------- -------- -----------

Other income (expense):
Interest 58 (198) (21)(c) (161)
Other, net 3 3
----------- ------- -------- -----------
61 (198) (21) (158)
----------- ------- -------- -----------

Income before income tax expense 840 80 60 980
Income tax expense 316 51(d) 367
----------- ------- -------- -----------

Net income $ 524 $ 80 $ 9 $ 613
=========== ======= ======== ===========

Net income and pro forma
net income per common share $ 0.15 $ 0.17
=========== ===========

Weighted average number-
of common shares 3,597,944 3,597,944
=========== ===========
</TABLE>

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

<PAGE> 25

CASA OLE' RESTAURANTS, INC.

PRO FORMA COMBINED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
COMPANY MONTEREY'S
52-WEEK 52-WEEK
PERIOD ENDED PERIOD ENDED PRO FORMA PRO FORMA
12/27/96 12/29/96 ADJUSTMENTS COMBINED
----------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales $ 17,574 $ 20,626 $ $ 38,200
Franchise fees 998 0 998
Other 90 0 90
----------- -------- -------- -----------
18,662 20,626 0 39,288
----------- -------- -------- -----------

Costs and expenses:
Cost of sales 4,406 5,605 10,011
Restaurant operating expenses 9,609 11,071 20,680
General and administrative 2,081 1,782 (196)(a) 3,667
Depreciation and amortization 208 1,264 (125)(b) 1,347
----------- -------- -------- -----------
16,304 19,722 (321) 35,705
----------- -------- -------- -----------

Operating income 2,358 904 321 3,583
----------- -------- -------- -----------

Other income (expense):
Interest 254 (854) (14)(c) (614)
Other, net 114 0 0 114
----------- -------- -------- -----------
368 (854) (14) (500)
----------- -------- -------- -----------

Income before income tax expense 2,726 50 307 3,083
Income tax expense 858 0 132(d) 990
----------- -------- -------- -----------

Net income $ 1,868 $ 50 $ 175 $ 2,093
=========== ======== ======== ===========

Pro forma income statement data (e):
Net income as reported $ 1,868 $ 50 $ 175 $ 2,093
Pro forma adjustments:
Compensation and related party
expense arrangements 162 0 0 162
Provision for income taxes (211) 0 0 (211)
=========== ======== ======== ===========
Pro forma net income $ 1,819 $ 50 $ 175 $ 2,044
=========== ======== ======== ===========

Pro forma net income per common share $ 0.54 $ 0.60
=========== ===========

Pro forma weighted average
number of common shares 3,384,977 3,384,977
=========== ===========
</TABLE>

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

(a) Fees related to non-continuing consulting arrangements.
(b) Net impact of amortizing approximately $5.4 million in goodwill over
40 years (previously $3.4 million amortized over 15 years).
(c) Net impact of using the Company's credit facility to finance
approximately $9.0 million of the acquisition price.
(d) Additional income tax on the combined income of the Company and
Monterey's.
(e) On April 24, 19996, the Company was reorganized. The pro forma
adjustments reflect adjustments to compensation and related party
expense arrangements and reflect an adjustment to the provision for
income taxes.

<PAGE> 26
(c) Exhibits.

2 Stock Purchase Agreement by and among Casa Ole
Restaurants, Inc., Monterey's Acquisition Corp.
("Monterey's") and the shareholders of Monterey's
listed in Annex "A" thereto.

10 Amendment No. 2, dated as of June 30, 1997, to that
certain Credit Agreement dated as of July 10, 1996
between Casa Ole Restaurants, Inc. and NationsBank of
Texas, N.A., as previously amended by that certain
Amendment No. 1, dated as of January 13, 1997.

20 Press Release issued by the Registrant, dated July 3,
1997.

Page 5
<PAGE> 27
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.

CASA OLE RESTAURANTS, INC.

Dated: July 16, 1997 By: /s/ STACY M. RIFFE
-------------------------------------
Printed Name: Stacy M. Riffe
---------------------------
Title: Vice President & CFO
----------------------------------

Page 6
<PAGE> 28
EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------ ----------- ----
<S> <C>
2 Stock Purchase Agreement by and
among Casa Ole Restaurants, Inc.,
Monterey's Acquisition Corp.
("Monterey's") and the shareholders
of Monterey's listed in Annex "A"
thereto.

10 Amendment No. 2, dated as of
June 30, 1997, to that certain Credit
Agreement dated as of July 10,
1996 between Casa Ole Restaurants,
Inc. and NationsBank of Texas,
N.A., as previously amended by that
certain Amendment No. 1, dated as
of January 13, 1997.

20 Press Release issued by the
Registrant, dated July 3, 1997.
</TABLE>

Page 7

<PAGE> 1
EXHIBIT 2

STOCK PURCHASE AGREEMENT

BY AND AMONG

CASA OLE RESTAURANTS, INC.
A TEXAS CORPORATION,

MONTEREY'S ACQUISITION CORP.
A DELAWARE CORPORATION

AND

THE SHAREHOLDERS OF THE COMPANY
LISTED ON ANNEX "A" HERETO
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I. PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . 1
1.1 Purchase of Stock . . . . . . . . . . . . . . . . . . . . . 1
1.2 Purchase Price Adjustment and Estimated Closing Price
Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Post-Closing Price Adjustment . . . . . . . . . . . . . . . 2

ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND SELLERS . . . . . . . . . . . . . . . . . . . . . . . . 3
(A) Representations and Warranties of the Company and Sellers . 3
2.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Organization, Existence and Good Standing of the Company . . 3
2.3 Capital Stock of the Company . . . . . . . . . . . . . . . . 4
2.4 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Financial Statements . . . . . . . . . . . . . . . . . . . . 4
2.6 No Brokers. . . . . . . . . . . . . . . . . . . . . . . . . 5
2.7 Permits. . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.8 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . 5
2.9 Assets and Properties . . . . . . . . . . . . . . . . . . . 6
2.10 Real Property Leases; Options . . . . . . . . . . . . . . . 7
2.11 Environmental Laws and Regulations . . . . . . . . . . . . . 7
2.12 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.13 No Violations . . . . . . . . . . . . . . . . . . . . . . . 9
2.14 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.15 Litigation and Related Matters . . . . . . . . . . . . . . . 9
2.16 Compliance with Laws . . . . . . . . . . . . . . . . . . . . 9
2.17 Intellectual Property Rights . . . . . . . . . . . . . . . . 9
2.18 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . 10
2.19 Employees; Employee Relations . . . . . . . . . . . . . . . 11
2.20 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.21 Interests in Customers, Suppliers, Etc. . . . . . . . . . . 13
2.22 Business Relations . . . . . . . . . . . . . . . . . . . . . 13
2.23 Officers and Directors . . . . . . . . . . . . . . . . . . . 13
2.24 Bank Accounts and Powers of Attorney . . . . . . . . . . . . 13
2.25 Absence of Certain Changes or Events . . . . . . . . . . . . 13
2.26 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 14
(B) Representations and Warranties of Sellers. . . . . . . . . . 14
2.27 Authority; Ownership . . . . . . . . . . . . . . . . . . . . 14
2.28 Preemptive Rights . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>

-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . 15
3.1 Organization and Authorization . . . . . . . . . . . . . . . 15
3.2 No Violations . . . . . . . . . . . . . . . . . . . . . . . 15
3.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.4 Investment Intent . . . . . . . . . . . . . . . . . . . . . 15
3.5 Available funds . . . . . . . . . . . . . . . . . . . . . . 15
3.6 Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

ARTICLE IV. COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . . 16
4.1 Course of Conduct by the Company . . . . . . . . . . . . . . 16
4.2 Approvals and Consents . . . . . . . . . . . . . . . . . . . 18
4.3 Investigations . . . . . . . . . . . . . . . . . . . . . . . 18
4.4 Environmental Inspection . . . . . . . . . . . . . . . . . . 18
4.5 Records Pertaining to the Company . . . . . . . . . . . . . 18
4.6 Tax Elections . . . . . . . . . . . . . . . . . . . . . . . 19
4.7 No Solicitation . . . . . . . . . . . . . . . . . . . . . . 19
4.8 Terms of Employment Retention . . . . . . . . . . . . . . . 19
4.9 Certain Protective Provisions . . . . . . . . . . . . . . . 20
4.10 Termination of Consulting Agreements . . . . . . . . . . . . 20

ARTICLE V. CONDITIONS TO OBLIGATIONS OF BUYER . . . . . . . . . . . . . . 20
5.1 Representations and Warranties . . . . . . . . . . . . . . . 20
5.2 Covenants of Sellers and Company . . . . . . . . . . . . . . 20
5.3 Absence of Litigation . . . . . . . . . . . . . . . . . . . 20
5.4 Consents and Approvals . . . . . . . . . . . . . . . . . . . 20
5.5 Certificates . . . . . . . . . . . . . . . . . . . . . . . . 21
5.6 Termination of Consulting Agreements . . . . . . . . . . . . 21
5.7 Accounting Services Agreement . . . . . . . . . . . . . . . 21
5.8 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . 21
5.9 No Material Adverse Effect . . . . . . . . . . . . . . . . . 22
5.10 No Transfers to Affiliates . . . . . . . . . . . . . . . . . 22
5.11 Compliance with Section 4.1 . . . . . . . . . . . . . . . . 22
5.12 Stock Certificates . . . . . . . . . . . . . . . . . . . . . 22
5.13 Resignations and Releases of Directors and Officers . . . . 22

ARTICLE VI. CONDITIONS TO OBLIGATIONS OF SELLERS . . . . . . . . . . . . 22
6.1 Representations and Warranties . . . . . . . . . . . . . . . 22
6.2 Covenants of Buyer . . . . . . . . . . . . . . . . . . . . . 23
6.3 Absence of Litigation . . . . . . . . . . . . . . . . . . . 23
6.4 Consents and Approvals . . . . . . . . . . . . . . . . . . . 23
6.5 Certificates . . . . . . . . . . . . . . . . . . . . . . . . 23
6.6 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . 23
6.7 Loan Agreements . . . . . . . . . . . . . . . . . . . . . . 23
6.8 Transfer of Funds . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>

-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE VII. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.2 Delivery of the Shares . . . . . . . . . . . . . . . . . . . 24
7.3 Cash Payment to Sellers . . . . . . . . . . . . . . . . . . 24

ARTICLE VIII. TERMINATION PRIOR TO CLOSING . . . . . . . . . . . . . . . . 24
8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . 24

ARTICLE IX. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . 25
9.1 Buyer's Losses . . . . . . . . . . . . . . . . . . . . . . . 25
9.2 Seller Losses . . . . . . . . . . . . . . . . . . . . . . . 26
9.3 Notice of Loss . . . . . . . . . . . . . . . . . . . . . . . 26
9.4 Right to Defend . . . . . . . . . . . . . . . . . . . . . . 26
9.5 Limitations of Indemnification . . . . . . . . . . . . . . . 27
9.6 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . 27

ARTICLE X. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 28
10.1 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 28
10.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . 28
10.3 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 28
10.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.5 Construction . . . . . . . . . . . . . . . . . . . . . . . . 28
10.6 Modification and Waiver . . . . . . . . . . . . . . . . . . 28
10.7 Schedules, Etc . . . . . . . . . . . . . . . . . . . . . . . 28
10.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.9 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . 29
10.10 Survival of Covenants, Agreements, Representations
and Warranties . . . . . . . . . . . . . . . . . . . . . . . 30
10.11 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.12 Third Party Beneficiaries . . . . . . . . . . . . . . . . . 30
10.13 Number and Gender of Words . . . . . . . . . . . . . . . . . 30
10.14 Further Assurances . . . . . . . . . . . . . . . . . . . . . 30
10.15 Brokers and Agents . . . . . . . . . . . . . . . . . . . . . 30

ARTICLE XI. SELLERS' REPRESENTATIVE . . . . . . . . . . . . . . . . . . 31
11.1 Appointment and Acceptance . . . . . . . . . . . . . . . . . 31
11.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . 31
11.3 Certain Limitations . . . . . . . . . . . . . . . . . . . . 32
11.4 Actions . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.5 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . 32
11.6 Indemnification . . . . . . . . . . . . . . . . . . . . . . 32
11.7 Survival of Authorizations . . . . . . . . . . . . . . . . . 32
</TABLE>

-iii-
<PAGE> 5

STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into
as of the 1st day of July, 1997 by and among CASA OLE RESTAURANTS, INC., a
Texas corporation ("Buyer"), MONTEREY'S ACQUISITION CORP., a Delaware
corporation (the "Company"), and the shareholders of the Company listed on
Annex "A" hereto (each a "Seller" and collectively, "Sellers").

W I T N E S S E T H:

WHEREAS, Sellers own all of the issued and outstanding shares of capital
stock of the Company; and

WHEREAS, Sellers desire to sell and convey to Buyer, and Buyer desires
to purchase from Sellers, all of the outstanding capital stock of the Company;

NOW, THEREFORE, for and in consideration of the premises and of the
mutual representations, warranties, covenants and agreements contained herein,
and of other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and upon the terms and subject to the conditions
hereinafter set forth, the parties do hereby agree as follows:

ARTICLE I.

PURCHASE AND SALE

1.1 Purchase of Stock. On the Closing Date (as defined below), Buyer
agrees to purchase from Sellers, and each Seller agrees to sell to Buyer, all
of the issued and outstanding shares of common stock, no par value, of the
Company (the "Company Shares") owned by them for a total consideration of (i)
$4,000,000 in cash, (ii) Buyer's assumption and refinancing of the Company's
senior debt and mandatory prepayment of subordinated debt to BHC Acquisition
Corp. as creditor ("Creditor") as set forth on Schedule 1.1 hereto and (iii)
the Estimated Closing Price Adjustment (as defined in Section 1.2) (the "Total
Consideration") (subject to adjustment pursuant to Section 1.2).

1.2 Purchase Price Adjustment and Estimated Closing Price Adjustment.
The Total Consideration shall be increased or decreased, as the case may be, by
the sum of (i) the amount, if any, by which the Company's outstanding
indebtedness to the lenders set forth on Schedule 1.1 hereto is less than or
exceeds $7,006,000 as reflected on the Closing Date Balance Sheet (as defined
below); and (ii) the amount, if any, by which the Company's working capital
deficit is less than or exceeds $750,000 as reflected in the Closing Date
Balance Sheet plus (a)

-1-
<PAGE> 6
management fees payable or paid during 1997 to River Associates, LLC through
the Closing Date and (b) all expenditures and accruals directly related to the
opening of the Baytown, Texas store in accordance with the Baytown Budget, as
hereafter defined (the construction budget with respect to such store being set
forth on Schedule 1.2 hereto (the "Baytown Budget")) (the amount calculated
pursuant to this Section 1.2, the "Post-Closing Price Adjustment"). Sellers
will prepare and deliver to Buyer no later than five days prior to Closing an
estimated closing price adjustment (the "Estimated Closing Price Adjustment")
together with Sellers' work sheets and explanation relating to such Estimated
Closing Price Adjustment. Sellers will consider any concerns expressed by
Buyer with respect to the Estimated Closing Price Adjustment and will value any
adjustments thereto as both parties may agree to be appropriate.

1.3 Post-Closing Price Adjustment.

(a) Within thirty (30) days following the Closing (as defined
below), the Sellers shall prepare a balance sheet of the Company at the close
of business on the Closing Date (the "Closing Date Balance Sheet"). The
Closing Date Balance Sheet shall be prepared in accordance with generally
accepted accounting principles consistently applied ("GAAP"). Seller shall
promptly deliver a copy of the Closing Date Balance Sheet to Buyer.

(b) Following completion of the Closing Date Balance Sheet in
accordance with Section 1.3(a) above, Sellers shall determine the Post-Closing
Price Adjustment which will indicate any difference between the Estimated
Closing Price Adjustment and the Post-Closing Price Adjustment (the "Closing
Price Difference"). Sellers shall submit the Post-Closing Price Adjustment to
Buyer, at the same time as delivery of the Closing Date Balance Sheet and if
Buyer does not object to the amount of the Post-Closing Price Adjustment within
twenty (20) days of receipt thereof, Sellers shall pay to Buyer, or Buyer shall
pay to Sellers as the case may be, not later than thirty (30) days following
receipt of the Post-Closing Price Adjustment, an amount in cash equal to the
Closing Price Difference.

(c) If Buyer objects to the Post-Closing Price Adjustment, it
shall notify Seller within twenty (20) days following receipt thereof, setting
forth in specific detail the bases for its objection and its proposal for any
adjustments to the Post-Closing Price Adjustment. Buyer and Sellers shall use
their best efforts to reach agreement as to any such proposed adjustment or
that no such adjustment is necessary. If agreement is reached as to all
proposed further adjustments, the parties shall make such adjustments and the
Post-Closing Price Adjustment shall be based thereon. If Buyer and Sellers are
unable to reach agreement within thirty (30) days, then an accountant with a
Big Six Accounting Firm not used by Buyer or Sellers or such other accounting
firm as agreed upon by Buyer and Sellers (the "Third Party Accountant") shall
be engaged to review the proposed adjustments as to which agreement has not
been reached and shall make a determination as to the resolution of the
proposed adjustments to cause the Post-Closing Price Adjustment to have been
properly prepared in accordance with the provisions of this Agreement. All
resolutions shall represent either agreement with the position taken by Buyer
or Sellers or a compromise of such positions. The determination of the Third
Party Accountant shall be final, conclusive and binding upon Buyer and Sellers.
Thereafter, Sellers shall pay to Buyer, or Buyer shall pay to Sellers, as the
case may be, not later than ten (10) days following a determination of
adjustments by the Third Party Accountant, an amount in cash equal to the
Closing Price

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Difference, as determined by the Third Party Accountant. Buyer and Sellers
shall share equally the costs of the Third Party Accountant hereunder.

ARTICLE II.

REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLERS

(A) Representations and Warranties of the Company and Sellers. The
Company and each Seller except JCB Venture Partnership III, J. C. Bradford
Company, Breck Walker, and James H. Graves (the "Bradford Group") severally and
not jointly represent and warrant to Buyer as follows:

2.1 Authorization. This Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding obligation of
the Company, enforceable in accordance with its terms, except that (i) such
enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally, (ii) the
remedy of specific performance and injunctive relief are subject to certain
equitable defenses and to the discretion of the court before which any
proceedings may be brought and (iii) rights to indemnification hereunder may be
limited under applicable securities laws (the items described in clauses (i)
through (iii) hereof, the "Equitable Exceptions"). The Company has full
corporate power, capacity and authority to execute this Agreement and all other
agreements and documents contemplated hereby.

2.2 Organization, Existence and Good Standing of the Company. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the state of its incorporation with all requisite corporate
power and authority to own, lease and operate its properties and to carry on
its business as now being conducted. The Company is duly qualified or licensed
as a foreign corporation and in good standing in each jurisdiction in which the
character or location of the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be so duly qualified or licensed would not have a
material adverse effect on the business, operations, properties, assets or
condition (financial or otherwise), or results of operations of the Company
taken as a whole (a "Material Adverse Effect"). Set forth on Schedule 2.2 is a
list of the jurisdictions in which the Company is qualified or licensed to do
business as a foreign corporation. Set forth in Schedule 2.2 is a listing to
the Company's knowledge of all names of all predecessor companies for the past
five (5) years of the Company, including the names of any entities from whom
the Company previously acquired material assets. In addition, set forth on
Schedule 2.2 is a complete list of all the names under which the Company does
or has done business. Except as disclosed in Schedule 2.2, the Company has not
been a subsidiary or division of another corporation or a part of an
acquisition which was later rescinded. Except as set forth on Schedule 2.2 the
minute books of the Company, as heretofore made available to Buyer, are correct
and complete in all material respects.

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<PAGE> 8
2.3 Capital Stock of the Company.

The Company's authorized capital stock consists of one million
five hundred thousand (1,500,000) shares of Common Stock, no par value,
of which one million one hundred forty-nine thousand three hundred
twenty-one (1,149,321) shares shares are issued and outstanding and one
million one hundred fifty-six thousand three hundred twenty-one
(1,156,321) will be issued and outstanding on the Closing Date. All of
the Company Shares have been validly issued and are fully paid and
nonassessable and no holder thereof is entitled to any preemptive rights
(except as described in Schedule 2.3 and any statutory preemptive
rights, which Sellers hereby waive). There are no outstanding
conversion or exchange rights, subscriptions, options, warrants or other
arrangements or commitments obligating the Company to issue any shares
of capital stock or other securities or to purchase, redeem or otherwise
acquire any shares of capital stock or other securities, or to pay any
dividend or make any distribution in respect thereof, except as set
forth on Schedule 2.3.

2.4 Subsidiaries. Except as set forth on Schedule 2.4, the Company
does not presently own, of record or beneficially, or control directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity nor is
the Company, directly or indirectly, a participant in any joint venture,
partnership or other non-corporate entity.

2.5 Financial Statements.

(a) The Company has previously furnished to Buyer the audited
balance sheet of the Company as of December 29, 1996 and the related
statements of operations, shareholders' equity and cash flows for the
three (3) fiscal years then ended, each as audited by Joseph Decosimo
and Company, certified public accountants, together with the Company's
unaudited balance sheets, management's statements of operations and
shareholders' equity for the five-month period ended May 25, 1997
(collectively, the "Financial Statements"). The Financial Statements
present fairly the financial position and results of operations of the
Company as of the indicated dates and for the indicated periods and have
been prepared in accordance with GAAP except as set forth in the notes
thereto or on Schedule 2.5 except that the interim statements are
subject to year end adjustments and do not contain notes. The Company
has previously permitted Buyer full access to papers pertaining to the
Financial Statements, including those work papers in the possession of
or prepared by Joseph Decosimo and Company.

(b) Except to the extent (and not in excess of the amounts)
reflected in the December 29, 1996 balance sheet included in the
Financial Statements or as disclosed on Schedule 2.5, the Company has no
liabilities or obligations (including, without limitation, Taxes (as
defined in Section 2.8) payable and deferred Taxes and interest accrued
since December 29, 1996) required to be reflected in the Financial
Statements (or the notes thereto) in accordance with GAAP other than
current liabilities incurred in the ordinary course of business,
consistent with past practice, subsequent to December 29, 1996.

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<PAGE> 9
2.6 No Brokers. Sellers and the Company have engaged or consulted
with no broker or finder other than any for whom Sellers will be solely
responsible for or fees or expenses in connection with the transactions
contemplated by this Agreement.

2.7 Permits. To the best of the Sellers' knowledge the Company holds
all licenses (including all licenses pertaining to the sale of alcoholic
beverages), franchises, permits and other governmental authorizations necessary
to operate its properties and carry on its business as now being conducted, the
absence of any of which would have a Material Adverse Effect (the "Material
Permits"). An accurate list and summary description is set forth on Schedule
2.7 hereto of all such Material Permits. The Material Permits are valid, and
the Company has not received any notice that any governmental authority intends
to cancel, terminate or not renew any such Material Permit. The Company has
conducted and is conducting its business in compliance with the requirements,
standards, criteria and conditions set forth in all applicable licenses,
franchises, permits, orders, approvals, variances, rules and regulations and is
not in violation of any of the foregoing except where such noncompliance or
violation would not have a Material Adverse Effect. Except as specifically
provided on Schedule 2.7, the transactions contemplated by this Agreement will
not result in a default under or a breach or violation of, or adversely affect
the rights and benefits afforded to the Company by, any such Material Permits.
Except as set forth on Schedule 2.7, within the twelve months preceding the
date of this Agreement, the Company has not received any written notice or
request from any fire marshal, board of fire underwriters or other Agency (as
defined in Section 2.15 hereof) requiring work to be undertaken with respect to
the assets or properties of the Company.

2.8 Tax Matters.

(a) The Company has filed all income tax returns required to
be filed by the Company and all returns of other Taxes (as defined
below) required to be filed by the Company and has paid or provided for
all Taxes shown to be due on such returns and all such returns are
accurate and correct in all material respects. Except as set forth on
Schedule 2.8, (i) no action or proceeding for the assessment or
collection of any Taxes is pending against the Company; (ii) no
deficiency, assessment or other formal claim for any Taxes has been
asserted or made against the Company that has not been fully paid or
finally settled; and (iii) no issue has been formally raised in writing
or, to the best of Seller's knowledge, orally, by any taxing authority
in connection with an audit or examination of any return of Taxes. No
federal, state or foreign income tax returns of the Company have been
examined, and there are no outstanding agreements or waivers extending
the applicable statutory periods of limitation for such Taxes for any
period. All Taxes that the Company has been required to collect or
withhold have been duly withheld or collected and, to the extent
required, have been paid to the proper taxing authority. No Taxes will
be assessed on or after the Closing Date against the Company for any tax
period ending on or prior to the Closing Date other than for Taxes
accrued in the Financial Statements or disclosed on Schedule 2.8. For
purposes of this Agreement, "Taxes" shall mean all taxes, charges, fees,
levies or other assessments including, without limitation, income,
excise, property, withholding, sales and franchise taxes, imposed by the
United States, or any state, county, local or foreign government or
subdivision or agency thereof, and including any interest, penalties or
additions attributable thereto.

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<PAGE> 10
(b) The Company is not a party to any Tax allocation or
sharing agreement.

(c) The Company has substantial authority for the treatment
of, or has disclosed (in accordance with Section 6662(d)(2)(B)(ii) of
the Code) on its Federal income returns, all positions taken therein
that could give rise to a substantial understatement of Federal income
tax within the meaning of Section 6662(d) of the Code.

(d) The Company has not been a member of an affiliated group
filing a consolidated federal income tax return and does not have any
liability for Taxes for any Person other than the Company (i) under
Section 1.1502-6 of the Treasury regulations (or any similar provision
of state, local or foreign law), (ii) as a transferee or successor,
(iii) by contract or (iv) otherwise.

(e) The Company's Tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal
income Tax deductions is accurately reflected in all material respects
on the Company's Tax books and records.

2.9 Assets and Properties.

(a) Real Property. Schedule 2.9 contains a list of all real
properties owned by the Company (the "Real Property"). Except as set
forth on Schedule 2.9, the company has good and marketable fee simple
title to all Real Property and none of the Real Property is subject to
any Lien, except as set forth on Schedule 2.9.

(b) Personal Property. Except as set forth on Schedule 2.9,
and except for inventory and supplies disposed of or consumed, and
accounts receivable collected or written off, and cash utilized, all in
the ordinary course of business consistent with past practice, the
Company owns all of its inventory, equipment and other personal property
(both tangible and intangible) reflected on the latest balance sheet
included in the Financial Statements or acquired since December 29,
1996, free and clear of any Liens, except for statutory Liens for
current taxes, assessments or governmental charges or levies on property
not yet due and payable.

(c) Condition of Properties. Except as shown on Schedule 2.9,
the Real Property and all improvements thereto and the leasehold estates
which are the subject of the Real Property Leases (as defined in Section
2.10) and the tangible personal property owned or leased by the Company
are in good operating condition and repair, ordinary wear and tear
excepted.

(d) Compliance. The current use, operation and occupancy of
the Real Property, the improvements thereto and the leasehold estates
which are the subject of the Real Property Leases do not violate any
zoning, building, health, flood control, fire or other law, ordinance,
order or regulation or any restrictive covenant, except where such
violations, individually or in the aggregate, would not have a Material
Adverse Effect. No written notice of any such violation has been
received from any governmental authority.

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<PAGE> 11
2.10 Real Property Leases; Options. Schedule 2.10 sets forth a list
(i) all leases and subleases under which the Company is lessor or lessee or
sublessor or sublessee of any real property, together with all amendments,
supplements, nondisturbance agreements, brokerage and commission agreements and
other agreements pertaining thereto ("Real Property Leases"); (ii) all material
options held by the Company or contractual obligations on the part of the
Company to purchase or acquire any interest in real property; and (iii) all
options granted by the Company or contractual obligations on the part of the
Company to sell or dispose of any material interest in real property. Copies
of all Real Property Leases and such options and contractual obligations have
been delivered to Buyer. The Company has not assigned any Real Property Leases
or any such options or obligations. Except as shown on Schedule 2.10 there are
no liens on the interest of the Company in the Real Property Leases, subject
only to (i) Liens for taxes and assessments not yet due and payable and (ii)
those matters set forth on Schedule 2.10. The Real Property Leases and options
and contractual obligations listed on Schedule 2.10 are in full force and
effect and constitute binding obligations of the Company and to the Sellers and
Company's best knowledge the other parties thereto, and (x) there are no
defaults by the Company thereunder and (y) no event has occurred that with
notice, lapse of time or both would constitute a default by the Company or, to
the best knowledge of the Company and Sellers, by any other party thereto.

2.11 Environmental Laws and Regulations.

(a) (i) Except as disclosed on the environmental reports
made available to or procured by Buyer, to the Sellers and Company's
best knowledge during the occupancy and operation of the "Subject
Property" (as defined below) by the Company and, prior to its occupancy
and operation, the operations of the Subject Property, and any use,
storage, treatment, disposal or transportation of "Hazardous Substances"
(as defined below) that has occurred in or on the Subject Property prior
to the date of this Agreement have been in compliance with
"Environmental Requirements" (as defined below); (ii) to the Sellers and
Company's best knowledge during the occupancy and operation of the
Subject Property by the Company and, prior to its occupancy or
operation, no release, leak, discharge spill, disposal or emission of
Hazardous Substances has occurred in, on or under the Subject Property
in a quantity or manner that violates or requires further investigation
or remediation under Environmental Requirements; (iii) to the Sellers
and Company's best knowledge the Subject Property is free of Hazardous
Substances as of the date of this Agreement, except for the presence of
small quantities of Hazardous Substances utilized by the Company or
other tenants of the Subject Property in the ordinary course of their
business; (iv) there is no pending or to the Sellers and Company's best
knowledge threatened litigation or administrative investigation or
proceeding concerning the Subject Property involving Hazardous
Substances or Environmental Requirements; (v) to the best knowledge of
the Company and Sellers, there are no above-ground or underground
storage tank systems located at the Subject Property; (vi) except as set
forth on Schedule 2.11, the Company has never owned, operated, or leased
any real property other than the Subject Property; and (vii) to the
Sellers and Company's best knowledge the Company's transportation to or
disposal at any off-site location of any Hazardous Substances from
property now or formerly owned, operated or leased by the Company at the
time of the Company's ownership, operation or lease thereof was
conducted in substantial compliance with applicable Environmental
Requirements, except where a failure to comply would not have a Material
Adverse Effect.

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<PAGE> 12
(b) Definitions. As used in this Agreement, the following
terms shall have the following meanings:

"Environmental Requirements" means all laws, statutes, rules,
regulations, ordinances, guidance documents, judgments, decrees, orders,
agreements and other restrictions and requirements (in effect on the
Closing Date) of any governmental authority, including, without
limitation, federal, state and local authorities, relating to the
regulation or protection of human health and safety, natural resources,
conservation, the environment, or the storage, treatment, disposal,
transportation, handling or other management of industrial or solid
waste, hazardous waste, hazardous or toxic substances or chemicals, or
pollutants.

"Hazardous Substance" means (i) any "hazardous substance" as
defined in Section 101(14) of the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, in effect on the Closing Date
(42 U.S.C. Sections 9601 et seq.) ("CERCLA") or any regulations
promulgated thereunder, or the Occupational Safety and Health Act of
1970, in effect on the Closing Date (29 U.S.C. Section 651 et seq.), or
any regulations promulgated thereunder; (ii) petroleum and petroleum by-
products; or (iii) any additional substances or materials that have been
or are currently classified or considered to be pollutants, hazardous or
toxic under Environmental Requirements.

"Subject Property" means the properties listed on Schedules 2.9,
2.10 and 2.11.

2.12 Contracts.

(a) Set forth on Schedule 2.12(a) is a list of all material
contracts, agreements, arrangements and commitments (whether oral or
written) to which the Company is a party or by which its assets or
business are bound including, without limitation, contracts, agreements,
arrangements or commitments (the following, "Contracts") that relate to
(i) the sale, lease or other disposition by the Company of all or any
substantial part of its business or assets (other than in the ordinary
course of business) or the maintenance thereof, (ii) the purchase or
lease by the Company of a substantial amount of assets (other than in
the ordinary course of business), (iii) the supply by the Company of any
customer's requirements for any item or the purchase by the Company of
its requirements for any item or of a vendor's output of any item, (iv)
lending or advancing funds by the Company, (v) borrowing of funds or
guaranteeing the borrowing of funds by any other person, whether under
an indenture, note, loan agreement or otherwise, (vi) any transaction or
matter with any affiliate of the Company, (vii) noncompetition, (viii)
licenses and grants to or from the Company relating to any intangible
property listed on Schedule 2.17, (ix) the acquisition by the Company of
any operating business or the capital stock of any person since December
29, 1996, or (x) any other matter that is material to the business,
assets or operations of the Company, taken as a whole.

(b) Except as set forth on Schedule 2.12(b), each Contract is
in full force and effect on the date hereof, the Company is not in
default under any Contract, the Company has not given or received notice
of any default under any Contract, and, to the knowledge of the Company
and Sellers, no other party to any Contract is in default thereunder.

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2.13 No Violations. The execution, delivery and performance of this
Agreement and the other agreements and documents contemplated hereby by the
Company and the Sellers and the consummation of the transactions contemplated
hereby will not (i) violate any provision of any Charter Document, (ii) violate
any statute, rule, regulation, order or decree of any public body or authority
by which the Company or the Sellers or its or their respective properties or
assets are bound, or (iii) except as set forth on Schedule 2.13, result in a
violation or breach of, or constitute a default under, or result in the
creation of any encumbrance upon, or create any rights of termination,
cancellation or acceleration in any person with respect to any Contract or any
Material Permit of the Company or any other agreement, contract, indenture,
mortgage or instrument to which the Company is a party or by which any of its
properties or assets is bound.

2.14 Consents. Except as set forth on Schedule 2.14, no consent,
approval or other authorization of any governmental authority or under any
Contract or other agreement or commitment to which the Company or Sellers are
parties or by which its or their respective assets are bound is required as a
result of or in connection with the execution or delivery of this Agreement and
the other agreements and documents to be executed by the Company and Sellers or
the consummation by the Company and Sellers of the transactions contemplated
hereby.

2.15 Litigation and Related Matters. Set forth on Schedule 2.15 is a
list of all actions, suits (excluding garnishments of employee wages),
proceedings, investigations or grievances pending against the Company or, to
the best knowledge of the Company and Sellers, threatened against the Company,
the business or any property or rights of the Company, at law or in equity,
before or by any arbitration board or panel, court or federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign ("Agencies"). None of the actions, suits,
proceedings or investigations listed on Schedule 2.15 either (i) results in or
would, if adversely determined, have a Material Adverse Effect or (ii) affects
or would, if adversely determined, affect the right or ability of the Company
to carry on its business substantially as now conducted. The Company is not
subject to any continuing court or Agency order, writ, injunction or decree
applicable specifically to its business, operations or assets or its employees,
nor in default with respect to any order, writ, injunction or decree of any
court or Agency with respect to its assets, business, operations or employees.

2.16 Compliance with Laws. The Company is in compliance with all
applicable laws, regulations, orders, judgments and decrees, except where the
failure to so comply would not have a Material Adverse Effect.

2.17 Intellectual Property Rights. Schedule 2.17 lists the domestic
and foreign trade names, trademarks, service marks, trademark registrations and
applications, service mark registrations and applications, patents, patent
applications, patent licenses, software licenses and copyright registrations
and applications owned by the Company or used thereby in the operation of its
business (collectively, the "Intellectual Property"), which Schedule indicates
(i) the term and exclusivity of its rights with respect to the Intellectual
Property and (ii) whether each item of Intellectual Property is owned or
licensed by the Company, and if licensed, the licensor and the license fees
therefor. Unless otherwise indicated on Schedule 2.17, the Company has the
right to use and license the Intellectual Property, and the consummation of the
transactions contemplated hereby will not result in the loss or material
impairment of any rights of the Company in the Intellectual Property. Each
item constituting part of the Intellectual Property has

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<PAGE> 14
been, to the extent indicated on Schedule 2.17, registered with, filed in or
issued by, as the case may be, the United States Patent and Trademark Office or
such other government entity, domestic or foreign, as is indicated on Schedule
2.17; all such registrations, filings and issuances remain in full force and
effect; and all fees and other charges with respect thereto are current.
Except as stated on Schedule 2.17, there are no pending proceedings or adverse
claims made in writing or, to the best knowledge of the Company and Sellers,
threatened against the Company with respect to the Intellectual Property; there
has been no litigation commenced or threatened in writing since May 7, 1994
with respect to the Intellectual Property or the rights of the Company therein;
and the Company and Sellers have no knowledge that (i) the Intellectual
Property or the use thereof by the Company conflicts with any trade names,
trademarks, service marks, trademark or service mark registrations or
applications, patents, patent applications, patent licenses or copyright
registrations or applications of others ("Third Party Intellectual Property"),
in a way that could have a Material Adverse Effect or (ii) such Third Party
Intellectual Property or its use by others or any other conduct of a third
party conflicts with or infringes upon the Intellectual Property or its use by
the Company in a way that could have a Material Adverse Effect.

2.18 Employee Benefit Plans. Each employee benefit plan within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), maintained or contributed to by the Company or any of its
Group Members (as defined below) (collectively, the "Plans") is listed on
Schedule 2.18, is in substantial compliance with applicable law and has been
administered and operated in all material respects in accordance with its
terms. Each Plan that is intended to be "qualified" within the meaning of
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service (the "IRS") and no event has occurred and no
condition exists that could be reasonably expected to result in the revocation
of any such determination. No event that constitutes a "reportable event"
(within the meaning of Section 4043(b) of ERISA) for which the 30-day notice
requirement has not been waived by the Pension Benefit Guaranty Corporation
(the "PBGC") has occurred with respect to any Plan. No Plan is subject to
Title IV of ERISA, and neither the Company nor any Group Member has made any
contributions to or participated in any "multiple employer plan" (within the
meaning of the Code or ERISA) or "multi-employer plan" (as defined in Section
4001(a)(3) of ERISA). Full payment has been made of all amounts that the
Company was required under the terms of the Plans to have paid as contributions
to such Plans on or prior to the date hereof (excluding any amounts not yet
due) and all amounts properly accrued to date as liabilities of the Company
that have not been paid have been properly recorded on the Financial
Statements, and no Plan that is subject to Part 3 of Subtitle B of Title 1 of
ERISA has incurred any "accumulated funding deficiency" (within the meaning of
Section 302 of ERISA or Section 412 of the Code), whether or not waived.
Neither the Company nor, to the knowledge of the Company and Sellers, any other
"disqualified person" or "party in interest" (within the meaning of Section
4975(e)(2) of the Code and Section 3(14) of ERISA, respectively) has engaged in
any transactions in connection with any Plan that could be expected to result
in the imposition of a material penalty pursuant to Section 502(i) of ERISA,
damages pursuant to Section 409 of ERISA or a tax pursuant to Section 4975(a)
of the Code. No material claim, action, proceeding, or litigation has been
made, commenced or, to the knowledge of the Company and Sellers, threatened
with respect to any Plan (other than for benefits payable in the ordinary
course and PBGC insurance premiums). No Plan or related trust owns any
securities in violation of Section 407 of ERISA. To the best knowledge of
Sellers, neither the Company nor any Group Member has incurred any liability or
taken any action, or has any knowledge of any action or event, that could cause
it to

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incur any liability (i) under Section 412 of the Code or Title IV of ERISA with
respect to any "single employer plan" (within the meaning of Section
4001(a)(15) of ERISA), (ii) on account of a partial or complete withdrawal
(within the meaning of Section 4205 and 4203 of ERISA, respectively) with
respect to any "multi-employer plan" (within the meaning of Section 3(37) of
ERISA), (iii) on account of unpaid contributions to any such multi-employer
plan, or (iv) to provide health benefits or other non-pension benefits to
retired or former employees, except as specifically required by Section
4980B(f) of the Code. Except as set forth on Schedule 2.18, neither the
execution and delivery of this Agreement by the Company or the consummation of
the transactions contemplated hereby will (i) entitle any current or former
employee of the Company to severance pay, unemployment compensation or any
similar payment, (ii) accelerate the time of payment or vesting, or increase
the amount of, any compensation due to any such employee or former employee, or
(iii) directly or indirectly result in any payment made or to be made to or on
behalf of any person to constitute a "parachute payment" (within the meaning of
Section 280G of the Code). For purposes of this Agreement, "Group Member"
shall mean any member of any "affiliated service group" as defined in Section
414(m) of the Code that includes the Company, any member of any "controlled
group of corporations" as defined in Section 414(b) of the Code that includes
the Company or any member of any group of "trades or businesses under common
control" as defined by Section 414(c) of the Code that includes the Company.

2.19 Employees; Employee Relations.

(a) Schedule 2.19 sets forth (i) the name, hire date and
current annual salary (or rate of pay) and other compensation
(including, without limitation, normal bonus, profit-sharing and other
compensation) now payable by the Company to each salaried employee, (ii)
any increase to become effective after the date of this Agreement in the
total compensation or rate of total compensation payable by the Company
to each such person, (iii) any increase to become payable after the date
of this Agreement by the Company to employees other than those specified
in clause (i) of this Section 2.19(a), (iv) all presently outstanding
loans and advances (other than routine travel advances to be repaid or
formally accounted for within sixty (60) days) made by the Company to,
or made to the Company by, any director, officer or employee, (v) all
other material and/or extraordinary transactions between the Company and
any director, officer or employee thereof since December 29, 1996, and
(vi) all accrued but unpaid vacation pay owing to any employee that is
not accrued in the Financial Statements.

(b) Except as disclosed on Schedule 2.19, the Company is not a
party to, or bound by, the terms of any collective bargaining agreement,
and the Company has not experienced any material labor difficulties
during the last five (5) years. Except as set forth on Schedule 2.19,
there are no labor disputes existing, or to the best knowledge of the
Company and Sellers, threatened involving, by way of example, strikes,
work stoppages, slowdowns, picketing, or any other interference with
work or production, or any other concerted action by employees. No
charges or proceedings before the National Labor Relations Board, or
similar agency, exist, or to the best knowledge of the Company and
Sellers, are threatened.

(c) The Company and Sellers have no knowledge of any facts
that would indicate that the employees of the Company will not continue
in the employ thereof

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following the Closing on a basis similar to that existing on the date of
this Agreement. Except as disclosed on Schedule 2.19, the Company is
not a party to any employment contract with any individual or employee,
either express or implied. No legal proceedings, formal written
charges, formal written complaints or similar actions which could have a
Material Adverse Effect exist under any federal, state or local laws
affecting the employment relationship including, but not limited to: (i)
anti-discrimination statutes such as Title VII of the Civil Rights Act
of 1964, as amended (or similar state or local laws prohibiting
discrimination because of race, sex, religion, national origin, age and
the like); (ii) the Fair Labor Standards Act or other federal, state or
local laws regulating hours of work, wages, overtime and other working
conditions; (iii) requirements imposed by federal, state or local
governmental contracts such as those imposed by Executive Order 11246;
(iv) state laws with respect to tortious employment conduct, such as
slander, harassment, false light, invasion of privacy, negligent hiring
or retention, intentional infliction of emotional distress, assault and
battery, or loss of consortium; or (v) the Occupational Safety and
Health Act, as amended, as well as any similar state laws, or other
regulations respecting safety in the workplace; and to the best
knowledge of the Company and Sellers, no proceedings, charges, or
complaints are threatened under any such laws or regulations and no
facts or circumstances exist that would give rise to any such
proceedings, charges, complaints, or claims, whether valid or not which
could have a Material Adverse Effect. Except as shown Schedule 2.19(c)
on The Company is not subject to any settlement or consent decree with
any present or former employee, employee representative or any
government or Agency relating to claims of discrimination or other
claims in respect to employment practices and policies; and no
government or Agency has issued a judgment, order, decree or finding
with respect to the labor and employment practices (including practices
relating to discrimination) of the Company. Since December 29, 1996,
the Company has not incurred any liability or obligation under the
Worker Adjustment and Retraining Notification Act or similar state laws;
and the Company has not laid off more than ten percent (10%) of its
employees at any single site of employment in any ninety (90) day period
since December 29, 1996.

(d) To the best of the Company's knowledge, the Company is in
compliance in all material respects with the provisions of the Americans
with Disabilities Act.

2.20 Insurance. Schedule 2.20 contains an accurate list of the
policies and contracts (including insurer, named insured, type of coverage,
limits of insurance, required deductibles or co-payments, annual premiums and
expiration date) for fire, casualty, liability, worker's compensation and other
forms of insurance maintained by, or for the benefit of, the Company. All such
policies are in full force and effect and shall remain in full force and effect
through the Closing Date and are adequate for the business engaged in by the
Company. Neither the Company nor Sellers have received any notice of
cancellation or non-renewal or of significant premium increases with respect to
any such policy. Except as disclosed on Schedule 2.20, no pending claims made
by or on behalf of the Company under such policies have been denied or are
being defended against third parties under a reservation of rights by an
insurer thereof. All premiums due prior to the date hereof for periods prior
to the date hereof with respect to such policies have been timely paid.

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2.21 Interests in Customers, Suppliers, Etc. Except as set forth on
Schedule 2.21, no shareholder, officer, director or affiliate of the Company
possesses, directly or indirectly, any financial interest in, or is a director,
officer, employee or affiliate of, any corporation, firm, association or
business organization that is a supplier, customer, lessor, lessee or
competitor of the Company. Ownership of securities of a corporation whose
securities are registered under the Securities Exchange Act of 1934 not in
excess of five percent (5%) of any class of such securities shall not be deemed
to be a financial interest for purposes of this Section 2.21.

2.22 Business Relations. Except as set forth on Schedule 2.22, to the
best knowledge of the Company and Sellers, no supplier of the Company has or
will cease to do business therewith after the consummation of the transactions
contemplated hereby, which cessation would have a Material Adverse Effect.
Except as set forth on Schedule 2.22, since December 29, 1996, the Company has
not experienced any difficulties in obtaining any inventory items necessary to
the operation of its business, and, to the best knowledge of the Company and
Sellers, no such shortage of supply of inventory items is threatened or
pending. The Company is not required to provide any bonding or other financial
security arrangements in any material amount in connection with any
transactions with any of its suppliers.

2.23 Officers and Directors. Set forth on Schedule 2.23 is a list of
the current officers and directors of the Company.

2.24 Bank Accounts and Powers of Attorney. Schedule 2.24 sets forth
each bank, savings institution and other financial institution with which the
Company has an account or safe deposit box and the names of all persons
authorized to draw thereon or to have access thereto. Each person holding a
power of attorney or similar grant of authority on behalf of the Company is
identified on Schedule 2.24. Except as disclosed on such Schedule, the Company
has not given any revocable or irrevocable powers of attorney to any person,
firm, corporation or organization relating to its business for any purpose
whatsoever.

2.25 Absence of Certain Changes or Events. Except as set forth on
Schedule 2.25 or as otherwise contemplated by this Agreement, since December
29, 1996, there has not been any (a) damage, destruction or casualty loss to
the physical properties of the Company (whether or not covered by insurance),
in excess of $10,000 for each restaurant location, (b) event or circumstance
that has had or could reasonably be expected to have a Material Adverse Effect,
(c) entry into any transaction, commitment or agreement (including, without
limitation, any borrowing) material to the Company, except transactions,
commitments or agreements in the ordinary course of business consistent with
past practice, (d) declaration, setting aside or payment of any dividend or
other distribution in cash, stock or property with respect to the capital stock
or other securities of the Company, any repurchase, redemption or other
acquisition by the Company of any capital stock or other securities, or any
agreement, arrangement or commitment by the Company to do so, (e) increase that
is material in the compensation payable or to become payable by the Company to
its directors, officers, employees or agents or any increase in the rate or
terms of any bonus, pension or other employee benefit plan, payment or
arrangement made to, for or with any such directors, officers, employees or
agents, except as set forth on Schedule 2.25, (f) sale, transfer or other
disposition of, or the creation of any Lien upon, any part of the assets of the
Company, tangible or intangible, except for sales of inventory and use of
supplies and collections of accounts receivables in the ordinary course of
business consistent with

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<PAGE> 18
past practice, or any cancellation or forgiveness of any debts or claims by the
Company, (g) loss of its material suppliers which cannot be readily replaced
upon substantially the same terms and conditions, or any loss of business or
increase in the cost of inventory items or change in the terms offered to
customers, which would have a Material Adverse Effect, or (h) except for
expenditure pursuant to the Baytown Budget and budgeted capital expenditure
disclosed to Buyer, capital expenditure (including any capital leases) or
commitment therefor by the Company in excess of $50,000.

2.26 Disclosure. All written agreements, lists, schedules,
instruments, exhibits, documents, certificates, reports, statement and other
writings furnished to Buyer pursuant hereto or in connection with this
Agreement or the transactions contemplated hereby are and will be complete and
accurate in all material respects. No representation or warranty by Sellers
and the Company contained in this Agreement, in the schedules attached hereto
or in any certificate furnished or to be furnished by Sellers or the Company to
Buyer in connection herewith or pursuant hereto contains or will contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary in order to make any statement contained herein or therein not
misleading.

(B) Representations and Warranties of Sellers. Each Seller,
including each member of the Bradford Group, severally and not jointly
represents and warrants as more specifically set forth hereafter that the
representations and warranties in this Article II(B) as they apply to it, him
or her are true and correct as of the date of this Agreement and at the time of
the Closing.

2.27 Authority; Ownership. Each Seller has the full legal right,
power and authority to enter into this Agreement. Each Seller owns
beneficially (subject to any community property interest of Seller's spouse)
and of record the Company Shares set forth opposite such Seller's name on Annex
"A", and, except as set forth on Schedule 2.27 hereof, such Company Shares
owned by Seller are owned free and clear of all Liens other than standard state
and federal securities laws private offering restrictions. This Agreement has
been duly executed and delivered by Seller and constitutes the valid and
binding obligation of Seller, enforceable in accordance with its terms, except
that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, (ii) the remedies of specific performance and injunctive relief are
subject to certain equitable defenses and to the discretion of the court before
which any proceedings may be brought and (iii) rights to indemnification
hereunder may be limited under applicable securities laws (the items described
in clauses (i) through (iii) hereof, the "Equitable Exceptions"). Seller
acknowledges that any shareholder agreement to which he, she or it is a party
relating to the Company Shares will no longer be effective at or following the
Closing.

2.28 Preemptive Rights. Seller does not have, or hereby waives, any
preemptive or other right to acquire Company Shares that such Seller has or may
have had.

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<PAGE> 19
ARTICLE III.

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents and warrants to Sellers as follows:

3.1 Organization and Authorization. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas with all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
Buyer has all requisite corporate power, capacity and authority to execute and
deliver this Agreement and all other agreements and documents contemplated
hereby. The execution and delivery of this Agreement and such other agreements
and documents by Buyer and the consummation by Buyer of the transactions
contemplated hereby have been duly authorized by Buyer and no other corporate
action on the part of Buyer is necessary to authorize the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Buyer and constitutes the valid and binding obligation of Buyer, enforceable in
accordance with its terms, subject to the Equitable Exceptions.

3.2 No Violations. The execution and delivery of this Agreement and
the other agreements and documents contemplated hereby by Buyer and the
consummation of the transactions contemplated hereby will not (a) violate any
provision of the Articles of Incorporation or Bylaws of Buyer, (b) violate any
statute, rule, regulation, order or decree of any public body or authority by
which Buyer or its properties or assets are bound, or (c) result in a violation
or breach of, or constitute a default under or result in the creation of any
encumbrance upon, or create any rights of termination, cancellation or
acceleration in any person with respect to any agreement, contract, indenture,
mortgage or instrument to which Buyer is a party or any of its properties or
assets is bound.

3.3 Consents. Except as set forth on Schedule 3.3, no consent,
approval or other authorization of any governmental authority or third party is
required as a result of or in connection with the execution and delivery of
this Agreement and the other agreements and documents to be executed by Buyer
or the consummation by Buyer of the transactions contemplated hereby.

3.4 Investment Intent. Buyer is purchasing the shares of the Company
with investment intent and not with a view to distribution.

3.5 Available funds. Buyer has secured commitments for funds
necessary to consummate the transactions pursuant to this Agreement

3.6 Broker. Other than Wyndcrest Partners, Ltd., whose fees and
expenses will be paid by the Buyer, Buyer has not engaged or consulted with any
broker or finder in connection with the transaction contemplated by this
Agreement.

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<PAGE> 20
ARTICLE IV.

COVENANTS OF THE PARTIES

4.1 Course of Conduct by the Company. Except as set forth on
Schedule 4.1, from April 29, 1997 through and until the Closing Date, except as
approved in writing by Buyer or as otherwise permitted or contemplated by this
Agreement, the Company's business shall be conducted only in the ordinary
course of business consistent with past practice, and Sellers shall cause the
Company to comply with the following covenants:

(a) Capital Expenditures. Except for expenditures pursuant to
the Baytown Budget and budgeted capital expenditures disclosed to Buyer, the
Company shall not make any capital expenditures or commitments therefor (other
than with respect to the items set forth on the Baytown Budget) which, when
combined with capital expenditures or commitments therefor after May 1, 1997
would exceed $50,000.

(b) Certificate of Incorporation; Bylaws. The Company shall
not make any change in its Certificate of Incorporation or Bylaws.

(c) Stock Issuance: Redemptions: Reorganizations. The Company
shall not (i) issue, grant or dispose of, or make any agreement, arrangement or
commitment obligating the Company to issue, grant or dispose of any capital
shares or other securities of the Company, (ii) redeem or acquire, or make any
agreement, arrangement or commitment obligating the Company to redeem or
acquire, any shares of capital stock or other securities of the Company, or
(iii) authorize or effect or make any agreement, arrangement or commitment
obligating the Company to effect, any reorganization, recapitalization or
split-up of such capital stock of the Company.

(d) Employee Matters. The Company shall not (i) except for
increases in the ordinary course or in compensation of employees required under
any collective bargaining agreement listed on Schedule 2.19, make any increase
that is material in the compensation payable or to become payable to any of the
officers, employees, or agents of the Company, or (ii) make, amend or enter
into any employment contract or any bonus, incentive, stock option, profit
sharing, pension, retirement, stock purchase, hospitalization, medical
reimbursement, insurance, severance benefit or other similar plan or
arrangement or make any voluntary contribution to any such plan or arrangement.

(e) Insurance Coverage. The Company shall maintain, or have
maintained on its behalf, insurance coverage for the benefit of the Company on
the same basis as, or on a substantially equivalent basis to, the current
insurance coverage described on Schedule 2.20.

(f) Business Organization. The Company shall use commercially
reasonable efforts to preserve intact its business organization and to keep
available the services of its present officers and employees as a group.

(g) Maintenance of Property. The Company shall maintain its
Real Property and all improvements thereto, equipment and other tangible
personal property in its present operating condition and repair, ordinary wear
and tear excepted. The Company will fully perform

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and pay for all maintenance, painting, repairs, alterations and other work
required to be performed by the Company as lessee under the Real Property
Leases listed on Schedule 2.10.

(h) Relations with Suppliers, Etc. The Company will use
commercially reasonable efforts to preserve its relationships with its material
suppliers and others having material business dealings with it. The Company
promptly shall notify Buyer if the Company is informed by any of its material
suppliers that such supplier will or may cease to do business with the Company
either prior to or following the Closing.

(i) Incurrence of Debt. The Company will not voluntarily
incur or assume, whether directly or by way of guaranty or otherwise, any
material obligation or liability, except obligations and liabilities incurred
in the ordinary course of business, consistent with past practice and as set
forth in the Baytown Budget.

(j) Liens. The Company will not mortgage, pledge, encumber,
create or allow any Liens not existing on the date hereof upon any of its
properties or assets, tangible or intangible, except Liens created in the
ordinary course of business, consistent with past practice.

(k) Disposition of Assets. The Company will not sell,
transfer or otherwise dispose of any of its tangible or intangible property or
assets, except for inventory and supplies sold, disposed of or consumed and
accounts receivable collected or written off in the ordinary course of
business, consistent with past practice or items of equipment scheduled for
replacement which shall not exceed in value $10,000 for any single item. The
Company will not cancel or forgive any debts or claims except or in the
ordinary course of business, consistent with past practice.

(l) Agreements, Leases and Licenses. The Company will not
amend, terminate before the end of its term, or allow to lapse any material
agreement, lease, license or permit to which it is a party or of which it is
the holder.

(m) Accounting Practices. The Company will not make any
material changes in its accounting methods, principles or practices, except as
required by GAAP.

(n) Changes in Business Practice. The Company will not take
any action, the purpose or effect of which is to shift income from post-closing
periods to the pre-closing period or to defer expenses from the pre-closing
period to post-closing periods, which action is not in the ordinary course of
business, consistent with past practice.

(o) Transactions with Affiliates. Except for management fees
payable to River Associates, LLC, the Company will not enter into any
agreement, arrangement or transaction with, or make any payment, distribution,
loan or advance to, any affiliate of the Company or any officer, director or
shareholder of the Company, except for salaries, travel advances and other
payments consistent with past practices or as otherwise specifically permitted
by this Agreement.

(p) Material Transactions. The Company will not enter into
any other agreement, course of action or transaction material to it, except in
the ordinary course of business, consistent with past practice.

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4.2 Approvals and Consents. The Company and Sellers shall use their
respective reasonable best efforts (i) to cause all conditions to the
obligations of Buyer under this Agreement over which they are able to exercise
influence or control to be satisfied prior to the Closing Date and (ii) to
obtain promptly and to comply with all requisite statutory, regulatory or court
approvals, third party releases and consents, and other requirements necessary
for the valid and legal consummation of the transactions contemplated hereby.

4.3 Investigations. The Company shall provide Buyer and its
representatives and agents such access to the books and records of the Company
and furnish to Buyer such financial and operating data and other information
with respect to the businesses and property of the Company as it may reasonably
request from time to time, and permit Buyer and its representatives and agents
to make such inspections of the Company's real and personal properties as they
may reasonably request all during normal business hours and with prior notice,
Sellers shall promptly arrange for Buyer and its representatives and agents to
meet with such directors, officers, employees and agents of the Company as
requested.

4.4 Environmental Inspection. Following the date of this Agreement,
the Company, at its own cost and expense, shall provide to Buyer access to all
records and information concerning all Hazardous Substances, used, stored,
generated, treated or disposed of by the Company, all environmental or safety
studies conducted by or on behalf of the Company and all reports,
correspondence or filings to governmental agencies with jurisdiction over
Environmental Requirements concerning the compliance of the Subject Property or
the operation of the Subject Property with Environmental Requirements, all
policies and procedures manuals or guidelines utilized by the Company to comply
with Environmental Requirements, and any other information reasonably requested
by Buyer pertaining to environmental, health and safety issues (the
"Environmental Information"). The Company agrees that Buyer shall at its
expense have the right to inspect the Environmental Information and the Subject
Property, including the performance of an environmental site assessment and
audit, and, at the discretion of Buyer, with prior notice to the Company,
perform subsurface or other invasive investigations, including air monitoring,
at the Subject Property. The Company understands and agrees that Buyer and its
agents and representatives, with prior notice to the Company, may find it
appropriate to contact governmental agencies in connection with their analysis
of the Environmental Information or as a result of its other investigations of
the Subject Property.

4.5 Records Pertaining to the Company.

(a) Turnover of Records. At the Closing, Sellers will deliver
or cause to be delivered to the Company any records (i) in the possession of
Sellers, (ii) applicable primarily to the Company, and (iii) of which the
Company does not already have copies.

(b) Retention of Records. Each of Buyer and Sellers shall,
for a period of four (4) years after the Closing Date, neither dispose of nor
destroy any of the business records or files that pertain in part to the
Company without first offering to turn over possession of copies thereof to the
other party at the other party's expense, by written notice to the other party,
at least thirty (30) days prior to the proposed date of such disposition or
destruction.

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(c) Access to Records. Sellers shall allow the Company and
its representatives access to all business records and files of Sellers that
pertain in part to the Company, during normal working hours at the principal
place of business of Sellers, or at any location where such records are stored,
and the Company shall have the right, at its own expense, to make copies of any
such records and files.

(d) Assistance with Records. From and after the Closing Date,
Sellers shall make available to Buyer, upon written request, (i) personnel of
Sellers to assist Buyer in locating and obtaining records and files maintained
by Sellers, and (ii) any of the personnel of Sellers, whose assistance or
participation is reasonably required by Buyer in anticipation of, or
preparation for, any existing or future third party actions, Tax or other
matters in which the Company or any of its past, present or future affiliates
is involved and which relate to the business of the Company, and Buyer and the
Company shall reimburse Sellers for all costs and expenses thereafter.

(e) Auditors' Work Papers. Sellers shall use their respective
best efforts (including, without limitation, furnishing any certificates
reasonably requested, and complying with other reasonable requests as a
prerequisite to availability) to cause Joseph Decosimo and Company, and any
other independent accounting firm that has reviewed or prepared a report on any
financial statements of the Company to make available to Buyer for inspection
and copying, at Buyer's expense and upon its written request therefor, such
accounting firm's work papers with respect to any such financial statements and
shall take all such actions as required by any such accounting firm in
connection with such request.

4.6 Tax Elections. No new elections with respect to Taxes or any
changes in current elections with respect to Taxes affecting the Company shall
be made after the date of this Agreement without the prior written consent of
Buyer, which shall not be unreasonably withheld.

4.7 No Solicitation. Except with respect to Buyer and its
affiliates, after the date hereof and prior to the Closing Date, Sellers shall
not, and Sellers shall cause the Company and the respective officers,
directors, employees, agents and representatives of Sellers and the Company
(including, without limitation, any investment banker, attorney or accountant
retained by any of them) not to (i) initiate or solicit, directly or
indirectly, any inquiries or the making of any proposal with respect to a
merger, consolidation, sale of shares of capital stock or similar transaction
involving, or any purchase of all or any significant portion of the assets
(other than in the ordinary course of business) of, or any equity interest in,
the Company (an "Acquisition Transaction"), or (ii) engage in any negotiations
concerning, or provide to any other person any information or data relating to
the Company for the purposes of or have any discussions with any person
relating to, or otherwise cooperate in any way with, or assist or participate
in, facilitate or encourage any effort or attempt by any other person to seek
or effect, an Acquisition Transaction. Sellers shall promptly advise Buyer of,
and communicate to Buyer the terms of, any such inquiry or proposal the Company
or Sellers may receive.

4.8 Terms of Employment Retention. Buyer shall cause the Company to
continue to employ on an at-will basis following the Closing Date all or
substantially all of the Company's current employees at the same or
substantially equivalent compensation basis (including wages and benefits), in
the same or substantially equivalent job function or position. Buyer agrees to

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recognize the original hire date recognized and determined by the Company for
each employee retained by the Company for the purposes of determining and
providing benefits to such employees, including the use of such original hire
dates recognized by the Company in determining eligibility and the accrual
dates related to time off for paid vacation and other benefits affected by the
date of hire.

4.9 Certain Protective Provisions. For a period of five (5) years
following the Closing, Buyer shall cause the Company to retain in its Charter
Documents provisions concerning the indemnification and limitation of liability
of officers and directors no less favorable to the present and former officers
and directors of the Company than those existing in the Company's Charter
Documents on the Closing Date.

4.10 Termination of Consulting Agreements. Sellers shall procure
prior to Closing the termination of each management, consulting and employment
agreement described on Schedule 2.19.

ARTICLE V.

CONDITIONS TO OBLIGATIONS OF BUYER

The obligation of Buyer to purchase the Company Shares, and to cause the
other transactions contemplated hereby to occur at the Closing, shall be
subject to the satisfaction or written waivers by Buyer of each of the
following conditions at or prior to the Closing:

5.1 Representations and Warranties. Each representation and warranty
of the Company and Sellers contained in this Agreement and in any Schedule or
other disclosure in writing from the Company or Sellers shall be true and
correct when made, and shall be true and correct in all material respects on
and as of the Closing Date with the same effect as though such representation
and warranty had been made on and as of the Closing Date.

5.2 Covenants of Sellers and Company. All of the covenants and
agreements herein on the part of Sellers and the Company to be complied with or
performed on or before the Closing Date shall have been fully complied with and
performed.

5.3 Absence of Litigation. No inquiry, action, suit or proceeding
shall have been asserted, threatened or instituted (i) in which it is sought to
restrain or prohibit the carrying out of the transactions contemplated by this
Agreement or to challenge the validity of such transactions or any part
thereof, (ii) which could, if adversely determined, result in any Material
Adverse Effect or (iii) as a result of which, in the reasonable judgment of
Buyer, Buyer would be deprived of the material benefits of the ownership of the
Company Shares.

5.4 Consents and Approvals. All material authorizations, consents,
approvals, waivers and releases, if any, necessary for Sellers and the Company
to consummate the transactions contemplated hereby shall have been obtained and
copies thereof shall be delivered to Buyer.

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5.5 Certificates. The Company and Sellers shall have delivered to
Buyer (i) certificates of the appropriate governmental authorities, dated as of
a date not more than twenty (20) days prior to the Closing Date, attesting to
the good standing of the Company in the States of Delaware, Texas and Oklahoma;
(ii) copies, certified by the Secretary of State of Delaware as of a date not
more than twenty (20) days prior to the Closing Date, of the Certificate of
Incorporation and all amendments thereto of the Company, and attesting to the
existence of the Company; (iii) a copy certified by the Secretary of the
Company, dated the Closing Date, of the Bylaws of the Company; and (iv) a
certificate, dated the Closing Date, of the Secretary of the Company relating
to the incumbency and corporate proceedings in connection with the consummation
of the transactions contemplated hereby.

5.6 Termination of Consulting Agreements. Sellers shall have
delivered to Buyer terminations of each management, consulting and employment
agreement described on Schedule 2.19.

5.7 Accounting Services Agreement. Buyer, the Company and ShowBiz
Pizza Time, Inc. shall have entered into an Accounting Services Agreement with
respect to certain accounting services to be provided to the Company by ShowBiz
Pizza Time, Inc.

5.8 Opinion of Counsel. Buyer shall have received an opinion of
Miller & Martin, counsel to Sellers and the Company, dated the Closing Date and
in form and substance reasonably satisfactory to Buyer, substantially to the
effect that: (5.9 the Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware; (b) the
authorized capital stock of the Company consists of one million five hundred
thousand (1,500,000) shares of common stock, no par value, of which one million
one hundred fifty-six thousand three hundred twenty-one (1,156,321) shares are
issued and outstanding; to counsel's knowledge (subject to compliance with
applicable federal and state securities laws), all of such shares are validly
issued, fully paid and nonassessable and were not issued in violation of any
preemptive rights of any shareholder of the Company; such shares are owned of
record as set forth in Section 2.3; and such counsel has no knowledge of any
outstanding securities convertible into, exchangeable for or carrying the right
to acquire capital stock of the Company, or any subscriptions, warrants,
options, rights or other arrangements or commitments obligating the Company to
issue or dispose of any capital stock or any ownership therein; (c) upon
endorsement by Sellers of the Company Shares and delivery of the certificates
representing the Company Shares in accordance with the terms of this Agreement,
Buyer will be vested with all rights of Sellers in and to the Company Shares;
(d) the execution and delivery of this Agreement and all other agreements and
documents contemplated hereby by the Company and Sellers and the performance by
the Company and Sellers of their respective obligations under this Agreement
and such other agreements and documents do not constitute a violation of or a
default under its respective Certificate of Incorporation or Bylaws (as
applicable) or any agreements, arrangements, commitments, orders, judgments or
decrees to which it is a party or by which it or its respective assets are
bound of which such counsel has knowledge; (e) the Company has the corporate
power and authority to execute, deliver and perform its obligations under this
Agreement and the other agreements and documents contemplated hereby (to which
each is a party); the execution and delivery of this Agreement and the other
agreements and documents by the Company and the performance by the Company of
its obligations hereunder and under the other agreements and documents have
been duly authorized by all requisite corporate action on the part of the

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Company. This Agreement and each other agreement and document contemplated
hereby is a valid and binding obligation of the Company and each Seller,
respectively, enforceable against the Company and each Seller (to the extent
each is a party) in accordance with their respective terms, subject to the
Equitable Exceptions; (f) to such counsel's knowledge, there are no actions,
suits or proceedings pending or threatened that are required by the terms of
Section 2.15 to be described in Schedule 2.15 that are not described therein,
and no consent, approval, authorization or other action by, or filing with, any
governmental authority, regulatory body or other person is required to be
obtained by the Company or any Seller in connection with the execution,
delivery or performance by them of their respective obligations under this
Agreement, except for such as have been duly obtained or made.

5.10 No Material Adverse Effect. There shall not have been any
action, suit or event which as resulted in or could reasonably be expected to
result in a Material Adverse Effect. For purposes hereof, any increase in
working capital deficit will not be deemed a Material Adverse Effect.

5.11 No Transfers to Affiliates. Except as otherwise expressly
contemplated by this Agreement, and the payment of management fees to River
Associates, LLC, the Company shall not have distributed or transferred any of
its assets or properties, or made any payments, to or for the benefit of any of
its affiliates.

5.12 Compliance with Section 4.1. The Company shall not have entered
into any agreement, commitment or transaction nor shall have taken any other
action that would not be in compliance with each provision of Section 4.1.

5.13 Stock Certificates. Sellers shall have tendered certificates
representing the Company Shares, duly endorsed in blank or accompanied by
appropriate stock powers, in proper form for transfer, with all transfer taxes
paid.

5.14 Resignations and Releases of Directors and Officers. Buyer shall
have received the resignations of and releases regarding any equity weighted
arrangements, stock options or related expenses from each of the directors and
officers of the Company, effective as of the Closing.

ARTICLE VI.

CONDITIONS TO OBLIGATIONS OF SELLERS

The obligations of Sellers to sell the Company Shares and to cause the
other transactions contemplated hereby to occur at the Closing shall be subject
to the satisfaction or written waiver by Sellers of each of the following
conditions at or prior to the Closing:

6.1 Representations and Warranties. Each representation and warranty
of Buyer contained in this Agreement and in any Schedule or other disclosure in
writing from Buyer shall be true and correct when made, and shall be true and
correct in all material respects on and as of the Closing Date with the same
effect as though such representation and warranty had been made on and as of
the Closing Date.

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<PAGE> 27
6.2 Covenants of Buyer. All of the covenants and agreements herein
on the part of Buyer to be complied with or performed on or before the Closing
Date shall have been fully complied with and performed.

6.3 Absence of Litigation. No inquiry, action, suit or proceeding
shall have been asserted, threatened or instituted in which it is sought to
restrain or prohibit the carrying out of the transactions contemplated by this
Agreement or to challenge the validity of such transactions or any part
thereof.

6.4 Consents and Approvals. All material authorizations, consents,
approvals, waivers and releases, if any, necessary for Buyer to consummate the
transactions contemplated hereby shall have been obtained and copies thereof
shall be delivered to Sellers.

6.5 Certificates. Buyer shall have delivered to Sellers (i)
certificates of the appropriate governmental authorities, dated as of a date
not more than twenty (20) days prior to the Closing Date, attesting to the
existence and good standing of Buyer in the State of Texas; (ii) copies,
certified by the Secretary of State of Texas as of a date not more than twenty
(20) days prior to the Closing Date, of the Articles of Incorporation and all
amendments thereto of Buyer; (iii) a copy, certified by the Secretary of Buyer,
dated the Closing Date, of the bylaws of Buyer; and (iv) a certificate, dated
the Closing Date, of the Secretary of Buyer relating to the incumbency and
corporate proceedings in connection with the consummation of the transactions
contemplated hereby.

6.6 Opinion of Counsel. Sellers shall have received an opinion of
Locke Purnell Rain Harrell (A Professional Corporation), counsel to Buyer,
dated the Closing Date and in form and substance reasonably satisfactory to
Sellers, substantially to the effect that: (a) Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Texas; (b) the execution and delivery of this Agreement and all other
agreements and documents contemplated hereby by Buyer and the performance by
Buyer of its obligations under this Agreement and such other agreements and
documents does not constitute a violation of or a default under its Articles of
Incorporation or Bylaws or any agreement, arrangement, commitment, order,
judgment or decree to which it is a party or by which its assets are bound of
which such counsel has knowledge; (c) Buyer has the corporate power and
authority to execute, deliver and perform its obligations under this Agreement
and the other agreements and documents by Buyer contemplated hereby (to which
it is a party) and the execution and delivery of this Agreement and the other
agreements and documents by the Company and the performance by Buyer of its
obligations hereunder and under the other agreements and documents have been
duly authorized by all requisite action on the part of Buyer; and (d) this
Agreement and each other agreement and document contemplated hereby is a valid
and binding obligation of Buyer (to which it is a party), enforceable against
Buyer in accordance with their respective terms, subject to the Equitable
Exceptions.

6.7 Loan Agreements. Prior to or simultaneous with the Closing, the
lenders disclosed on Schedule 1.1 hereto shall have consented to the
transactions set forth in this Agreement and released all pledges of Company
stock and all guarantees in connection with such loans, and Buyer shall have
(i) retired the Company's outstanding indebtedness with such lenders or (ii)
refinanced such indebtedness (provided that the subordinated indebtedness shall
be repaid), in

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<PAGE> 28
each event such that there shall be no continuing obligations of Sellers with
respect to such indebtedness of the Company.

6.8 Transfer of Funds. Buyer shall have delivered to Sellers the
amount specified in Section 7.3.

ARTICLE VII.

CLOSING

7.1 Closing. Unless this Agreement is first terminated as provided
in Section 8.1, and subject to the satisfaction or waiver of all the conditions
set forth in Articles V and VI, the closing of the transactions contemplated
hereby (the "Closing") shall take place at the offices of Locke Purnell Rain
Harrell (A Professional Corporation), in Dallas, Texas, or such other place as
is agreed to by Buyer and Sellers, on July 2, 1997 or such other date as the
parties may agree upon in writing (the "Closing Date").

7.2 Delivery of the Shares. At the Closing, Sellers shall deliver or
cause to be delivered to Buyer the stock certificates evidencing all of the
Company Shares owned by them, duly endorsed or accompanied by duly executed
stock powers assigning the Company Shares to Buyer and otherwise in good form
for transfer.

7.3 Cash Payment to Sellers. At the Closing, Buyer shall deliver, by
wire transfer of immediately available funds to the accounts designated by
Sellers, to Sellers the Total Consideration (as adjusted pursuant to Section
1.2).

ARTICLE VIII.

TERMINATION PRIOR TO CLOSING

8.1 Termination.

(a) This Agreement may be terminated and abandoned at any time
prior to the Closing:

(i) By the written mutual consent of Buyer and Sellers;

(ii) By Buyer on the Closing Date if any of the
conditions set forth in Article V shall not have been fulfilled on or prior to
the Closing Date;

(iii) By Sellers on the Closing Date if any of the
conditions set forth in Article VI shall not have been fulfilled on or prior to
the Closing Date; and

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<PAGE> 29
(iv) By either Buyer or Sellers if the Closing shall not
have occurred on or before July 30, 1997; however, to the extent satisfactory
progress is being made towards closing, Sellers will agree to one 30 day
extension.

(b) Any termination pursuant to this Article VIII shall be
without prejudice to the terminating party's rights and remedies under this
Agreement by reason of any violation of this Agreement occurring prior to such
termination. In the event of a termination pursuant to this Article VIII, each
party shall bear its own costs and expenses incurred with respect to the
transactions contemplated hereby.

ARTICLE IX.

INDEMNIFICATION

9.1 Buyer's Losses.

(a) Each Seller severally and not jointly agrees to indemnify
and hold harmless Buyer and its directors, officers, employees,
representatives, agents and attorneys from, against and in respect of
any and all Buyer's Losses (as defined below) suffered, sustained,
incurred or required to be paid by any of them by reason of (i) any
representation or warranty made by such Seller in or pursuant to this
Agreement (including, without limitation, the representations and
warranties contained in any certificate delivered pursuant hereto) being
untrue or incorrect in any material respect, except in any instance and
to the extent Buyer's Losses result from the negligence or misconduct of
Buyer; or (ii) any failure by the Company (with respect to periods prior
to the Closing) or such Seller to observe or perform its or his or her
covenants and agreements set forth in this Agreement or in any other
agreement or document executed by it or him or her in connection with
the transactions contemplated hereby, except in any instance and to the
extent Buyer's Losses result from the negligence or misconduct of Buyer.

(b) "Buyer's Losses" shall mean all damages (including,
without limitation, amounts paid in settlement with the Sellers'
consent, which consent may not be unreasonably withheld), losses,
obligations, liabilities, claims, deficiencies, costs and expenses
(including, without limitation, reasonable attorneys' fees), penalties,
fines, interest and monetary sanctions, including, without limitation,
reasonable attorneys' fees and costs incurred to comply with injunctions
and other court and Agency orders, and other costs and expenses incident
to any suit, action, investigation, claim or proceeding or to establish
or enforce the rights of Buyer or such other persons to indemnification
hereunder. "Buyer's Losses" shall be determined in good faith net of
any tax benefits resulting from any such Loss. "Buyer's Losses" shall
include lost profits from operations but not other consequential damages
to Buyer not due or payable to a third party.

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<PAGE> 30
9.2 Seller Losses.

(a) Buyer agrees to indemnify and hold harmless Sellers and
their respective directors, officers, managers, employees,
representatives, agents and attorneys from, against and in respect of
any and all Seller Losses (as defined below) suffered, sustained,
incurred or required to be paid by any of them by reason of (i) any
representation or warranty made by Buyer in or pursuant to this
Agreement (including, without limitation, the representations and
warranties contained in any certificate delivered pursuant hereto) being
untrue or incorrect in any respect; or (ii) any failure by Buyer to
observe or perform its covenants and agreements set forth in this
Agreement or any other agreement or document executed by it in
connection with the transactions contemplated hereby, except in any
instance and to the extent Seller Losses result from the negligence or
misconduct of a Seller.

(b) "Seller Losses" shall mean all damages (including, without
limitation, amounts paid in settlement with the consent of Buyer, which
consent may not be reasonably withheld), losses, obligations,
liabilities, claims, deficiencies, costs and expenses (including,
without limitation, reasonable attorneys' fees), penalties, fines,
interest and monetary sanctions, including, without limitation,
reasonable attorneys' fees and costs incurred to comply with injunctions
and other court and Agency orders, and other costs and expenses incident
to any suit, action, investigation, claim or proceeding or to establish
or enforce the rights of Sellers or such other persons to
indemnification hereunder. "Seller Losses" shall be determined in good
faith net of any tax benefits resulting from any such loss. "Seller's
Losses" shall not include consequential damages not due or payable to a
third party.

9.3 Notice of Loss. Except to the extent set forth in the next
sentence, a party to the Agreement will not have any liability under the
indemnity provisions of this Agreement with respect to a particular matter
unless a notice setting forth in reasonable detail the breach or other matter
which is asserted has been given to the Indemnifying Party (as defined below)
and, in addition, if such matter arises out of a suit, action, investigation,
proceeding or claim, such notice is given promptly, but in any event within
thirty (30) days after the Indemnified Party (as defined below) is given notice
of the claim or the commencement of the suit, action, investigation or
proceeding. Notwithstanding the preceding sentence, failure of the Indemnified
Party to give notice hereunder shall not release the Indemnifying Party from
its obligations under this Article IX, except to the extent the Indemnifying
Party is actually prejudiced by such failure to give notice, provided, however,
that failure to give notice will not serve to extend any time period for making
a claim. With respect to Buyer's Losses, Sellers shall be the Indemnifying
Party and Buyer and its directors, officers, employees, representatives, agents
and attorneys shall be the Indemnified Party. With respect to Seller Losses,
Buyer shall be the Indemnifying Party and Sellers and their respective
directors, officers, managers, employees, representatives, agents and attorneys
shall be the Indemnified Party.

9.4 Right to Defend. Upon receipt of notice of any suit, action,
investigation, claim or proceeding for which indemnification might be claimed
by an Indemnified Party, the Indemnifying Party shall be entitled to defend,
contest or otherwise protect against any such suit, action, investigation,
claim or proceeding at its own cost and expense, and the Indemnified Party

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<PAGE> 31
must cooperate in any such defense or other action. The Indemnified Party
shall have the right, but not the obligation, to participate at its own expense
in defense thereof by counsel of its own choosing, but the Indemnifying Party
shall be entitled to control the defense unless the Indemnified Party has
relieved the Indemnifying Party from liability with respect to the particular
matter or the Indemnifying Party fails to assume defense of the matter. In the
event the Indemnifying Party shall fail to defend, contest or otherwise protect
in a timely manner against any such suit, action, investigation, claim or
proceeding, the Indemnified Party shall have the right, but not the obligation,
thereafter to defend, contest or otherwise protect against the same and make
any compromise or settlement thereof and recover the entire cost thereof from
the Indemnifying Party including, without limitation, reasonable attorneys'
fees, disbursements and all amounts paid as a result of such suit, action,
investigation, claim or proceeding or the compromise or settlement thereof,
provided, however, that the Indemnified Party must send a written notice to the
Indemnifying Party of any such proposed settlement or compromise, which
settlement or compromise the Indemnifying Party may reject, in its reasonable
judgment, within thirty (30) days of receipt of such notice. Failure to reject
such notice within such thirty (30) day period shall be deemed an acceptance of
such settlement or compromise. The Indemnified Party shall have the right to
effect a settlement or compromise over the objection of the Indemnifying Party;
provided, that if (i) the Indemnifying Party is contesting such claim in good
faith or (ii) the Indemnifying Party has assumed the defense from the
Indemnified Party, the Indemnified Party waives any right to indemnity
therefor. If the Indemnifying Party undertakes the defense of such matters,
the Indemnified Party shall not, so long as the Indemnifying Party does not
abandon the defense thereof, be entitled to recover from the Indemnifying Party
any legal or other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof other than the reasonable costs of
investigation undertaken by the Indemnified Party with the prior written
consent of the Indemnifying Party.

9.5 Limitations of Indemnification. The persons or entities
indemnified pursuant to this Article IX shall not assert any claim for
indemnification hereunder until such time as and solely to the extent that the
aggregate of all claims that such persons may have against the Indemnifying
Party shall exceed $100,000 with respect to all claims. No Seller shall be
obligated to indemnify and hold harmless any Indemnified Party with respect to
any claim for indemnification hereunder exceeding the cash consideration
received by such Seller (excluding any amount received as Creditor) described
in Section 1.1 hereof; provided, however, that the foregoing limitation shall
not be applicable to any breach of the representations and warranties contained
in Sections 2.3 (Capital Stock of the Company) and 2.27 (Authority; Ownership)
hereof.

9.6 Cooperation. Each of Buyer, Sellers and the Company, and each of
their affiliates, successors and assigns, shall cooperate with each other in
the defense of any suit, action, investigation, proceeding or claim by a third
party and, during normal business hours, shall afford each other access to
their books and records and employees relating to such suit, action,
investigation, proceeding or claim and shall furnish each other all such
further information that they have the right and power to furnish as may
reasonably be necessary to defend such suit, action, investigation, proceeding
or claim, including, without limitation, reports, studies, correspondence and
other documentation relating to Environmental Protection Agency, Occupational
Safety and Health Administration and Equal Employment Opportunity Commission
matters.

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<PAGE> 32

ARTICLE X.

MISCELLANEOUS

10.1 Entire Agreement. This Agreement (including the exhibits and
schedules hereto) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the parties
hereto with respect to the subject matter hereof, and no party shall be liable
or bound to the other in any manner by any representations or warranties not
set forth herein.

10.2 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and permitted assigns. Neither this Agreement
nor any rights, interests, or obligations hereunder may be assigned by any
party hereto without the prior written consent of all other parties hereto, and
any purported assignment in violation of this Section 10.2 shall be null and
void.

10.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.

10.4 Headings. The headings of the articles and sections of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.

10.5 Construction. As used in this Agreement, the words "herein,"
"hereof" and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular article, section, paragraph or
other subdivision.

10.6 Modification and Waiver. Any of the terms or conditions of this
Agreement may be waived in writing at any time by the party which is entitled
to the benefits thereof, and this Agreement may be modified or amended by a
written instrument executed by Buyer, the Company and each Seller. No
supplement, modification or amendment of this Agreement shall be binding unless
executed in writing by all of the parties hereto. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.

10.7 Schedules, Etc. All Exhibits and Schedules annexed hereto are
expressly made a part of this Agreement as though fully set forth herein.

10.8 Notices. All notices of communication required or permitted
hereunder shall be in writing and may be given by (a) depositing the same in
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt request, (b) delivering the same in
person to an officer or agent of such party, (c) transmitting by facsimile the
same with electronic confirmation of receipt.

(i) If to Buyer, addressed to it at:

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<PAGE> 33
Casa Ole Restaurants, Inc.
1135 Edgebrook
Houston, Texas 77034
Facsimile No.: (713) 943-9554
Attn: Ms. Stacy M. Riffe

with copies to:

Locke Purnell Rain Harrell
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201
Facsimile No.: (214) 740-8800
Attn: Don M. Glendenning, Esq. or Kent
Jamison, Esq.

(ii) If to the Sellers, addressed thereto at the
addresses set forth on Annex "A" hereto:

(iii) If to the Company, addressed to:

Monterey's Acquisition Corp.
c/o River Associates, LLC
1640 Republic Centre
Chattanooga, TN 37450
Attn: Mr. Tim T. Morris

and marked "Personal and Confidential"

with copies to:

Miller & Martin
Attorneys at Law
Suite 1000
Volunteer Building
832 Georgia Avenue
Chattanooga, TN 37402-2289
Facsimile No.: (423) 785-8480
Attn: A. Alexander Taylor, Esq.

or to such other address or counsel as any party hereto shall specify pursuant
to this Section 10.8 from time to time.

10.9 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH LAWS OF THE STATE OF DELAWARE.

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<PAGE> 34
10.10 Survival of Covenants, Agreements, Representations and Warranties.

(a) Covenants and Agreements. All covenants and agreements
made hereunder or pursuant hereto or in connection with the transactions
contemplated hereby shall survive the Closing and shall continue in full force
and effect thereafter according to their terms without limit as to duration.

(b) Representations and Warranties. All representations and
warranties contained herein shall survive the Closing and shall continue in
full force and effect thereafter for a period of eighteen (18) months following
the Closing, except that (i) the representations and warranties contained in
Sections 2.8 (Tax and Related Matters), 2.11 (Environmental Laws and
Regulations) and 2.18 (Employee Benefit Plans) hereof shall survive until the
expiration of the applicable periods (including any extensions) of the statutes
of limitation to which such representations and warranties relate, and (ii) the
representations and warranties contained in Sections 2.1 (Authorization), 2.3
(Capital Stock of the Company) and 2.27 (Authority; Ownership) shall survive
indefinitely.

(c) Claims Made Prior to Expiration. Notwithstanding the
foregoing survival periods set forth in this Section 10.10, the termination of
a survival period shall not affect the rights of an Indemnified Party in
respect of any claim made by such party with specificity, in good faith and in
writing to the Indemnifying Party in accordance with Sections 9.3 and 10.8
hereof prior to expiration of the applicable survival period.

10.11 Expenses. Sellers, on the one hand, and Buyer, on the other
hand, shall be solely responsible for their respective costs and expenses
incurred in connection with the transactions contemplated hereby.

10.12 Third Party Beneficiaries. Except as otherwise specifically
provided in Article IX, no individual or firm, corporation, partnership or
other entity shall be a third-party beneficiary of the representations,
warranties, covenants and agreements made by any party hereto.

10.13 Number and Gender of Words. Whenever the singular number is
used, the same shall include the plural where appropriate, and words of any
gender shall include each other gender where appropriate.

10.14 Further Assurances. From time to time after the Closing, at the
request of any other party but at the expense of the requesting party, Buyer,
the Company or Sellers, as the case may be, will execute and deliver any such
other instruments of conveyance, assignment and transfer, and take such other
action as the other party may reasonably request in order to consummate or
evidence the transactions contemplated hereby.

10.15 Brokers and Agents. Each party agrees to indemnify and hold
harmless the other parties against all loss, cost, damages or expense arising
out of claims for fees or commissions of brokers employed or alleged to have
been employed by such indemnifying party.

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<PAGE> 35
ARTICLE XI.

SELLERS' REPRESENTATIVE

11.1 Appointment and Acceptance. In order to facilitate the
consummation of the transactions contemplated by this Agreement and the
resolution of matters after the Closing between Buyer and the Sellers, River
II, L.P., acting through its general partner, River Associates, LLC, and its
successors (the "Sellers' Representative"), acting as hereinafter provided,
shall serve as the attorney-in-fact and agent for each of the Sellers in his
name, place and stead in connection with the transactions contemplated by this
Agreement in accordance with the terms of this Agreement, such appointment
being coupled with an interest and irrevocable. By executing and delivering
this Agreement, the Sellers' Representative hereby accepts its appointment and
authorization as the Sellers' Representative and as attorney-in-fact and agent
on behalf of such of the Sellers in accordance with the terms of this
Agreement.

11.2 Authorization. The Sellers' Representative has the authority,
without restriction:

(a) As to Deliveries. To: (i) prepare, finalize, approve and
authorize all exhibits, schedules and other attachments to this Agreement and
the other contracts, instruments and documents delivered by or on behalf of the
Sellers pursuant to this Agreement (collectively, the "Transaction Documents");
(ii) deliver to the Buyer on behalf of the Sellers, as provided in this
Agreement, the share certificates representing all of the outstanding shares of
stock of the Company, any transmittal letters related thereto, and all other
materials to be delivered in connection therewith; (iii) execute, deliver and
accept delivery of, on each Seller's behalf, any and all agreements,
instruments and documents to be, or as, delivered by or on behalf of the
Sellers pursuant to this Agreement; and (iv) execute and deliver, and to accept
delivery of, on behalf of the Sellers, such agreements, instruments and other
documents as may be deemed by the Sellers' Representative in its sole and
absolute discretion to be appropriate under the Transaction Documents;

(b) Notice and Determination. To bind the Sellers by all
notices received, by all agreements and determinations made, and by all
agreements, instruments and other documents executed and delivered by the
Sellers' Representative under the Transaction Documents; and

(c) Disputes and Claims. To: (i) dispute or refrain from
disputing any claim made by Buyer under the Transaction Documents; (ii) make a
claim against Buyer arising under the Transaction Documents; (iii) negotiate
and compromise any dispute which may arise under, and exercise or refrain from
exercising remedies available under the Transaction Documents and sign any
releases or other documents with respect to such dispute or remedy; (iv) waive
any condition contained in the Transaction Documents; (v) prepare the Closing
Date Balance Sheet, determine the Post-Closing Price Adjustment and submit each
to the buyer pursuant to Section 1.3 of this Agreement, (vi) negotiate and
settle with Buyer regarding the Closing Date Balance Sheet and the Post-Closing
Adjustments; (vii) give any and all consents under the Transaction Documents;
(viii) give such instructions and to do such other things and refrain from
doing such other things as the Sellers' Representative shall in its sole and
absolute discretion deem necessary or appropriate to carry out the provisions
of the Transaction Documents.

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<PAGE> 36
11.3 Certain Limitations. Notwithstanding the foregoing or anything
else in the Transaction Documents, the Sellers' Representative shall not have
any authority with respect to the modification or amendment of this Agreement
or to a breach by a Seller of any representation, warranty or covenant set
forth in Article II(B) of this Agreement.

11.4 Actions. Each of the Sellers hereby expressly acknowledges and
agrees (a) that the Sellers' Representative is authorized to act on his behalf
notwithstanding any dispute or disagreement between or among the Sellers and
(b) that Buyer and any other person shall be entitled to rely on any and all
actions taken by the Sellers' Representative under the Transaction Documents
without liability to, or obligation to inquire of, any of the Sellers.

11.5 Effectiveness. The authority of the Sellers' Representative
hereunder shall continue and be effective until all of the rights and/or
obligations of the Sellers under the Transaction Documents, or any dispute
arising thereunder, terminate.

11.6 Indemnification. By executing and delivering this Agreement,
each Seller hereby severally and not jointly agrees to indemnify and hold the
Sellers' Representative harmless for any and all liability, loss, cost, damage
or expense (including attorneys' fees) incurred or suffered as a result of the
performance of its duties under the Transaction Documents or any document,
instrument or agreement related thereto, except such that arises from its gross
negligence or willful misconduct.

11.7 Survival of Authorizations. EACH SELLER (A) INTENDS FOR THE
AUTHORIZATIONS AND AGREEMENTS IN THIS AGREEMENT TO REMAIN IN FORCE IF HE
SUBSEQUENTLY BECOMES MENTALLY OR PHYSICALLY DISABLED OR INCOMPETENT, (B) DOES
HEREBY AUTHORIZE SUCH RECORDINGS AND FILINGS OF THIS AGREEMENT AS ANY PERSON
DEEMS APPROPRIATE AND (C) DOES HEREBY DIRECT THAT NO FILING OF ANY ACCOUNTING
OR POSTING OF A SURETY BOND SHALL BE REQUIRED OF ANY PERSON SERVING AS THE
SELLERS' REPRESENTATIVE.

[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]

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<PAGE> 37
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.

BUYER:

CASA OLE RESTAURANTS, INC.

By: /s/ Stacy M. Riffe
------------------------------
Title: Vice President and Chief
------------------------------
Financial Officer
------------------------------

THE COMPANY:

MONTEREY'S ACQUISITION CORP.

By: /s/ Mike D. Brookshire
------------------------------
Title: Secretary
------------------------------

RIVER II, L.P.

By: /s/ Tim T. Morris
------------------------------
Title: President, River Associates,
------------------------------
LLC,
------------------------------
as General Partner
------------------------------

BHC ACQUISITION CORP.

By: /s/ Richard M. Frank
------------------------------
Title: Chief Executive Officer
------------------------------

/s/ Stuart Sargent
-------------------------------------
Stuart Sargent

JCB VENTURE PARTNERSHIP III

By: /s/ Robert S. Doolittle
------------------------------
Title: Partner
------------------------------

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<PAGE> 38

J.C. BRADFORD & CO., LLC

By: /s/ Lucas Simons
------------------------------
Title: Managing Partner
------------------------------

/s/ Breck Walker
-------------------------------------
Breck Walker

/s/ James H. Graves
-------------------------------------
James H. Graves

/s/ Tim Morris
-------------------------------------
Tim Morris

/s/ James B. Baker, Trustee
-------------------------------------
Trustee for the James B. Baker
Profit Sharing Plan

/s/ Mike Brookshire
-------------------------------------
Mike Brookshire

/s/ Curt Glowacki
-------------------------------------
Curt Glowacki

/s/ Kirk Williamson
-------------------------------------
Kirk Williamson

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<PAGE> 39
LIST OF SCHEDULES

SET FORTH IN DISCLOSURE STATEMENT

Schedule 1.1 Outstanding Senior Debt and Subordinated Debt
Schedule 1.2 Baytown Budget
Schedule 2.2 Organization, Existence and Good Standing
Schedule 2.3 Capital Stock
Schedule 2.4 Subsidiaries
Schedule 2.5 Financial Statements
Schedule 2.6 Accounts Receivable
Schedule 2.7 Permits
Schedule 2.8 Tax Matters
Schedule 2.9 Real and Personal Property
Schedule 2.10 Real Property Leases
Schedule 2.11 Environmental Matters
Schedule 2.12 Contracts
Schedule 2.13 Violations
Schedule 2.14 Sellers' Consents
Schedule 2.15 Litigation
Schedule 2.17 Intellectual Property
Schedule 2.18 Employee Benefits
Schedule 2.19 Employee Matters
Schedule 2.20 Insurance
Schedule 2.21 Interest in Customers, Suppliers, Inc.
Schedule 2.22 Business Relations
Schedule 2.23 Officers and Directors
Schedule 2.24 Bank Accounts
Schedule 2.25 Absence of Certain Changes
Schedule 2.27 Ownership of Company Shares
Schedule 3.3 Buyer's Consents
Schedule 4.1 Course of Conduct by the Company
Schedule 10.15 Brokers and Agents
<PAGE> 40
ANNEX "A"

<TABLE>
<CAPTION>
Number of Number of
Company Shares Company Shares
Name and Address Held Thereby on to be held at
of Shareholder June , 1997 the Closing Date
- ----------------- ---------------- ----------------
<S> <C> <C>
River Associates, LLC 824,394 824,394
633 Chestnut Street
Suite 1640
Chattanooga, Tennessee 37450

BHC Acquisition Corp. 143,250 143,250
4441 West Airport Freeway
Irving, Texas 75062

Stuart Sargent 57,190 57,190
3838 North Sam Houston Parkway
Suite 520
Houston, Texas 77032

JCB Venture Partnership III 42,892 42,892
330 Commerce Street
Nashville, Tennessee 37201

JC Bradford & Co., LLC 7,150 7,150
330 Commerce Street
Nashville, Tennessee 37201

Breck Walker 14,298 14,298
330 Commerce Street
Nashville, Tennessee 37201

James H. Graves 7,150 7,150
330 Commerce Street
Nashville, Tennessee 37201

Tim Morris 18,408 18,408
633 Chestnut Street
Suite 1640
Chattanooga, Tennessee 37450

James B. Baker Profit Sharing Trust 18,408 18,408
633 Chestnut Street
Suite 1640
Chattanooga, Tennessee 37450
</TABLE>
<PAGE> 41
<TABLE>
<CAPTION>
Number of Number of
Company Shares Company Shares
Name and Address Held Thereby on to be held at
of Shareholder June , 1997 the Closing Date
- ----------------- ---------------- ----------------
<S> <C> <C>
Mike Brookshire 3,681 3,681
633 Chestnut Street
Suite 1640
Chattanooga, Tennessee 37450

Curt Glowacki 10,000 14,500
3838 North Sam Houston Parkway
Suite 520
Houston, Texas 77032

Kirk Williamson 2,500 5,000
3838 North Sam Houston Parkway
Suite 520
Houston, Texas 77032
</TABLE>

<PAGE> 1
EXHIBIT 10

[Conformed Copy]

AMENDMENT NO. 2

This Amendment No. 2 dated as of June 30, 1997 ("Agreement"), is
among Casa Ole Restaurants, Inc., a Texas corporation ("Borrower") and
NationsBank of Texas, N.A. ("Bank").

INTRODUCTION

The Borrower and the Bank are parties to the Credit Agreement dated as
of July 10, 1996, as amended by Amendment No. 1 dated as of January 13, 1997
(as modified, the "Credit Agreement"). The Borrower and the Bank have agreed
to make certain amendments to the Credit Agreement in connection with the
Borrower's request to enter into certain transactions.

THEREFORE, in connection with the foregoing and for other good and
valuable consideration, the Borrower and the Bank hereby agree as follows:

Section 1. Definitions; References. Unless otherwise defined in this
Agreement, each term used in this Agreement which is defined in the Credit
Agreement has the meaning assigned to such term in the Credit Agreement.

Section 2. Amendment.

(a) Section 1.1 of the Credit Agreement is amended by deleting the
following definitions in their entirety: "Beaumont Harken Acquisitions,"
"Beaumont Harken Acquisition A," and "Beaumont Harken Acquisition B."

(b) Section 1.1 of the Credit Agreement is amended by replacing
the definition of "Borrowing Base" in its entirety with the following:

"Borrowing Base" means, at any date of its determination, an
amount equal to the product of (a) 2.25 and (b) the consolidated
EBITDA of the Borrower for the four fiscal quarters then most recently
ended; provided that following consummation of an acquisition by the
Borrower, for the purposes of determining the Borrowing Base, the
EBITDA of the Borrower shall be calculated by the Bank to include, on
a proforma basis, the combined results

<PAGE> 2
of the Borrower and the assets purchased in connection with such
acquisition for such period, but without any increase for
non-recurring items of expense. The Bank shall determine the
Borrowing Base based upon the most recent financial statements dated
as of the end of a fiscal quarter delivered to the Bank pursuant to
Section 5.2(b), together with any Bank approved financial statements
related to any acquisitions. If such Borrower financial statements
are delivered when required hereunder, any adjustment to the Borrowing
Base shall become effective on the 45th day following the last day of
the applicable fiscal quarter. If such Borrower financial statements
are not delivered when required hereunder, the Borrowing Base shall be
set by the Bank at any level from such 45th day until three days after
such Borrower financial statements are received by the Bank.

(c) Section 1.1 of the Credit Agreement is amended by replacing
the definition of "Credit Documents" in its entirety with the following:

"Credit Documents" means this Agreement, the Notes, the Letter
of Credit Documents, the Pledge Agreement, the Guaranty, and each
other agreement, instrument, or document executed at any time in
connection with this Agreement.

(d) Section 1.1 of the Credit Agreement is amended by replacing
the definition of "Guidance Loan Maturity Date" in its entirety with the
following:

"Guidance Loan Maturity Date" means, with respect to each
Guidance Loan, six years from the date of funding such Advance, as set
forth in the Guidance Loan Note executed in connection with such
Guidance Loan.

(e) Section 1.1 of the Credit Agreement is amended by replacing
subparagraph (b) of the definition of "Permitted Debt" in its entirety with the
following:

(b) Debt in the form of purchase money indebtedness in an
aggregate outstanding amount not to exceed $1,000,000; provided,
however, that the Borrower may not incur such purchase money
indebtedness if a Default or Event of Default is continuing or if
entering into such purchase money indebtedness would cause a Default
or Event of Default;

(f) Section 1.1 of the Credit Agreement is amended by replacing
the definition of "Revolving Loan Commitment" in its entirety with the
following:

-2-
<PAGE> 3
"Revolving Loan Commitment" means $7,000,000 prior to the
Autoborrow Loan Activation Date and $6,500,000 thereafter; provided
that prior to the Bank's receipt of the items listed in Section 5.20,
no greater than $4,600,000 of such Revolving Loan Commitment shall be
available to be advanced to the Borrower.

(g) Section 1.1 of the Credit Agreement is amended by replacing
the definition of "Revolving Loan Commitment Termination Date" in its entirety
with the following:

"Revolving Loan Commitment Termination Date" means May 31,
1999.

(h) Section 1.1 of the Credit Agreement is amended by replacing
the definition of "Revolving Loan Maturity Date" in its entirety with the
following:

"Revolving Loan Maturity Date" means May 31, 2003.

(i) Section 1.1 of the Credit Agreement is amended by replacing
the definition of "Revolving Loan Note" in its entirety with the following:

"Revolving Loan Note" means the $7,000,000 Promissory Note
(Revolving Credit) dated as of June 30, 1997, made by the Borrower
payable to the order of the Bank evidencing the indebtedness of the
Borrower to the Bank resulting from Revolving Loan Advances made by
the Bank to the Borrower.

(j) Section 1.1 of the Credit Agreement is amended by inserting in
appropriate alphabetical order the following definition:

"Letter of Credit Termination Date" means May 31, 2000.

(k) Section 1.1 of the Credit Agreement is amended by inserting in
appropriate alphabetical order the following definition:

"Monterey's Acquisition" means the acquisition by the Borrower
of the stock of Monterey's Acquisition Corp. on substantially the
terms disclosed to the Bank in writing prior to the date of this
Agreement.

(l) Section 1.1 of the Credit Agreement is amended by inserting in
appropriate alphabetical order the following definition:

-3-
<PAGE> 4
"Pledge Agreement" means the Pledge Agreement dated as of June
30, 1997, made by the Borrower in favor of the Bank, pledging the
stock of Monterey's Acquisition Corp. to the Bank as security for the
Credit Obligations.

(m) Sections 2.3 (a) and (c) of the Credit Agreement are amended
by deleting the term "Revolving Loan Commitment Termination Date" each time it
appears therein, and inserting in lieu thereof the term "Letter of Credit
Termination Date."

(n) Section 2.4 (d) of the Credit Agreement is amended by
replacing the first sentence of such section in its entirety with the following
sentence:

The Borrower shall pay to the Bank the outstanding principal
amount of each Guidance Loan in equal monthly installments of 1/72nd
of the outstanding principal amount of such Guidance Loan.

(o) Section 5.2(d)(i) of the Credit Agreement is amended by
replacing such section in its entirety with the following:

(i) As soon as available and in any event not later than
45 days after the end of each fiscal quarter, for each of Casa Ole,
Monterey's, and Tortuga, a report setting forth in reasonable detail
sales volume, gross profit, and pre-tax operating profit (before and
after occupancy expenses) for such concept for such fiscal quarter (A)
restaurants in operation for more than 48 months and (B) for
restaurants in operation for less than 48 months, including the number
of restaurants in each of categories (A) and (B); and

(p) Section 5.3 of the Credit Agreement is amended by adding the
following sentences to the end of such section:

In addition, the Borrower shall and shall cause each Credit Party to
permit the Bank to visit the corporate headquarters of such Person and
inspect same-store sales and financial material of such Person with
the Chief Financial Officer of the Borrower; provided that the
Borrower is given at least five Business Days' advance notice thereof.
The Bank may exercise such inspection right a maximum of two times
during any fiscal year of the Borrower, and the Bank shall not remove
any copies or extracts of the material inspected or any notes related
thereto from the applicable retail location.

-4-
<PAGE> 5
(q) Section 5.4 of the Credit Agreement is amended by replacing
such section in its entirety with the following:

Section 5.4 Use of Proceeds. The proceeds of the
Autoborrow Loan Advances and the Revolving Loan Advances shall be used
by the Credit Parties only for general corporate and working capital
purposes, including without limitation the opening of new restaurants
owned by the Borrower, and for the Monterey's Acquisition. The
proceeds of the Guidance Loan Advances shall be used by the Borrower
only for the financing of the Monterey's Acquisition. The Borrower
shall not, directly or indirectly, use any part of such proceeds for
any purpose which violates, or is inconsistent with, Regulations G, T,
U, or X of the Board of Governors of the Federal Reserve System.

(r) Section 5.5(a) of the Credit Agreement is amended by replacing
such section in its entirety with the following:

(a) Leverage Ratio. The Borrower shall not permit the
ratio of (A) the consolidated total liabilities of the Borrower less
the Subordinated Debt of the Borrower to (B) the consolidated Tangible
Net Worth of the Borrower plus the Subordinated Debt of the Borrower
to exceed the following ratios for the following periods:

<TABLE>
<CAPTION>
Period Leverage Ratio
------ --------------
<S> <C>
June 30, 1997, through
March 30, 1998 2.50 to 1.00

March 31, 1998, through
December 30, 1998 2.25 to 1.00

December 31, 1998, through
June 29, 1999 2.00 to 1.00

June 30, 1999, and
thereafter 1.75 to 1.00
</TABLE>

(s) Section 5.5 of the Credit Agreement is amended by inserting in
appropriate alphabetical order the following subparagraph (c):

-5-
<PAGE> 6
Acquisition is consummated, the Borrower shall not permit the
consolidated Tangible Net Worth of the Borrower to be less than
$5,250,000.

(t) Section 5.10 of the Credit Agreement is amended by replacing
such section in its entirety with the following:

5.10 Distributions. The Borrower shall not (a) declare
or pay any dividends; (b) purchase, redeem, retire, or otherwise
acquire for value any of such Person's capital stock now or hereafter
outstanding or make any distribution of assets to such Person's
stockholders as such, whether in cash, assets, or in obligations of
such Person; (c) allocate or otherwise set apart any sum for the
payment of any dividend or distribution on, or for the purchase,
redemption, or retirement of, any shares of such Person's capital
stock; or (d) make any other distribution by reduction of capital or
otherwise in respect of any shares of such Person's capital stock.

(u) Section 5.13(b) of the Credit Agreement is amended by
replacing such section in its entirety with the following:

(b) Without the prior written consent of the Bank, the
Borrower shall not and shall not permit any other Credit Party to make
any Capital Expenditure or Acquisition Expenditure (exclusive of
Capital Expenditures and Acquisition Expenditures related to the
Monterey's Acquisition in an amount not to materially exceed
$11,750,000) that would:

(i) cause the sum of the Capital Expenditures and
the Acquisition Expenditures of the Credit Parties to exceed
$10,000,000 during any fiscal year of the Borrower;

(ii) for any single acquisition, cause the
Acquisition Expenditures and Capital Expenditures incurred in
connection therewith (exclusive of consideration in the form of common
stock of the Borrower) to exceed 25% of the Borrower's consolidated
Tangible Net Worth as of the end of the previous fiscal quarter of the
Borrower without the prior written consent of the Bank; or

(iii) cause the sum of the Capital Expenditures and
the Acquisition Expenditures incurred by the Credit Parties in
connection with acquisitions (exclusive of consideration in the form
of common stock of the Borrower) during any fiscal year of the
Borrower to exceed 50% of the

-6-
<PAGE> 7
Borrower's consolidated Tangible Net Worth as of the beginning of such
fiscal year without the prior written consent of the Bank.

(v) Article 5 of the Credit Agreement is amended by inserting as
Section 5.20 the following:

5.20 Post-Closing Items. The Borrower shall deliver all
of the following items to the Bank prior to July 31, 1997: (a)
evidence, reasonably acceptable to the Bank, that all Debt of
Monterey's Acquisition Corp. to Finova Capital Corporation has been
paid in full and all security therefor has been released; (b) the
Pledged Securities (as such term is defined in the Pledge Agreement),
and (c) an opinion of counsel to the Borrower, reasonably acceptable
to the Bank, regarding the enforceability of Amendment No.2 to this
Agreement, the Notes, and the Pledge Agreement, and certain other
matters in connection therewith.

(w) Section 6.1 of the Credit Agreement is amended by inserting as
subparagraphs (i) and (j) the following:

(i) Pledge Agreement. The Pledge Agreement shall at any
time and for any reason cease to create the Lien on the property
purported to be subject to such agreement in accordance with the terms
of such agreement, or cease to be in full force and effect, or shall
be contested by any party thereto.

Section 3. Representations and Warranties. The Borrower represents
and warrants that (a) the execution, delivery and performance of this Agreement
are within the corporate power and authority of the Borrower and have been duly
authorized by appropriate proceedings, (b) this Agreement constitutes legal,
valid, and binding obligations of the Borrower enforceable in accordance with
their terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the rights of creditors
generally and general principles of equity, and (c) upon the effectiveness of
this Agreement and the amendment of the Credit Documents as provided for
herein, no Event of Default shall exist under the Credit Documents and there
shall have occurred no event which with notice or lapse of time would become an
Event of Default under the Credit Documents, as amended.

Section 4. Effect on Credit Documents. Except as amended
herein, the Credit Agreement and all other Credit Documents remain in full
force and effect as originally executed. Nothing herein shall act as a waiver
of the Bank's rights under the Credit Documents as amended, including the
waiver of any default or event of default, however denominated. The Borrower
must continue to comply with the terms of the Credit

-7-
<PAGE> 8
Documents, as amended. This Agreement is a Credit Document for the purposes of
the provisions of the other Credit Documents. Without limiting the foregoing,
any breach of representations, warranties, and covenants under this Agreement
may be a default or event of default under other Credit Documents.

Section 5. Effectiveness. This Agreement shall become effective and
the Credit Agreement shall be amended as provided in this Agreement effective
on the date first set forth above when the Borrower and the Bank shall have
duly and validly executed originals of this Agreement and the Borrower shall
have delivered the same to the Bank.

Section 6. Miscellaneous. The miscellaneous provisions of the
Credit Agreement apply to this Agreement. This Agreement may be signed in any
number of counterparts, each of which shall be an original.

THIS WRITTEN AGREEMENT AND THE CREDIT DOCUMENTS, AS DEFINED IN THIS
AGREEMENT, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

EXECUTED as of the date first above written.

BORROWER:

CASA OLE RESTAURANTS, INC.

By: /s/ Stacy M. Riffe
-------------------------
Stacy M. Riffe
Vice President and
Chief Financial Officer

-8-
<PAGE> 9
BANK:

NATIONSBANK OF TEXAS, N.A.

By: /s/ Mark W. Montgomery
-------------------------
Mark W. Montgomery
Vice President

-9-

<PAGE> 1
EXHIBIT 20

[CASA OLE LETTERHEAD]

FOR IMMEDIATE RELEASE

Contact: Casa Ole Restaurants, Inc.
Patrick A. Morris, President
Stacy M. Riffe, Chief Financial Officer
(713) 943-7574

CASA OLE RESTAURANTS, INC.
ANNOUNCES CLOSING ON ACQUISITION OF MONTEREY'S
(NASDAQ: CASA)

Houston, Texas, (July 3, 1997) - Casa Ole Restaurants, Inc. (the "Company")
today announced the closing of its acquisition of Monterey's Acquisition Corp.
("Monterey's"). The transaction, which was the purchase of 100% of the
outstanding shares of Monterey's, results in Monterey's being a wholly owned
subsidiary of the Company.

The Company purchased the shares of common stock for $4 million, paid off
outstanding debt and accrued interest with two creditors totaling $7.1 million
and funded various other agreed upon items approximating $500,000. The
transaction was funded using cash on hand of approximately $3 million and the
Company's amended credit facility with NationsBank. As purchased, Monterey's
has a working capital deficit of $750,000 that will be assumed by the Company.

For the fiscal year most recently ended, Monterey's reported total assets of
$11 million and total liabilities of $9.3 million. Total revenues for the year
were $20.6 million, up $500,000 over fiscal 1995, and earnings before interest,
depreciation and amortization and certain management and consulting fees were
$2.3 million, up from $1.9 million in the prior year. These results were from
the 26 restaurants that Monterey's owns and operates in Texas and Oklahoma
under the names "Monterey's Tex-Mex Cafe," "Monterey's Little Mexico" and
"Tortuga Cantina." Pro forma financial information presenting the impact on
the Company's first quarter's financial statements as if the two companies had
been combined at the beginning of fiscal 1997, will be presented in the Form
8-K, which will be filed with the Securities and Exchange Commission within 15
days of closing.

"We are excited by the closing of this transaction, which is another step in
our strategy of adding shareholder value by expanding our position in the
Tex-Mex dining segment," said Lou Neeb, Chairman and CEO. "We are also excited
by the outstanding management that is joining the Casa Ole team. And, given
that Larry Forehand, our founder, got his start in the Mexican food segment
with Monterey's many years ago, this acquisition is a natural fit."

Stacy Riffe, the Company's Chief Financial Officer, added, "We believe we will
begin to see a positive impact on the Company's earnings during the first full
year of combined operations. The earnings impact during the remainder of the
current fiscal year should help mitigate the earnings shortfall that has
continued due to the previously reported delayed openings, the softer than
expected sales in new units and the higher than expected labor costs in the
those units. We have become very focused on assuring the quality of new
openings, improving labor control and strengthening new store margins."

The Company plans to continue to grow the Casa Ole concept, and, with the
addition of the Monterey's concepts, there is an opportunity to potentially
expand in markets and trading areas not targeted for the Casa Ole concept. The
added cash flow anticipated from the additional 26 Monterey's units will assist
in the continued execution of the Company's growth plans, as well as the
selective remodeling of both Casa Ole and Monterey's units where management
believes there is the potential to increase sales.

-continued-
<PAGE> 2
At the time of closing, the Company owns, operates or franchises a total of 74
restaurants primarily in Texas and Louisiana, including 19 Company-owned Casa
Ole units, 21 Monterey's Tex-Mex Cafes, two Monterey's Little Mexico
restaurants, three casual dining Tortuga Cantinas and 29 franchised Casa Ole's.
The Company also has three restaurants under construction--two Casa Ole's and
one Tortuga--which are scheduled to open during July.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this release constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). Such forward-looking statements involve known and unknown
risks, uncertainties and other facts which may cause the actual results,
performance or achievements of Casa Ole Restaurants, Inc., its area developers,
market partners, franchisees and Casa Ole restaurants to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, among
others, the following: general economic and business conditions; competition;
success of operating initiatives; development and operating costs; area
developers' adherence to development schedules; advertising and promotional
efforts; brand awareness; adverse publicity; acceptance of new product
offerings; consumer trial and frequency; availability, locations and terms of
sites for store development; changes in business strategy or development plans;
quality of management; availability, terms and development of capital; business
abilities and judgment of personnel; availability of qualified personnel; food,
labor and employee benefit costs; changes in, or the failure to comply with
government regulations; regional weather conditions; construction schedules;
and other factors referenced in the Company's 1996 Annual Report and Form 10-K.
The use in this release of such words as "believes", "anticipates", "expects",
"intends", "should", "plan" and similar expressions are intended to identify
forward-looking statements, but are not the exclusive means of identifying such
statements. The success of the Company is dependent on the efforts of the
Company, its employees and its area developers, market partners and franchisees
and the manner in which they operate and develop stores.