AGREEMENTAND PLANOF MERGER

DATED AS OF OCTOBER 6, 2000

AMONG

CARROLS CORPORATION,

SPUR ACQUISITION CORP.

AND

TACO  CABANA,  INC.

> 
ARTICLE  I THE  MERGER.................................................................1   1.1   The  merger....................................................................................1   1.2   Closing..........................................................................................1    1.3   Effective  Time of  the  Merger..........................................................1      1.4   Effects  of the  Merger.....................................................................2    1.5  Certificate  of  Incorporation;  By-Laws.............................................2   1.6  Directors;  Officers..........................................................................2  ARTICLE  II  CANCELLATION  OF THE  CAPITAL  STOCK OF  THE    COMPANY  AND  PAYMENT  WITH  RESPECT  THERETO............2  Effect  on  Capital  Stock.........................................................................2  (a)  Common  Stock of  Sub....................................................................2    (b)  Cancellation  of  Treasury  Stock  and  Parent-Owned  Stock................3      (c)  Cancellation  of  Company  Common  Stock  and  Payment  with  Respect  Thereto................................................................................................3  (d)  Appraisal  Rights..............................................................................3   2.2  Payment  With  Respect  To  Certificates............................................4  (a)  Payment  Agent................................................................................4   (b)  Payment  Procedures.......................................................................4   (c) No  Further  Ownership  Rights  in  Company  Common  Stock..............4  (d)  Termination  of  Payment  Fund..........................................................5  (e) No  Liability.....................................................................................5  (f)  Investment  of  Exchange  Fund...........................................................5  (g)  Withholding  Rights...........................................................................5  (h)  Associated  Company  Rights............................................................6  2.3  Stock  Options  With  Respect  To  Company  Common  Stock.............6  ARTICLE  III  REPRESENTATIONS  AND  WARRANTIES...............6     3.1  Representations  and  Warranties  of the  Company.............................6   (a)  Organization,  Standing  and  Power....................................................6  (b)  Subsidiaries.....................................................................................7  (c)  Capital  Structure..............................................................................8  (d)  Authority.........................................................................................9  (e) SEC  Documents............................................................................10  (f)  Information  Supplied.......................................................................11  (g)  Absence  of  Certain  Changes  or  Events...........................................12  (h)  Compliance  with  Applicable  Laws..................................................14  (i)  Environmental.................................................................................14  (j)  Litigation........................................................................................15  (k) Taxes............................................................................................15  (l)  Employee  Benefit  Plans...................................................................16  (m)  Restaurants  and  Properties............................................................18  (n)  Properties......................................................................................19  (o)  Labor  Controversies  .....................................................................19  (p)  Intellectual  Property.......................................................................20  (q)  Change  of  Control  Agreements......................................................21  (r)  Contracts  and  Commitments...........................................................21  (s)  Affiliated  Transactions....................................................................23  (t)   Insurance......................................................................................23  (u)   Records.......................................................................................23  (v)  Section  203 of  the DGCL..............................................................24  (w)  Opinion  of  Financial  Advisor.........................................................24  (x)  Franchise  Matters..........................................................................24  (y)  Disclosure......................................................................................25  (z)  Company  Rights  Agreement...........................................................25  3.2  Representations  and  Warranties  of  Parent  and  Sub.........................25  (a)  Organization,  Standing  and  ............................................................25  (b)  Authority.......................................................................................26  (c)  Information  Supplied......................................................................26  (d)  Interim  Operations  of  Sub..............................................................27  (e)  Financial  Capability........................................................................27

ARTICLE  IV  COVENANTS  RELATING  TO  CONDUCT  OF  BUSINESS........................................................................................27    4.1  Covenants  of  Company..............................................................  ..27  (a)  Ordinary  Course............................................................................27  (b)  Dividends;  Changes  in....................................................................28  (c)  Issuance  of  Securities.....................................................................28  (d)  Governing  Documents....................................................................28  (e) No  Solicitations..............................................................................28  (f) No  Acquisitions...............................................................................29  (g) No  Dispositions..............................................................................29  (h)  Indebtedness..................................................................................30  (i)  Other  Actions..................................................................................30  (j)  Advice  of  Changes;  Government  Filings...........................................30  (k)  Accounting  Methods......................................................................31  (l)  Benefit  Plans.................................................................................  ..31  (m) Tax  Elections.................................................................................31   4.2  Covenants  of  Parent..................................................................  ....31  (a)  Other  Actions.................................................................................31  (b)  Government  Filings.........................................................................32  (c)  Extraordinary  Transactions..............................................................32  ARTICLE  V  ADDITIONAL  AGREEMENTS....................................32  5.1  Preparation  of the  Proxy  Statement.................................................32  5.2  Stockholder  Meeting......................................................................33  5.3  Legal  Conditions  to  Merger.....................................................  ......33  5.4  Access  To  Informations..................................................................33  5.5  Brokers  or  Finders.........................................................................34  5.6  Indemnification;  Directors'  and  Officers'  Insurance..........................34  5.7  Shareholder  Lists...........................................................................34  5.8  Shareholder  Litigation....................................................................35  5.9  Communication  To  Employees.......................................................35  5.10  Environmental  Matters.................................................................35  ARTICLE  VI  CONDITIONS  PRECEDENT.....................................35  6.1  Conditions  to Each  Party's  Obligation  to  Effect  the  Merger.............35            (a)  Stockholder  Approval...........................................................36            (b)  Other  Approvals...................................................................36            (c) No  Injunctions  or  Restraints;   Illegality...................................36       6.2  Conditions  to  Obligations  of  Parent  and Sub................................36            (a)  Representations  and   Warranties............................................36            (b)  Performance  of  Obligations  of  Company...............................36            (c)  Consents  Under  Agreements.................................................37            (d)  Burdensome  Condition..........................................................37            (e)  Material  Adverse  Effect.........................................................37            (f)  Proceedings...........................................................................37            (g)  Financing..............................................................................37     6.3  Conditions  to  Obligations  of  Company.........................................38            (a)  Representations  and  Warranties.............................................38            (b)  Performance  of  Obligations  of  Parent  and  Sub.......................38  ARTICLE  VII  TERMINATION  AND  AMENDMENT......................38      7.1  Termination.................................................................................38      7.2  Effect  of  Termination...................................................................40      7.3  Fees,  Expenses  and  Other  Payments...........................................40      7.4   Amendment...............................................................................41      7.5  Extension;  Waiver.......................................................................41  ARTICLE  VIII  GENERAL  PROVISIONS.........................................42      8.1  Nonsurvival  of  Representations,  Warranties  and  Agreements........42      8.2  Notices.......................................................................................42      8.3  Certain  Definitions.......................................................................43      8.4  Interpretation..............................................................................43      8.5  Counterparts...............................................................................44      8.6  Entire  Agreement;  No Third  Party  Beneficiaries;  Rights  of   Ownership..........................................................................................44      8.7  Governing  Law...........................................................................44      8.8  Severability;  No  Remedy  In  Certain  Circumstances.....................44      8.9  Publicity......................................................................................45      8.10  Assignment...............................................................................45      8.11  Adjustment...............................................................................45      8.12  Specific  Performance................................................................45

EXHIBITACertificateofIncorporationof SubEXHIBIT BBy-Laws ofSub 

 affiliate                                                                                                43                     Agreement                                                                                            1   BalanceSheet                                                                                    11                      beneficialownership                                                                              43 BusinessCombination                                                                           41Certificateof Merger                                                                              2Certificates                                                                                             4Closing                                                                                                  1ClosingDate                                                                                           1Code                                                                                                      5CommitmentLetter                                                                          27Company                                                                                               1CompanyBenefitPlans                                                                         17CompanyCommonStock                                                                      3CompanyDisclosureLetter                                                                     6 CompanyPreferredStock                                                                       8CompanyRights                                                                                  8CompanySECDocuments                                                                  10CompanyStockOptions                                                                        6CompanyStockPlans                                                                             6CompetingTransaction                                                                         29ConfidentialityAgreement                                                                   29Consents                                                                                               36dgcl                                                                                                        1DissentingShares                                                                                     3DissentingStockholder                                                                             3EffectiveTime                                                                                         2EnvironmentalAudit                                                                            35EnvironmentalLiability                                                                           15EnvironmentalMatters                                                                           14ERISA                                                                                                  17ERISAAffiliate                                                                                    17Expenses                                                                                             40Financing                                                                                             27FranchiseAgreements                                                                            24FranchisedLeasedProperty                                                                  18GAAP                                                                                                  11GovernmentalEntity                                                                               10group                                                                                                    43HSR Act                                                                                                10HSRFilings                                                                                           10IndependentAdvisor                                                                             24IntellectualPropertyRights                                                                    20LeasedRealProperty                                                                            18LicensedRights                                                                                     20Litigation                                                                                                15material                                                                                                    7MaterialAdverseEffect                                                                           7MaterialContracts                                                                                 21merger                                                                                                    1MergerConsideration                                                                               3OfferConsideration                                                                                 27OptionConsideration                                                                               6Owned RealProperty                                                                             18Parent                                                                                                     1PaymentAgent                                                                                         4PaymentFund                                                                                          4person                                                                                                    43ProxyStatement                                                                                      32RelatedParty                                                                                          13RequisiteRegulatoryApprovals                                                                36RightsAgreement                                                                                      8SEC                                                                                                       10Series APreferredStock                                                                          8Sub                                                                                                         1subsidiary                                                                                               43SurplusLeasedProperty                                                                        18SurvivingCorporation                                                                              1Tax Entity                                                                                               16Tax Return                                                                                              15Taxes                                                                                                     15VacantSurplusProperty                                                                         18Violation                                                                                                  10VotingDebt                                                                                               8Year-EndFinancialStatements                                                                 11 

                     AGREEMENTAND PLANOF MERGER(this"Agreement"),dated asof October6, 2000,amongCarrolsCorporation,a Delawarecorporation("Parent"),SpurAcquisitionCorp., ADelawarecorporationand awholly-ownedsubsidiaryof Parent("Sub"),and TacoCabana,Inc., ADelawarecorporation(the"Company").

RECITALS

A. Parent,Sub andtheCompanyintend toeffect amerger ofSub intotheCompany(the"Merger")inaccordancewith thisAgreementand theGeneralCorporationLaw of theState ofDelaware(the"DGCL"). Uponconsummationof theMerger,Sub willcease toexist andtheCompanywillbecome awholly-ownedsubsidiaryof Parent.

B. Foraccountingpurposes,it isintendedthat theMerger betreated asa"purchase."

C. ThisAgreementhas beenapprovedby therespectiveboards ofdirectorsof Parent,Sub andtheCompany.

AGREEMENT

Theparties tothisAgreementherebyagree asfollows:

ARTICLE I

THEMERGER

1.1  TheMerger. Upon theterms andsubject totheconditionsset forthin thisAgreement,and inaccordancewith theDGCL, Subshall bemergedwith andinto theCompany attheEffectiveTime. At theEffectiveTime, theseparateexistenceof Subshallcease, andtheCompanyshallcontinueas thesurvivingcorporation(the"SurvivingCorporation")and shallcontinueunder thename"TacoCabana,Inc."

1.2  Closing. UnlessthisAgreementshall havebeenterminatedpursuantto Section7.1 andsubject tothesatisfactionor waiverof theconditionsset forthin ArticleVI, theclosing ofthe Merger(the"Closing")will takeplace aspromptlyaspracticable(and inany eventwithin twobusinessdays)followingsatisfactionor waiverof theconditionsset forthin ArticleVI (the"ClosingDate"),at 10:00a.m., NewYork Citytime, attheoffices ofRosenman&Colin LLP,575MadisonAvenue,New York,New York10022,unlessanotherdate, timeor placeis agreedto inwriting bythepartieshereto.

1.3  EffectiveTime oftheMerger. As soon aspracticablefollowingthesatisfactionor waiverof theconditionsset forthin ArticleVI, Subshall fileacertificateof mergerconformingto therequirementsofSubchapterIX of theDGCL (the"CertificateofMerger")with theSecretaryof Stateof theState ofDelawareand makeall otherfilings orrecordingsrequiredby theDGCL inconnectionwith theMerger. The Mergershallbecomeeffectiveat suchtime astheCertificateof Mergeris dulyfiled withtheSecretaryof Stateof theState ofDelaware,or suchother timethereafteras isprovidedin theCertificateof Mergerinaccordancewith theDGCL (the"EffectiveTime").

1.4  Effects oftheMerger. The Mergershall havetheeffectsset forthin thisAgreementand in theapplicableprovisionsof theDGCL.

1.5  CertificateofIncorporation;By-Laws. (a) Thecertificateofincorporationof Subwhich isattachedas ExhibitA hereto,as ineffectimmediatelyprior totheEffectiveTime,shall bethecertificateofincorporationof theSurvivingCorporationuntilthereafterchanged oramended asprovidedtherein orbyapplicablelaw;providedthatArticle Iof thecertificateofincorporationof theSurvivingCorporationshall beamended bytheCertificateof Mergerto read asfollows:"Thename ofthecorporationis: TacoCabana,Inc."

(b)  Theby-laws ofSub whichareattachedas ExhibitB heretoshall betheby-laws oftheSurvivingCorporationuntilthereafterchanged oramended asprovidedtherein orbyapplicablelaw.

1.6  Directors;Officers. (a) Thedirectorsof Sub attheEffectiveTime shallbe thedirectorsof theSurvivingCorporation,until theearlier oftheirresignationor removalor untiltheirrespectivesuccessorsare dulyelectedandqualified,as thecase maybe.

(b)  Theofficersof Sub attheEffectiveTime shallbe theofficersof theSurvivingCorporation,until theearlier oftheirresignationor removalor untiltheirrespectivesuccessorsare dulyelectedandqualified,as thecase maybe.

ARTICLEII

CANCELLATIONOF THECAPITALSTOCK OFTHE  

COMPANYANDPAYMENTWITHRESPECTTHERETO

2.1  Effect onCapitalStock. As of theEffectiveTime, byvirtue ofthe Mergerandwithoutany actionon thepartof theholder ofany sharesof capitalstock oftheCompany orany sharesof capitalstock ofParent orSub:

(a)  CommonStock ofSub. Each shareof commonstock, parvalue $.0lper share,of Subissued andoutstandingimmediatelyprior totheEffectiveTime shallbeconvertedinto oneshare ofcommonstock, parvalue $.0lper share,of theSurvivingCorporationand shallbe theonlyissued andoutstandingcapitalstock oftheSurvivingCorporation.

(b)  CancellationofTreasuryStock andParent-OwnedStock. Each shareof commonstock oftheCompany,par value$.0l pershare("CompanyCommonStock"),that isowned bytheCompany orby anysubsidiaryof theCompany,togetherwith theassociatedCompanyRights,and eachshare ofCompanyCommonStock thatis ownedby Parent,Sub or anyothersubsidiaryof Parent,togetherwith theassociatedCompanyRights,shallautomaticallybecancelledandretiredand shallcease toexist, andno MergerConsiderationor otherconsiderationshall bedeliveredor payablewithrespectthereto.

(c)  Cancellationof CompanyCommonStock andPaymentwithRespectThereto. Each shareof CompanyCommonStockissued andoutstandingimmediatelyprior totheEffectiveTime(otherthanshares tobecancelledinaccordancewithSection2.1(b) andDissentingShares),togetherwith theassociatedCompanyRights,shall beconvertedinto theright toreceive$9.04,payable,withoutinterest,to theholder ofsuchshares,uponsurrender,in themannerprovidedin Section2.2, ofthecertificate(s)thatformerlyevidencedsuchshares(the"MergerConsideration"). As of theEffectiveTime, allsuchshares ofCompanyCommonStock,togetherwith theassociatedCompanyRights,shall nolonger beoutstandingand shallautomaticallybecancelledandretiredand shallcease toexist, andeachholder ofacertificatepreviouslyrepresentingany suchsharesshallcease tohave anyrightswithrespectthereto,except theright toreceivethe MergerConsideration,asapplicable.

(d)  AppraisalRights. Notwithstandinganythingin thisAgreementto thecontrary,to theextentprovidedby theDGCL,Parentwill notmake anypayment ofMergerConsiderationwithrespect toCompanyCommonStock heldby anyperson (a"DissentingStockholder")who electsto demandappraisalof hisshares andduly andtimelycomplieswith alltheprovisionsof theDGCLconcerningthe rightof holdersof CompanyCommonStock torequireappraisalof theirshares("DissentingShares"),but suchDissentingStockholdersshall havethe rightto receivesuchconsiderationas may bedeterminedto be duesuchDissentingStockholderspursuantto thelaws ofthe StateofDelaware. If, aftertheEffectiveTime, aDissentingStockholderwithdrawshis demandforappraisalor failsto perfectorotherwiseloses hisright ofappraisal,in anycasepursuantto theDGCL, hisshareswill bedeemed tobeconvertedas of theEffectiveTime intothe rightto receivethe MergerConsiderationpursuantto Section2.1(c). TheCompanywill giveParent (i)promptnotice ofanydemandsforappraisalofDissentingSharesreceivedby theCompanyand (ii)theopportunitytoparticipatein anddirect allnegotiationsandproceedingswithrespect toany suchdemands. TheCompanywill not,withoutthe priorwrittenconsent ofParent,make anypaymentwithrespectto, orenter intoanynegotiationsordiscussionsor abindingsettlementagreementor make anoffer,written ororal, tosettle,any suchdemands.

2.2  PaymentwithRespect toCertificates.

(a)  PaymentAgent. As of theEffectiveTime,Parentshalldeposit,or shallcause tobedeposited,with abank ortrustcompanydesignatedby Parent(the"PaymentAgent"),for thebenefit oftheholders ofshares ofCompanyCommonStock, forpayment inaccordancewith thisArticle IIthroughthePaymentAgent, theMergerConsiderationto be paidin respectof allshares ofCompanyCommonStock(otherthansharesrepresentingDissentingShares orshares tobecancelledinaccordancewithSection2.1(b))(suchfundsdepositedwith thePaymentAgent, the"PaymentFund").

(b)  PaymentProcedures. As soon asreasonablypracticableafter theEffectiveTime, thePaymentAgentshall mailto eachholder ofrecord ofacertificateorcertificateswhichimmediatelyprior totheEffectiveTimerepresentedoutstandingshares ofCompanyCommonStock (the"Certificates")whoseshareswerecancelledin theMergerpursuantto Section2.1(c) thefollowingdocuments:(i) aletter oftransmittal(whichshallspecifythatdeliveryshall beeffected,and riskof lossand titleto theCertificatesshallpass, onlyupondeliveryof theCertificatesto thePaymentAgent andshall bein suchform andhave suchotherprovisionsas Parentmayreasonablyspecify);and (ii)instructionsfor use ineffectingthesurrenderof theCertificatesinexchangeforpaymentwithrespectthereto. Uponsurrenderof aCertificateforcancellationto thePaymentAgenttogetherwith suchletter oftransmittal,dulyexecuted,the holderof suchCertificateshall beentitledto receiveinexchangethereforthe MergerConsiderationpayablewithrespect tothe sharesrepresentedby suchCertificatepursuantto theprovisionsof thisArticleII, andtheCertificatesosurrenderedshallforthwithbecancelled. In theevent thata holderhas lostormisplacedaCertificate,anaffidavitof lossthereof(togetherwith anappropriateindemnityand/orbond ifParent sorequiresby noticein writingto theholder ofsuchCertificate)satisfactoryin formandsubstanceto theCompany'stransferagent andthePaymentAgentshallaccompanysuchletter oftransmittalin lieu oftheapplicableCertificate. In theevent of atransferofownershipof CompanyCommonStockwhich isnotregisteredin thetransferrecords oftheCompany,payment oftheapplicableMergerConsiderationmay bemade to atransfereeif theCertificaterepresentingsuchCompanyCommonStock ispresentedto thePaymentAgent,accompaniedby alldocumentsrequiredtoevidenceand effectsuchtransferand byevidencethat anyapplicablestocktransfertaxes havebeenpaid. Untilsurrenderedascontemplatedby thisSection2.2, eachCertificateshall bedeemed atany timeafter theEffectiveTime torepresentonly theright toreceiveupon suchsurrenderthe MergerConsiderationwithrespectthereto ascontemplatedby thisSection2.2. Nointerestshallaccrue orbe paid toanybeneficialowner ofshares ofCompanyCommonStock orany holderof anyCertificatewithrespect tothe MergerConsiderationpayableupon thesurrenderof anyCertificate.

(c)  No FurtherOwnershipRights inCompanyCommonStock. The MergerConsiderationpaid withrespect tothecancellationof CompanyCommonStock inaccordancewith thetermshereofshall bedeemed tohave beenpaid infullsatisfactionof allrightspertainingto suchshares ofCompanyCommonStock, andthereshall beno furtherregistrationoftransferson thestocktransferbooks oftheSurvivingCorporationof theshares ofCompanyCommonStockwhich wereoutstandingimmediatelyprior totheEffectiveTime. If, aftertheEffectiveTime,Certificatesarepresentedto theSurvivingCorporationfor anyreason,they shallbecancelledandexchangedasprovidedin thisArticleII,subject toapplicablelaw in thecase ofDissentingShares.

(d)  Terminationof PaymentFund. Anyportion ofthePaymentFund whichremainsundistributedto thestockholdersof theCompanyfor sixmonthsafter theEffectiveTime shallbedeliveredto Parent,upondemand,and anystockholdersof theCompanywho havenottheretoforecompliedwith thisArticle IIshallthereafterlook onlyto Parentforpayment oftheirclaim forthe MergerConsideration.

(e)  NoLiability. If anyCertificatesshall nothave beensurrenderedprior tofive (5)yearsafter theEffectiveTime (orimmediatelyprior tosuchearlierdate onwhich theMergerConsiderationin respectof suchcertificatewouldotherwiseescheat toor becomethepropertyof anyGovernmentalEntity (asdefined inSection3.1(d)(iii)),any cashor otherpropertypayable inrespect ofsuchCertificateshall, tothe extentpermittedbyapplicablelaw,become thepropertyof theSurvivingCorporation,free andclear ofall claimsorinterestof anypersonpreviouslyentitledthereto. Notwithstandingtheforegoing,none oftheSurvivingCorporation,Parent orthePaymentAgentshall beliable toany holderof aCertificateor thesharesrepresentedtherebyfor anyMergerConsiderationdeliveredin respectof suchCertificateor thesharesrepresentedthereby toa publicofficialpursuantto anyabandonedproperty,escheat orothersimilarlaw.

(f)  InvestmentofExchangeFund. ThePaymentAgentshallinvest anycashincludedin thePaymentFund asdirectedbyParent. Anyinterestor otherincomeresultingfrom suchinvestmentsshall bepaid toParent. The Parentshallreplaceany netlossesincurredby thePaymentFund as aresult ofinvestmentsmadepursuantto thisSection2.2(f).

(g)  WithholdingRights. Parent orthePaymentAgentshall beentitledto deductandwithholdfrom theconsiderationotherwisepayablepursuantto thisAgreementto anyholder ofCertificatesor theshares ofCompanyCommonStockrepresentedtherebysuchamounts(if any)as Parentor thePaymentAgent isrequiredto deductandwithholdwithrespect tothe makingof suchpaymentunder theInternalRevenueCode of1986, asamended(the"Code"),or anyprovisionof state,local orforeigntaxlaw. To theextentthatamountsare sowithheldby Parentor thePaymentAgent,suchwithheldamountsshall betreatedfor allpurposesof thisAgreementas havingbeen paidto theholder ofthe sharesof CompanyCommonStock inrespect ofwhich suchdeductionandwithholdingwas madeby Parentor thePaymentAgent.

(h)  AssociatedCompanyRights. Referencesin ArticleII of thisAgreementto CompanyCommonStockshallinclude,unless thecontextrequiresotherwise,theassociatedCompanyRights.

2.3  StockOptionswithRespect toCompanyCommonStock. 

 (a) TheCompanyshall takeallactionsnecessarypursuantto theCompany's1990 StockOptionPlan, theCompany's1994 StockOptionPlan andtheCompany's2000 StockOwnershipPlan(collectively,the"CompanyStockPlans"),and theterms andprovisionsof anyoutstandingoptions toacquireshares ofCompanyCommonStock notissuedunder anyCompanyStockPlan, tocause thefollowing:(i) alloutstandingoptions toacquireshares ofCompanyCommonStockgrantedunder theCompanyStockPlans orotherwise(the"CompanyStockOptions")shall beexercisablein fullimmediatelyprior totheEffectiveTime, and(ii) allCompanyStockOptionsthat arenotexercisedprior totheEffectiveTime willterminateand expireas of theEffectiveTime. TheCompanyshall givewrittennotice totheholders ofallCompanyStockOptions oftheforegoing,whichwrittennoticeshallinclude anoffer topay suchholder attheEffectiveTime, inexchangefor thecancellationof suchholder'sCompanyStockOptions attheEffectiveTime, anamount incashdeterminedbymultiplying(A) theexcess, ifany, ofthe MergerConsiderationover theapplicableexerciseprice pershare oftheCompanyStockOption by(B) thenumber ofSharessuchholdercould havepurchasedhad suchholderexercisedsuchCompanyStockOption infullimmediatelyprior totheEffectiveTime (suchamount,the"OptionConsideration"),and eachsuchCompanyStockOptionshallthereafterbecanceled. Allactionsrequiredto betakenpursuantto thisSection2.3(a)withrespect toCompanyStockOptionshas been,or priorto theEffectiveTime willbe, takenby theCompany.

(b)Promptlyafter theEffectiveTime, theSurvivingCorporationsshallcause tobe mailedto eachholder ofCompanyStockOptions acheckpayable tosuchholder inan amountequal tothe OptionConsiderationpayablewithrespect toallCompanyStockOptionsheld bysuchholder.

ARTICLEIII

REPRESENTATIONSANDWARRANTIES

3.1  RepresentationsandWarrantiesof theCompany. TheCompanyrepresentsandwarrantsto Parentand Subthat,except asspecificallydisclosedin theletterdated thedatehereof anddeliveredby theCompany toParentsimultaneouslywith theexecutionanddeliveryof thisAgreement(the"CompanyDisclosureLetter"):

(a)  Organization,StandingandPower. Each oftheCompanyand itssubsidiariesis acorporationdulyorganized,validlyexistingand ingoodstandingunder thelaws ofthejurisdictionof itsincorporation,has allrequisitepower andauthorityand allnecessarygovernmentalapprovalsto own,lease andoperateitspropertiesand assetsand toconductitsbusinessas it isnow beingconductedand isdulyqualifiedand ingoodstandingto dobusinessin eachjurisdictionin whichthe natureof itsbusinessor theownershipor leasingof itspropertiesand assetsmakes suchqualificationnecessary,other thanin suchjurisdictionswhere thefailure soto qualifywould not,individuallyor in theaggregate,have aMaterialAdverseEffect ontheCompany. As used inthisAgreement,(i) anyreferenceto anyevent,change oreffectbeing"material"withrespect toany entitymeans anevent,change oreffectwhich ismaterialinrelationto thecondition(financialorotherwise),properties,assets,liabilities,businessesoroperationsof suchentity anditssubsidiariestaken as awhole, and(ii) theterm"MaterialAdverseEffect"means,withrespect totheCompany orParent,anychange,event oreffectshall haveoccurredor beenthreatenedthat, whentakentogetherwith allotheradversechanges,events oreffectsthat haveoccurredor beenthreatenedwould orwouldreasonablybeexpectedto (a) bemateriallyadverse tothebusiness,assets,properties,results ofoperationsorcondition(financialorotherwise)of suchparty anditssubsidiariestaken as awhole, or(b)prevent ormateriallydelay theconsummationof theMerger. TheCompanyhas madeavailableto Parenttrue andcompletecopies ofitscertificateofincorporationandby-lawsand thecertificateofincorporationandby-laws(orequivalentorganizationaldocuments)of eachsubsidiaryof theCompany,each asamended todate. Suchcertificatesofincorporation,by-laws orequivalentorganizationaldocumentsare infull forceandeffect,andneithertheCompanynor anysubsidiaryof theCompany isinviolationof anyprovisionof itscertificateofincorporation,by-laws orequivalentorganizationaldocuments.

(b)  Subsidiaries. TheCompanyowns,directlyorindirectly,all of theoutstandingcapitalstock orotherequityinterestsin each ofitssubsidiariesfree andclear ofany claim,lien,encumbrance,securityinterestoragreementwithrespectthereto. TheCompanyDisclosureLettersets fortha completelist oftheCompany'ssubsidiaries. Other thanthecapitalstock orotherinterestsheld bytheCompany insuchsubsidiaries,neithertheCompanynor anysuchsubsidiaryowns anydirect orindirectequityinterestin anyperson,domesticorforeign. All of theoutstandingshares ofcapitalstock ineach ofitscorporatesubsidiariesare dulyauthorized,validlyissued,fully paidandnonassessableand wereissuedfree ofpreemptiverights andincompliancewithapplicablesecuritieslaws andregulations. All of theoutstandingpartnershipinterestsin each ofitspartnershipsubsidiariesarevalidlyexisting,nonassessableand wereissued incompliancewithapplicablesecuritieslaws andregulations,and allcapitalcontributionsrequiredwithrespect tosuchpartnershipinterestshave beenmade infull. There arenoirrevocableproxies orsimilarobligationswithrespect tosuchcapitalstock orpartnershipinterestsof suchsubsidiariesand noequitysecuritiesor otherinterestsof any ofitssubsidiariesare or maybecomerequiredto beissued orpurchasedby reasonof anyoptions,warrants,rights tosubscribeto, puts,calls orcommitmentsof anycharacterwhatsoeverrelatingto, orsecuritiesor rightsconvertibleinto orexchangeablefor,shares ofanycapitalstock orany otherequityinterestof anysuchsubsidiary,and thereare noagreements,contracts,commitments,understandingsorarrangementsby whichany suchsubsidiaryis boundto issueadditionalshares ofitscapitalstock orotherequityinterests,oroptions,warrantsor rightstopurchaseor acquireanyadditionalshares ofitscapitalstock orotherequityinterestsorsecuritiesconvertibleinto orexchangeablefor suchshares orotherequityinterests.

(c)  CapitalStructure. (i)  Theauthorizedcapitalstock oftheCompanyconsistsof30,000,000shares ofCompanyCommonStock and2,500,000shares ofPreferredStock oftheCompany,par value$1.00 pershare (the"CompanyPreferredStock"),of which100,000shareshave beendesignatedSeries AJuniorPreferredStock (the"SeriesAPreferredStock"). At theclose ofbusinesson October3, 2000,(A)11,625,232shares ofCompanyCommonStock wereoutstanding,(B) noshares ofCompanyCommonStock werereservedforissuanceupon theexerciseofoutstandingwarrants,(C)1,550,975CompanyStockOptionswereoutstandingpursuantto theCompanyStockPlans,each suchoptionentitlingthe holderthereof topurchaseone shareof CompanyCommonStock, (D)114,506CompanyStockOptionswereoutstandingother thanpursuantto theCompanyStockPlans,each suchoptionentitlingthe holderthereof topurchaseone shareof CompanyCommonStock, (E)1,665,481shares ofCompanyCommonStock areauthorizedandreservedforissuanceupon theexerciseofoutstandingCompanyStockOptions,(F)1,865,000shares ofCompanyCommonStock wereheld bytheCompany initstreasuryor by itssubsidiaries,(G) noshares ofCompanyPreferredStock,includingSeries APreferredStock,wereissued oroutstanding,and (H)100,000shares ofSeries APreferredStock havebeenreservedforissuanceuponexerciseof therights(the"CompanyRights")distributedto theholders ofCompanyCommonStockpursuantto theRightsAgreementdated asof June 9,1995betweentheCompanyandSocietyNationalBank, inDallas,Texas, asRightsAgent (the"RightsAgreement"). TheCompanyDisclosureLettersets fortha true andcompletelist oftheoutstandingCompanyStockOptions,includingtheexerciseprices andvestingschedulestherefor.  

           (ii) Nobonds,debentures,notes orotherindebtednesshaving theright tovote (orconvertibleinto orexercisableforsecuritieshaving theright tovote) onanymatters onwhichstockholdersmay vote("VotingDebt")of theCompanyare issuedoroutstanding.

           (iii) Alloutstandingshares ofCompanycapitalstock arevalidlyissued,fully paidandnonassessableand freeofpreemptiverights andwereissued incompliancewithapplicablesecuritieslaws andregulations. All sharesof CompanyCommonStocksubject toissuanceupon theexerciseof CompanyStockOptions,uponissuanceon theterms andconditionsspecifiedin theinstrumentspursuantto whichthey areissuable,will bedulyauthorized,validlyissued,fully paidandnonassessableand freeofpreemptiverights andwill beissued incompliancewithapplicablesecuritieslaws andregulations.

           (iv)Except forthisAgreement,the RightsAgreement,theCompanyRights,theCompanyStockPlans andtheCompanyStockOptions,there arenooptions,warrants,calls,rights,convertiblesecurities,subscriptions,stockappreciationrights,phantomstockplans orstockequivalents,or otherrights,commitmentsoragreementsof anycharacterto whichtheCompany oranysubsidiaryof theCompany isa party orby whichit isboundobligatingtheCompany oranysubsidiaryof theCompany toissue,deliver orsell, orcause tobe issued,deliveredor sold,additionalshares ofcapitalstock orany VotingDebt oftheCompany orof anysubsidiaryof theCompany orobligatingtheCompany oranysubsidiaryof theCompany togrant,extend orenter intoany suchoption,warrant,call,right,commitmentoragreement. After theEffectiveTime,there willbe nooption,warrant,call,right oragreementobligatingtheCompany oranysubsidiaryof theCompany toissue,deliver orsell, orcause tobe issued,deliveredor sold,any sharesof capitalstock orany VotingDebt oftheCompany oranysubsidiaryof theCompany,orobligatingtheCompany oranysubsidiaryof theCompany togrant,extend orenter intoany suchoption,warrant,call,right oragreement. Theexecution,deliveryandperformanceby theCompany ofthisAgreementand theconsummationof theMerger andthe othertransactionscontemplatedherebywill notobligatetheCompany toissue, orresult intheissuanceof, anycapitalstock oftheCompanypursuantto theRightsAgreementor anyotheragreementorarrangement,except fortheaccelerationof vestingandpotentialexerciseof CompanyStockOptionscontemplatedby Section2.3. There arenooutstandingcontractualobligationsof theCompany orany of itssubsidiariestorepurchase,redeem orotherwiseacquireany sharesof capitalstock oftheCompany orany of itssubsidiaries.

           (v) SinceJuly 2,2000, theCompanyand eachof itssubsidiarieshas not(A)issued,permittedto beissued orenteredinto anyobligationto issue,any sharesof capitalstock, orsecuritiesexercisablefor orconvertibleintoshares ofcapitalstock, oftheCompany orany of itssubsidiaries,other thanpursuantto and asrequiredby theterms ofanyCompanyStockOptionsthat wereissued andoutstandingon suchdate; (B)repurchased,redeemedorotherwiseacquired,directlyorindirectlythroughone ormore ofitssubsidiaries,any sharesof capitalstock oftheCompany orany of itssubsidiaries;(C)declared,set aside,made orpaid tothestockholdersof theCompanydividendsor otherdistributionson theoutstandingshares ofcapitalstock oftheCompany;or (D)split,combinedorreclassifiedany of itsshares ofcapitalstock oftheCompany orany of itssubsidiaries. 

(d)  Authority. (i)  TheCompanyhas allrequisitecorporatepower andauthorityto enterinto thisAgreementand,subject toapprovalby thestockholdersof theCompany,toconsummatethetransactionscontemplatedhereby. Theexecutionanddeliveryof thisAgreementand theconsummationof thetransactionscontemplatedherebyhave beendulyauthorizedby allnecessarycorporateaction onthe partof theCompany,other thansuchapprovalby thestockholdersof theCompany. ThisAgreementhas beendulyexecutedanddeliveredby theCompanyandconstitutesa validandbindingobligationof theCompanyenforceableinaccordancewith itsterms,except asaffectedbybankruptcy,insolvency,fraudulentconveyance,reorganization,moratoriumand othersimilarlawsrelatingto oraffectingcreditors'rightsgenerallyandgeneralequitableprinciples(whetherconsideredin aproceedingin equityor atlaw). Theaffirmativevote ofholders ofa majorityof theoutstandingshares ofCompanyCommonStockentitledto vote ata dulycalled andheldmeeting ofstockholdersis theonly voteof theCompany'sstockholdersnecessaryto approvethisAgreement,the Mergerand theothertransactionscontemplatedby thisAgreement. At ameetingdulycalled andheld onOctober 4,theCompany'sBoard ofDirectorsadoptedresolutionsapprovingthisAgreementand theMerger,determiningthat theterms ofthe Mergerare fair,from afinancialpoint ofview, to,and in thebestinterestsof, theCompany'sstockholdersandrecommendingthat theCompany'sstockholdersapproveand adoptthisAgreement.

          (ii)Subject tocompliancewith theapplicablerequirementsof theExchangeAct, theHart-Scott-RodinoAntitrustImprovementsAct of1976, asamended(the"HSRAct"),and thefiling oftheCertificateof Mergerascontemplatedby Section1.1, theexecutionanddeliveryof thisAgreementand theCertificateof Merger,theconsummationof thetransactionscontemplatedhereby andthereby,andcomplianceof theCompanywith anyof theprovisionshereof orthereofwill notbreach,constitutean ultravires actunder, orresult inanyviolationof, ordefault(with orwithoutnotice orlapse oftime, orboth)under, orgive riseto a rightoftermination,cancellationoraccelerationof anyobligationor theloss of amaterialbenefitunder, orthecreationof a lien,pledge,securityinterest,charge orotherencumbranceon assets(any suchbreach,ultravires act,violation,default,right oftermination,cancellation,accelerationloss orcreation,a"Violation")pursuantto, (x)anyprovisionof thecertificateofincorporationor by-lawsof theCompany orthegoverninginstrumentsof anysubsidiaryof theCompany or(y)subject toobtainingor makingtheconsents,approvals,orders,authorizations,registrations,declarationsandfilingsreferredto inparagraph(iii)below orin theCompanyDisclosureLetter,any loanor creditagreement,note,mortgage,indenture,lease,CompanyBenefitPlan orotheragreement,obligation,instrument,permit,concession,franchise,license,judgment,order,decree,statute,law,ordinance,rule orregulationapplicableto theCompany oranysubsidiaryof theCompany ortheirrespectivepropertiesor assetsexceptViolationsunderclause (y)whichwould nothave aMaterialAdverseEffect ontheCompany.

         (iii) Noconsent,approval,order orauthorizationof, orregistration,declarationor filingwith, anycourt,administrativeagency orcommissionor othergovernmentalauthorityorinstrumentality,domesticor foreign(a"GovernmentalEntity"),isrequiredby or withrespect totheCompany oranysubsidiaryof theCompany inconnectionwith theexecutionanddeliveryof thisAgreementand theCertificateof Mergerby theCompany,theconsummationby theCompany ofthetransactionscontemplatedhereby andthereby,andcomplianceof theCompanywith anyof theprovisionshereof orthereof,thefailure toobtainwhichwould havea MaterialAdverseEffect ontheCompany,except for(A) thefilingwith theSecuritiesandExchangeCommission(the"SEC")of (1) aProxyStatementindefinitiveformrelatingto themeeting oftheCompany'sstockholdersto be heldinconnectionwith theMerger and(2) suchotherfilingsunder theExchangeAct as mayberequiredinconnectionwith thisAgreementand thetransactionscontemplatedhereby,(B) thefiling oftheCertificateof Mergerascontemplatedby Section1.1 andappropriatedocumentswith therelevantauthoritiesof statesin whichtheCompany isqualifiedto dobusiness,(C)filingspursuantto therules ofthe NasdaqNationalMarket,and (D)filings(the"HSRFilings")under theHSR Act.

(e)  SECDocuments. TheCompanyhas madeavailableto Parenta true andcompletecopy ofeachreport,schedule,registrationstatementanddefinitiveproxystatementfiled bytheCompanywith theSEC sinceDecember28, 1997(as suchdocumentshave sincethe timeof theirfilingbeenamended,the"CompanySECDocuments"),which areall thedocuments(otherthanpreliminarymaterial)that theCompanywasrequiredto filewith theSEC sincesuchdate. As oftheirrespectivedates, (i)theCompanySECDocumentscompliedin allmaterialrespectswith therequirementsof theSecuritiesAct of1933, asamended(the"SecuritiesAct")or theExchangeAct, asthe casemay be,and therules andregulationsof the SECthereunderapplicableto suchCompanySECDocuments,and (ii)none oftheCompanySECDocumentscontainedany untruestatementof amaterialfact oromitted tostate amaterialfactrequiredto bestatedtherein ornecessaryto makethestatementstherein,in lightof thecircumstancesunderwhich theywere made,notmisleading. Thefinancialstatementsof theCompanyincludedin theCompanySECDocuments(including,withoutlimitation,theauditedbalancesheet andrelatedstatementsofoperations,stockholders'equity andcash flowsof theCompanyand itssubsidiariesfor thefiscalyear endedJanuary 2,2000, asaudited byDeloitte&Touche LLP(suchbalancesheet andrelatedstatementsarereferredtohereinafteras the"Year-EndFinancialStatements"),and theunauditedfinancialstatementsof theCompanyand itssubsidiariesfor thefiscalquartersendedApril 2, 2000and July2, 2000,includingthebalancesheet oftheCompanyand itssubsidiariesdated July2, 2000(the"BalanceSheet"))compliedin allmaterialrespectswithapplicableaccountingrequirementsand withthepublishedrules andregulationsof the SECwithrespectthereto,have beenpreparedinaccordancewithgenerallyacceptedaccountingprinciples("GAAP")applied onaconsistentbasisduring theperiodsinvolved(except asmay beindicatedin thenotestheretoor, in thecase oftheunauditedstatements,aspermittedby Form10-Q ofthe SEC)and fairlypresenttheconsolidatedfinancialpositionof theCompanyand itsconsolidatedsubsidiariesas at thedatesthereofand theconsolidatedresults oftheiroperations,stockholders'equity andcash flowsfor theperiodsthen endedinaccordancewith GAAP. As of July2, 2000,neithertheCompanynor any ofitssubsidiarieshad anyliabilitiesorobligationsof anynature,whether ornotaccrued,contingentorotherwise,that wouldberequiredby GAAP tobereflectedon aconsolidatedbalancesheet oftheCompanyand itssubsidiaries(includingthe notesthereto)and whichwere notreflectedon theBalanceSheet. Since July2, 2000,except asand to theextent setforth intheCompanySECDocumentsand exceptforliabilitiesorobligationsincurredin theordinarycourse ofbusinessconsistentwith pastpracticeand ofsubstantiallythe samecharacter,type andmagnitudeasincurredin thepast,neithertheCompanynor any ofitssubsidiarieshasincurredanyliabilitiesof anynature,whether ornotaccrued,contingentorotherwise,that wouldhave aMaterialAdverseEffect ontheCompany,or wouldberequiredby GAAP tobereflectedon aconsolidatedbalancesheet oftheCompanyand itssubsidiaries(includingthe notesthereto). Allmaterialagreements,contractsand otherdocumentsrequiredto befiled asexhibitsto any oftheCompanySECDocumentshave beensofiled. Nosubsidiaryof theCompany isrequiredto fileany form,report orotherdocumentwith theSEC.

(f)  InformationSupplied. None oftheinformationincludedorincorporatedbyreferencein theProxyStatement(otherthaninformationconcerningParent orSubprovidedin writingby Parentor Sub ortheircounselspecificallyforinclusionorincorporationbyreferencetherein)will, atthe dateof mailingtostockholdersof theCompanyand at thetime ofthemeeting ofstockholdersto be heldinconnectionwith theMerger,containany untruestatementof amaterialfact oromit tostate anymaterialfactrequiredto bestatedtherein ornecessaryin orderto makethestatementstherein,in lightof thecircumstancesunderwhich theywere made,notmisleading. The ProxyStatement(exceptforinformationconcerningParent orSubprovidedin writingby Parentor Sub ortheircounselspecificallyforinclusionorincorporationbyreferencetherein)willcomply asto form inallmaterialrespectswith theprovisionsof theExchangeAct andthe rulesandregulationsthereunder.

(g)  Absence ofCertainChanges orEvents. Except ascontemplatedby thisAgreementor asdisclosedin theCompanyDisclosureLetter orin theCompanySECDocuments,sinceJanuary 2,2000, theCompanyand itssubsidiarieshaveconductedtheirrespectivebusinessesonly intheordinarycourse andconsistentwith priorpracticeand therehas notbeen: 

         (i) anyevent,occurrence,fact,condition,change,developmentor effectthat hashad orcouldreasonablybeexpectedto have,individuallyor in theaggregate,a MaterialAdverseEffect ontheCompany;          (ii) anyeventwhich, ifit hadtakenplacefollowingtheexecutionof thisAgreement,would nothave beenpermittedby Section4.1(b),(c), (d),(f), (g),(h), (l)or (m)withoutthe priorconsent ofParent,          (iii) anycondition,event oroccurrencewhichcouldreasonablybeexpectedtoprevent,hinder ormateriallydelay theability oftheCompany toconsummatethetransactionscontemplatedby thisAgreement;         (iv) anymaterialchange inaccountingmethods,principlesorpractices(or anydisagreementwith theCompany'sindependentpublicaccountantswithrespect tosuchmethods orpractices)employedby theCompany oranymaterialchange indepreciationoramortizationpoliciesor ratesapplicableto theCompany orany of itssubsidiaries;         (v) anyincurrenceof anymaterialliabilitiesorobligationsof anynature(whetheraccrued,absolute,contingentorotherwise)notincurredin theordinarycourse ofbusinessconsistentwith pastpracticeand ofsubstantiallythe samecharacter,type andmagnitudeasincurredin thepast, orany otherfailure bytheCompany orany of itssubsidiariesto conductitsbusinessin theordinarycourseconsistentwith pastpractice;         (vi) anychange inthefinancialcondition,capitalization,assets,liabilitiesor networth oftheCompany,exceptchanges intheordinarycourse ofbusinessconsistentwith pastpracticeand ofsubstantiallythe samecharacter,type andmagnitudeasincurredin thepast, noneof whichchanges,individuallyor in theaggregate,has had orwill havea MaterialAdverseEffect ontheCompany;         (vii) anymaterialdamage,destructionor loss,whether ornotcovered byinsurance,adverselyaffectingthepropertiesorbusinessof theCompany oritssubsidiaries,or anymaterialdeteriorationin theoperatingconditionof theCompany'sor itssubsidiaries'assets;        (viii) anymortgage,pledge orsubjectionto lien,charge orencumbranceof anykind ofany of theCompany'sor itssubsidiaries'assets,tangibleorintangible(otherthanpursuanttoafter-acquiredpropertyclauses insecurityagreementsrelated toindebtednessexistingas ofJanuary 2,2000);        (ix) anystrike,walkout,labortrouble(otherthanroutineindividualgrievancesorcomplaints)or, to theextentthat suchevent hashad orcouldreasonablybeexpectedto have aMaterialAdverseEffect ontheCompany,any othernew orcontinuedevent,developmentorconditionof anycharacterrelatingto thelaborrelationsof theCompany oritssubsidiaries;        (x) anyincreasein thesalariesor othercompensationpayable orto becomepayableto, or anyadvance(excludingadvancesforordinarybusinessexpenses)or loanto, anyofficer,director,employeeorstockholderof theCompany oritssubsidiaries(exceptincreasesmade intheordinarycourse ofbusinessandconsistentwith pastpractice),or anyincreasein, or anyadditionto, otherbenefits(includingwithoutlimitationany bonus,profit-sharing,pension orotherplan) towhich anyof theCompany'sor itssubsidiaries'officers,directors,employeesorstockholdersmay beentitled,or anypaymentsto anypension,retirement,profit-sharing,bonus orsimilarplanexceptpaymentsin theordinarycourse ofbusinessandconsistentwith pastpracticemadepursuantto theemployeebenefitplansdescribedin theCompanyDisclosureLetter, orany otherpayment ofany kindto or onbehalf ofany suchofficer,director,employeeorstockholderother thanpayment ofbasecompensationandreimbursementforreasonablebusinessexpensesin theordinarycourse ofbusiness;        (xi) anymaterialadversechange or,to theknowledgeof theCompany,any threatof anymaterialadversechange intheCompany'sor any ofitssubsidiaries'relationswith, orany lossor threatof lossof, any oftheCompany'sor any ofitssubsidiaries'importantsuppliers,distributorsoremployees;        (xii) anywrite-offsasuncollectibleof anynotes oraccountsreceivableof theCompany orany of itssubsidiariesorwrite-downsof thevalue ofany assetsorinventoryby theCompany orany of itssubsidiariesother thaninimmaterialamounts orin theordinarycourse ofbusinessconsistentwith pastpracticeand ofsubstantiallythe samecharacter,type andmagnitudeasincurredin thepast;        (xiii) anypayment,loan oradvance ofany amountto or inrespectof, or thesale,transferor leaseof anypropertiesor assets(whetherreal,personalor mixed,tangibleorintangible)to, orenteringinto ofanyagreement,arrangementortransactionwith, anyRelatedParty,except for(i)directors'fees and(ii)compensationto theofficersandemployeesof theCompanyand itssubsidiariesat ratesnotexceedingthe ratesofcompensationdisclosedin theCompanyDisclosureLetter (asusedherein, a"RelatedParty"means theCompany,any of itssubsidiaries,any of theofficersordirectorsof theCompany orany of itssubsidiaries,anyaffiliateof theCompany orany of itssubsidiariesor any oftheirrespectiveofficersordirectors,or anybusinessor entitycontrolled,directlyorindirectly,by theCompany orany of itssubsidiaries);        (xiv) anydispositionof orfailure tokeep ineffect anyrights in,to or forthe useof, anypatent,trademark,servicemark,trade nameorcopyright,or anydisclosureto anyperson noteither anemployee,franchiseeor otherpersonsubject toa duty ofconfidentialitywithrespectthereto,or otherdisposalof anytradesecret,process orknow-how;        (xv) anydispositionof orfailure tokeep ineffect anyright in,to or forthe use ofanyfranchise,right,license,permit orotherauthorizationof theCompany orany of itssubsidiaries;        (xvi) anytransaction,agreementor eventoutsidetheordinarycourse oftheCompany'sor itssubsidiaries'businessorinconsistentwith pastpracticeor not ofsubstantiallythe samecharacter,type ormagnitudeasincurredin thepast.

(h)  CompliancewithApplicableLaws. TheCompanyand itssubsidiarieshave beenoperatedat alltimes incompliancewith allapplicablelaws andregulations,and arenot indefault orviolationof anynotes,bonds,mortgages,indentures,contracts,agreements,leases,licenses,permits,franchises,or otherinstrumentsorobligationsto whichtheCompany orany of itssubsidiariesis a partyor bywhich anyof theirpropertyor assetsis bound,exceptwhere anysuchnoncompliance,conflicts,defaultsorviolationswould nothave aMaterialAdverseEffect ontheCompany. As of thedatehereof, noinvestigationby anyGovernmentalEntitywithrespect totheCompany orany of itssubsidiariesis pendingor, to theCompany'sbestknowledge,threatened. TheCompany orone of itssubsidiariespossessesa validlicense orlicensesto selland servealcoholicbeveragesin eachrestaurantoperatedby theCompanyand any ofitssubsidiaries,and thevalidityof suchlicensesand theability tosell andservealcoholicbeveragesin eachsuchrestaurantascurrentlypermittedshall notbeaffectedby theMerger.        (i)  Environmental. Except foranymatterswhich,individuallyor in theaggregate,could notreasonablybeexpectedto have aMaterialAdverseEffect ontheCompany, (i)theCompanyand eachof itssubsidiariesis and atall timeshas beenincompliancewith allapplicablelawsrelatingtoEnvironmentalMatters;(ii) theCompanyand eachof itssubsidiarieshasobtained,and is incompliancewith, allpermits,licensesorapprovalsrequiredbyapplicablelaws forthe use,storage,treatment,transportation,release,emissionanddisposalof rawmaterials,by-products,wastes andothersubstances,including,withoutlimitation,hazardoussubstancesandwastes,used orproducedby orotherwiserelatingto theoperationsof any ofthem; and(iii)there areno past orpresentevents,conditions,activitiesorpracticesthat wouldpreventcomplianceorcontinuedcompliancewith anylaw orgive riseto anyEnvironmentalLiability. There areno claimseither byanyGovernmentalEntity orany thirdpartypending,or to theCompany'sknowledge,threatened,againsttheCompany orany of itssubsidiariesarisingfrom anyEnvironmentalMatter. 

Asused inthisAgreement,the term"EnvironmentalMatters"means anymatterarisingout of orrelatingtopollutionorprotectionof theenvironment,humansafety orhealth, orsanitation,including,withoutlimitation,mattersrelatingto foodpreparationandhandling,emissions,discharges,releases,exposures,orthreatenedreleasesofpollutants,contaminants,orhazardousor toxicmaterialsor wastesincludingpetroleumand itsfractions,radiation,polychlorinatedbyphenols,biohazardsand alltoxicagents ofwhatevertype ornatureintoambientair,surfacewater,groundwater, orland, orotherwiserelatingto themanufacture,processing,distribution,use,treatment,storage,disposal,transportorhandlingofpollutants,contaminantsorhazardousor toxicmaterialsor wastesincludingpetroleumand itsfractions,radiation,biohazardsand alltoxicagents ofwhatevertype ornature. "EnvironmentalLiability"means anyliabilityorobligationarisingunder anylaw orunder anyothertheory oflaw orequity(including,withoutlimitation,anyliabilityforpersonalinjury,propertydamage orremediation)arisingfrom orrelatingto anyEnvironmentalMatters.

(j)  Litigation. There arenomaterialclaims,actions,suits orlegal oradministrativearbitrationsor otherproceedingsorinvestigations("Litigation")pendingagainsttheCompany orany of itssubsidiaries,or, to theCompany'sknowledge,threatenedagainst oraffectingtheCompany orany of itssubsidiaries,or towhich theCompany orany of itssubsidiariesis aparty,before orby anyFederal,foreign,state,local orothergovernmentalornon-governmentaldepartment,commission,board,bureau,agency,court orotherinstrumentality,or by anyprivateperson orentity. There arenoexistingor, to thebestknowledgeof theCompany,threatenedmaterialorders,judgmentsor decreesof anycourt orotherGovernmentalEntitywhichspecificallyapply totheCompany,any of itssubsidiariesor any oftheirrespectivepropertiesor assets.

(k)  Taxes. (i) Each TaxEntity hastimelyfiled allTaxReturnsrequiredto befiled byany ofthem(subjecttopermittedextensions). All suchTaxReturnsare true,correctandcompletewhenfiled,except forsuchinstanceswhichindividuallyor in theaggregatecould nothave aMaterialAdverseEffect ontheCompany. All Taxesof eachTax Entitywhich are(i) shownas due onsuch TaxReturns,(ii)otherwisedue andpayable or(iii)claimed orassertedby anytaxingauthorityto be due,have beenpaid,except forthoseTaxesbeingcontestedin goodfaith andfor whichadequatereserveshave beenestablishedin thefinancialstatementsincludedin theCompanySECDocumentsinaccordancewith GAAP. TheCompanydoes notknow ofanyproposedorthreatenedTax claimsorassessmentswhich, ifupheld,couldindividuallyor in theaggregatehave aMaterialAdverseEffect ontheCompany. Each TaxEntity haswithheldand paidover totherelevanttaxingauthorityall Taxesrequiredto havebeenwithheldand paidinconnectionwithpaymentstoemployees,independentcontractors,creditors,shareholdersor otherthirdparties,except forsuch Taxeswhichindividuallyor in theaggregatecould nothave aMaterialAdverseEffect ontheCompany. Nomaterialdeficienciesfor anyTaxes havebeenproposed,assertedorassessedagainstany TaxEntitythat arenotadequatelyreservedfor, noaudit ofany TaxReturn ofany TaxEntity isbeingconductedby a taxauthority,and noextensionof thestatute oflimitationson theassessmentof anytaxes hasbeengranted toany TaxEntity andiscurrentlyineffect. Forpurposesof thisAgreement,(a)"Tax"(and, withcorrelativemeaning,"Taxes")means anyfederal,state,local orforeignincome,grossreceipts,property,sales,use,license,excise,franchise,employment,payroll,premium,withholding,alternativeor addedminimum,ad valorem,transferor excisetax, orany othertax,custom,duty,governmentalfee orother likeassessmentor chargeof anykindwhatsoever,togetherwith anyinterestorpenalty,imposed byanyGovernmentalEntity;(b)"TaxReturn"means anyreturn,report orsimilarstatementrequiredto befiled withrespect toany Tax(includinganyattachedschedules),including,withoutlimitation,anyinformationreturn,claim forrefund,amendedreturn ordeclarationofestimatedTax; and(c)"TaxEntity"means theCompany,each oftheCompany'ssubsidiaries,and eachconsolidated,combined,unitary orsimilargroup ofwhich theCompany orany of itssubsidiariesis now, orwithin theprecedingeight (8)years hasbeen, amember.

         (ii) NoTax Entityhasexecutedanyclosingagreementpursuantto Section7121 ofthe Codeor anypredecessorprovisionsthereof,or anysimilarprovisionofforeign,state orlocal law,or has anyrulingrequestpendingwith anytaxauthority. There areno taxcertiorariproceedingscurrentlypending,taxabatementscurrentlyin effectorproposedmateriallyincreasedtaxassessmentsof whichany TaxEntity hasbeennotifiedor hasknowledgein thecontext ofsuch TaxEntity'srealestateassets. No assetsof any TaxEntityconstitutestax-exemptfinancedpropertyortax-exemptusepropertywithin themeaning ofSection168 of theCode, andno assetsof any TaxEntity aresubject toa lease,safe-harborlease, orotherarrangementas aresult ofwhich anyTax Entityis nottreated asthe ownerforfederalincome taxpurposes. No TaxEntity hasfiled aconsentpursuantto Section341(f) ofthe Codeor agreedto haveSection341(f)(2)of theCode applyto anydispositionof a"subsection(f)asset"(as suchterm isdefined inSection341(f)(4)of theCode). No TaxEntity (i)isrequiredor hasagreed tomake anyadjustmentspursuantto Section481(a) ofthe Codeor anysimilarprovisionofforeign,state orlocal lawby reasonof achange inaccountingmethodinitiatedby it orany otherrelevantparty,(ii) hasknowledgethat anytaxauthorityhasproposedany suchadjustmentor changeinaccountingmethod,and/or(iii) hasanapplicationpendingwith anytaxauthorityrequestingpermissionfor anychanges inaccountingmethodsthatrelate tothebusinessor assetsof any TaxEntity. No TaxEntity isa party toanycontract,agreement,plan orarrangementcoveringanyperiodsthat,individuallyorcollectively,could giverise toany amountnot beingdeductibleby reasonof Section280G oftheCode. TheCompanyand eachof itssubsidiariesare not,have notbeenwithin theprecedingeight (8)years, ownnointerestin, andhave neverowned aninterestin,"Scorporations"within themeaning ofSection1361(a)(1)of theCode,"qualifiedsubchapterSsubsidiaries"within themeaning ofSection1361(b)(3)(B)of theCode,"personalholdingcompanies"within themeaning ofSection542 of theCode,"controlledforeigncorporations"within themeaning ofSection957 of theCode,"foreignpersonalholdingcompanies"within themeaning ofSection552 of theCode,"passiveforeigninvestmentcompanies"within themeaning ofSection1296 ofthe Code,"foreigninvestmentcompanies"within themeaning ofSection1246 ofthe Code,an "FSC"within themeaning ofSection922 of theCode, or a"DISC"or"FormerDISC"within themeaning ofSection992 of theCode. No TaxEntity hasmade, beenparty to,or beenthesubjectof, anyelectionsunderSections108, 168,338, 441,472, 1017,1033 or4977 oftheCode. No TaxEntity hasenteredinto anytransferpricingagreementswith anytaxauthority. No assetsof any TaxEntity areheld in anarrangementfor whichpartnershipTaxReturnsare beingfiled orarerequiredto befiled. No TaxEntity hasavaileditself ofany Taxamnesty orsimilarrelief inany taxingjurisdiction. None ofParent orany of itssubsidiarieswill berequiredtowithholdtax underSection1445 ofthe Codewithrespect toanyconsiderationpaidpursuantto thisAgreement.

(l)  EmployeeBenefitPlans. Allemployeebenefitplans,compensationarrangementsand otherbenefitarrangementscoveringemployeesof theCompany orany of itssubsidiaries(the"CompanyBenefitPlans")and allemployeeagreementsprovidingcompensation,severanceor otherbenefitsto anyemployeeor formeremployeeof theCompany orany of itssubsidiarieswhich arenotdisclosedin theCompanySECDocumentsand whichexceed$50,000per annumare setforth intheCompanyDisclosureLetter. True andcompletecopies oftheCompanyBenefitPlans havebeen madeavailabletoParent. To theextentapplicable,theCompanyBenefitPlanscomply inallmaterialrespectswith therequirementsof theEmployeeRetirementIncomeSecurityAct of1974, asamended("ERISA"),and theCode, andanyCompanyBenefitPlanintendedto bequalifiedunderSection401(a) ofthe Codehasreceived adeterminationletterand, totheknowledgeof theCompany,continuesto satisfytherequirementsfor suchqualification. NeithertheCompanynor any ofitssubsidiariesnor anyERISAAffiliateof theCompanymaintains,contributesto or isobligatedtocontributeto or hasmaintainedorcontributedor beenobligatedtocontributeto in thepast six(6) yearsto anybenefitplan whichis coveredby TitleIV ofERISA orSection412 of theCode or a"multi-employerplan"within themeaning ofSection3(37) ofERISA orSection4001(a)(3)of theCode. No CompanyBenefitPlan northeCompanynor anysubsidiaryhasincurredanyliabilityor penaltyunderSection4975 ofthe Codeor Section502(i) ofERISA or,to theknowledgeof theCompany,engaged inanytransactionthat wouldreasonablybeexpectedto resultin anysuchliabilityorpenalty. EachCompanyBenefitPlan hasbeenmaintainedandadministeredincompliancewith itsterms andwith ERISAand theCode tothe extentapplicablethereto,except forsuchnon-compliancewhichindividuallyor in theaggregatewould nothave aMaterialAdverseEffect ontheCompany. There isno pendingor, to theknowledgeof theCompany,anticipated,Litigationagainst orotherwiseinvolvingany of theCompanyBenefitPlans andnoLitigation(excludingclaims forbenefitsincurredin theordinarycourse ofCompanyBenefitPlanactivities)has beenbroughtagainst orwithrespect toany suchCompanyBenefitPlan. Allcontributionsrequiredto be madeas of thedatehereof totheCompanyBenefitPlans havebeen madeorprovidedfor. Except asdescribedin theCompanySECDocumentsor asrequiredby law,neithertheCompanynor any ofitssubsidiariesmaintainsorcontributesto anyplan orarrangementwhichprovidesor has anyliabilityto providelifeinsuranceor medicalor otheremployeewelfarebenefitsto anyemployeeor formeremployeeupon hisretirementorterminationofemployment,andneithertheCompanynor any ofitssubsidiarieshas everrepresented,promisedorcontracted(whetherin oral orwrittenform) toanyemployeeor formeremployeethat suchbenefitswould beprovided. No CompanyBenefitPlan isunderinvestigationor auditby eitherthe UnitedStatesDepartmentof Laboror theInternalRevenueService. Except asprovidedfor inthisAgreement,theexecutionof, andperformanceof thetransactionscontemplatedin, thisAgreementwill not(eitheralone orupon theoccurrenceof anyadditionalorsubsequentevents)constitutean eventunder anybenefitplan,policy,arrangementoragreementor anytrust orloan thatwill ormay resultin anypayment(whetherofseverancepay orotherwise),acceleration,forgivenessofindebtedness,vesting,distribution,increaseinbenefitsorobligationto fundbenefitswithrespect toanyemployee. No paymentor benefitwhich willor may bemade bytheCompany,any of itssubsidiariesor Parentwithrespect toanyemployeeof theCompany orany of itssubsidiarieswillconstitutean"excessparachutepayment"within themeaning ofSection280G(b)(1)of theCode.

Forpurposesof thisAgreement"ERISAAffiliate"means anybusinessor entitywhich is amember ofthe same"controlledgroup ofcorporations,"under"commoncontrol"or an"affiliatedservicegroup"with theCompanywithin themeaning ofSections414(b),(c) or (m)of theCode, asrequiredto beaggregatedwith theCompanyunderSection414(o) ofthe Code,or isunder"commoncontrol"with theCompany,within themeaning ofSection4001(a)(14)of ERISA,or anyregulationspromulgatedorproposedunder anyof theforegoingSections.

(m)  RestaurantsandProperties. (i) TheCompanyoperates116restaurantsat thelocationslisted intheCompanyDisclosureLetter. 

       (ii) TheCompanyDisclosureLetterlists byaddressand lessorall leasesandsubleases(includingthosedenominatedas"licenses")of realpropertyenteredinto bytheCompany orany of itssubsidiariesas lessee(the"LeasedRealProperty"). TheCompanyDisclosureLetterlists byaddressall realpropertyowned bytheCompany orany of itssubsidiaries(the"OwnedRealProperty").         (iii) TheCompanyDisclosureLetterlists byaddressand lesseeall leasesandsubleases(includingthosedenominatedas"licenses")of realpropertyenteredinto bytheCompany orany of itssubsidiariesas lessorwith afranchiseeas lessee(the"FranchisedLeasedProperty"). TheCompanyDisclosureLetterlists byaddressand lesseeall leasesandsubleases(includingthosedenominatedas"licenses")of realpropertyenteredinto bytheCompany orany of itssubsidiariesas lessorwith anon-franchiseeas lessee(the"SurplusLeasedProperty"). TheCompanyDisclosureLetterlists byaddressand lessor(ifapplicable)allpropertyleased (or"licensed")or ownedby theCompany orany of itssubsidiarieswhere itneitheroperates arestaurantnor leasesthepropertyto a thirdparty (the"VacantSurplusProperty").        (iv) Noneof theCompany oritssubsidiariesis indefault inanymaterialrespectunder anyleasesunderwhich itis thetenant ofreal orpersonalproperty. All leaseswithrespect tothe LeasedRealProperty,theFranchisedLeasedProperty,theSurplusLeasedPropertyand theVacantSurplusPropertyare validandbindingobligationsof theCompany orone of itssubsidiaries,as thecase maybe, andareenforceableby andagainsttheCompany orone of itssubsidiaries,as thecase maybe, inaccordancewith theirterms. To theknowledgeof theCompany,all suchleases arevalid,bindingandenforceableagainstthe otherpartiesthereto inaccordancewith theirterms andare infull forceand noparty tosuchleases hasgiven anynotice ofdefaultwithrespecttheretowhichremainsoutstanding.        (v) TheCompanyhasprovidedor madeavailableto Parenttrue andcorrectcopies ofall leasesandsubleasesdescribedin thissection,togetherwith anyamendments,modificationsorsupplementsthereto. TheCompanyhasprovidedor madeavailableto Parenttrue andcorrectcopies ofall titleinsurancepoliciesowned bytheCompanyrelatingto OwnedRealPropertyandleaseholdsowned bytheCompany orany of itssubsidiaries. Thepremiumsfor suchtitleinsurancepolicieshave beenpaid infull.        (vi) Theconstruction,use andoperationof theLeased andOwned RealPropertyconformsto allapplicablebuilding,zoning,fire andlifesafety,subdivision,and otherlaws,ordinances,regulations,codes,permits,licensesand to anyand allcertificates,restrictionsandconditionsaffectingtitle,except forsuchnon-conformanceas couldnot have amaterialadverseeffect ontheCompany's'or itssubsidiaries'ownership,use oroperationof therelevantproperty.        (vii) TheCompanyhas notreceivedanywrittennotice ororder byanyGovernmentalEntitywithrespect tothe Leasedor OwnedRealPropertywhich (i)relates totheviolationofbuilding,safety,fire orotherordinancesorregulations,(ii)claims anydefect ordeficiency,or (iii)requeststheperformanceof anyrepairs oralterations.        (viii)There isno pendingor, to theknowledgeof theCompany,threatenedorcontemplated,condemnation,expropriation,eminentdomain orsimilarproceedingaffectingall or anyportion ofany of theLeased orOwned RealProperty.        (ix) Thereare nospecialassessmentsfor publicimprovementsorotherwisenowaffectingthe LeasedRealPropertyor OwnedRealPropertynor doestheCompanyknow of (i)any suchpending orthreatenedassessmentaffectingthe LeasedRealPropertyor OwnedRealPropertyor (ii)anycontemplatedimprovementsaffectingthe LeasedRealPropertyor OwnedRealPropertythat mayresult inspecialassessmentsaffectingthe LeasedRealPropertyor OwnedRealProperty.

(n)  Properties. TheCompany oritssubsidiarieshas goodtitle and,in thecase ofOwned RealProperty,good andmarketablefee simpletitle, toitspropertiesandassets,includingthepropertiesand assetsreflectedin theBalanceSheet oracquiredafter July2, 2000(otherthanassetsdisposedof sinceJuly 2,2000 intheordinarycourse ofbusinessconsistentwith pastpracticeand ofsubstantiallythe samecharacter,type andmagnitudeas assetsdisposedof in thepast), ineach casefree andclear ofall titledefects,liens,claims,charges,encumbrancesandrestrictions,except for(i) liens,encumbrancesorrestrictionswhichsecureindebtednesswhich isproperlyreflectedin theBalanceSheet;(ii) liensfor Taxesaccruedbut notyetpayable;(iii)liensarising asa matterof law intheordinarycourse ofbusinesswithrespect toobligationsincurredafter July2, 2000,providedthat theobligationssecured bysuch liensare notdelinquent;and (iv)such titledefects,liens,encumbrancesandrestrictions,if any, asindividuallyor in theaggregatewould nothave aMaterialAdverseEffect ontheCompany. None oftheCompany'sor itssubsidiaries'propertiesor assetsis ownedjointlywith anyotherperson,nor doesany otherpersonhave anyoption toacquirethesame. TheCompanyand eachof itssubsidiarieseitherown, orhave validleaseholdinterestsin, andare inpossessionof, allpropertiesand assetsused bythem intheconduct oftheirbusinessand eachsuch leaseis validwithoutmaterialdefaultthereunderby thelessee or,to theCompany'sknowledge,by thelessor. NeithertheCompanynor any ofitssubsidiarieshas anylegalobligation,absoluteorcontingent,to anyotherperson tosell orotherwisedispose ofanyinterestin any oftherestaurantsowned oroperatedby theCompany orany of itssubsidiaries,or to sellor disposeof any oftheirotherrespectiveassetswith anindividualvalue of$25,000 oranaggregatevalue inexcess of$100,000.

(o)  LaborControversies. NeithertheCompanynor any ofitssubsidiariesis a partyto, orbound by,anycollectivebargainingagreementor othercontractsorunderstandingwith alaborunion orlabororganization. Except forsuchmatterswhich,individuallyor in theaggregate,would nothave aMaterialAdverseEffect ontheCompany,there isno (i)unfairlaborpractice,labordispute(otherthanroutineindividualgrievancesorcomplaints)or laborarbitrationproceedingpendingor, to theknowledgeof theCompany,threatened,againsttheCompany orany of itssubsidiariesrelatingto theirbusiness,(ii) totheknowledgeof theCompany,activityorproceedingby a laborunion orrepresentativethereof toorganizeanyemployeesof theCompany orany of itssubsidiaries,or (iii)lockouts,strikes,slowdowns,workstoppagesor, to theknowledgeof theCompany,threatsthereof byor withrespect tosuchemployees.

(p)  IntellectualProperty. TheCompanyDisclosureLettersets fortha true andcompletelist anddescriptionof (a) allUnitedStates andforeignpatents,trademarks,tradenames,servicemarks,copyrightsandapplicationsthereforowned bytheCompanyand itssubsidiaries(theforegoing,togetherwith theCompany'stradedress andtradesecrets(includingsecretrecipesandformulae),the"IntellectualPropertyRights")and (b)all UnitedStates andforeignpatents,trademarks,tradenames,servicemarks,copyrightsandapplicationsthereforlicensedto theCompany orany of itssubsidiaries(theforegoing,togetherwith anyrights intradedress ortradesecrets(includingsecretrecipesandformulae)licensedto theCompany orany of itssubsidiaries,the"LicensedRights").  

         (1) (i)TheIntellectualPropertyRights arefree andclear ofany liens,claims orencumbrancesand arenotsubject toanylicense(royaltybearing orroyalty-free)or anyotherarrangementrequiringanypayment toany personnor theobligationto grantrights toany personinexchange,except forFranchiseAgreementsdisclosedpursuantto theCompanyDisclosureLetter;(ii) theLicensedRights arefree andclear ofany liens,claims,encumbrances,royaltiesor otherobligationsother thansuchterms,conditionsandrestrictionsas arecontainedin thedocumentgrantingsuchlicense;(iii) theIntellectualPropertyRights andtheLicensedRights areall thoserightsnecessaryto theconduct ofthebusinessof each oftheCompany,itssubsidiariesand theCompany'sand itssubsidiaries'franchiseesaspresentlyconductedor ascurrentlycontemplatedto beconducted;and (iv)neithertheIntellectualPropertyRights northeLicensedRights northeexploitationby theCompanyand itssubsidiariesthereofshallinfringeupon anyright ofany thirdparty,including,withoutlimitation,any rightsunder thelawsrespectingpatents,trademarks,copyrightsor tradesecrets.

         (2) Thevalidityof theIntellectualPropertyRights andtitlethereto,and thevalidityof theLicensedRights: (i)have notbeenquestionedin anypriorLitigationagainst orinvolvingtheCompany orany of itssubsidiaries;(ii) arenot beingquestionedin anypendingLitigationagainst orinvolvingtheCompany orany of itssubsidiaries;and (iii)to theknowledgeof theCompany,are notthesubject(s)of anythreatenedorproposedLitigation.

         (3) Thebusinessof each oftheCompany,itssubsidiariesand, totheknowledgeof theCompany,theCompany'sand itssubsidiaries'franchisees,aspresentlyconducted,does notconflictwith andhas notbeenalleged toconflictwith anypatents,trademarks,tradenames,servicemarks,copyrightsor otherintellectualpropertyrights ofothers.  

          (4) Theconsummationof thetransactionscontemplatedherebywill notresult inthe lossorimpairmentof any oftheIntellectualPropertyRights orany of theLicensedRights.

          (5) TheCompany oritssubsidiarieshave filedallcertificates,affidavitsand otherdocuments,and takenall otheractionsnecessaryto retaintheirrespectivetitle toall theirrespectivetrademarks,servicemarks,patentsand otherIntellectualPropertyRights andLicensedRights. 

          (6) Sinceitsrespectiveorganization,each oftheCompanyand itssubsidiarieshas takenreasonablesecuritymeasuresto protectthesecrecy,confidentialityand valueof itsrespectivetradesecrets,includingknow-how,negativeknow-how,formulas,patterns,compilations,programs,devices,methods,techniques,processes,inventions,designs,computerprograms,andtechnicaldata andallinformationthatderivesindependenteconomicvalue,actual orpotential,from notbeinggenerallyknown orknown bycompetitors.TheCompanydoes notknow ofany use byothers ofany of theIntellectualPropertyRights ortheLicensedRightsmaterialto thebusinessof theCompany,itssubsidiariesor theCompany'sand itssubsidiaries'franchisees,each aspresentlyconducted.

(q)  Change ofControlAgreements. Except asset forthin theCompanySECDocumentsfiledprior tothe datehereof,neithertheexecutionanddeliveryof thisAgreementnor theconsummationof theMerger orthe othertransactionscontemplatedby thisAgreement,will(eitheralone orinconjunctionwith anyotherevent)result in,cause theacceleratedvesting ordeliveryof (exceptascontemplatedby Section2.3), orincreasethe amountor valueof, anypayment orbenefit toanydirector,officer oremployeeof theCompany,and,withoutlimitingthegeneralityof theforegoing,no amountpaid orpayable bytheCompany inconnectionwith theMerger orthe othertransactionscontemplatedby thisAgreement(eithersolely asa resultthereof oras aresult ofsuchtransactionsinconjunctionwith anyotherevent)will be an"excessparachutepayment"within themeaning ofSection280G ofthe Code.

(r)  ContractsandCommitments. Allmaterialcontractsof theCompany oritssubsidiarieshave beenincludedin theCompanySECDocuments,except forthosecontractsnotrequiredto befiledpursuantto therules andregulationsof theSEC. Except aslisted intheCompanyDisclosureLetter,neithertheCompanynor any ofitssubsidiariesis a partyto orbound byany lease,contractorcommitment,oral orwritten,formal orinformal,of thefollowingtypes(each suchcontract,togetherwith thematerialcontractsrequiredto befiled intheCompanySECdocuments,the"MaterialContracts"):         (i)mortgages,indentures,securityagreementsor otheragreementsandinstrumentsrelatingto theborrowingof money,theextensionof creditor thegrantingof liensorencumbrances,or anyguarantyof any oftheforegoing;         (ii)employmentandconsultingagreementsprovidingforpayment inexcess of$25,000per annum;         (iii)union orothercollectivebargainingagreements;         (iv)powers ofattorney;         (v) salesagency,broker,manufacturer'srepresentativeanddistributorshipagreementsor otherdistributionorcommissionarrangements;         (vi)licensesof patent,trademarkand otherintellectualpropertyrights(exceptforFranchiseAgreementsandLicensedIntellectualPropertyidentifiedelsewhereherein);         (vii)agreements,orders orcommitmentsfor thepurchaseofservices,rawmaterials,suppliesorfinishedproductsfrom anyonesupplierfor anamount inexcess of$100,000;         (viii)contractsor optionsrelatingto thesale ofany assetwith abook valuein excessof$100,000,other thansales ofinventoryin theordinarycourse ofbusiness;         (ix)bonus,profit-sharing,compensation,stockoption,pension,retirement,deferredcompensation,accruedvacationpay, groupinsurance,welfareagreementsor otherplans,agreements,trusts orarrangementsfor thebenefit ofemployees,officersordirectorsof theCompany orany of itssubsidiaries;         (x)agreementsorcommitmentsforcapitalexpendituresin excessof$100,000;         (xi)partnershipor jointventureagreements;         (xii)agreementsrequiringtheconsent ofany partythereto totheconsummationof thetransactionscontemplatedhereby;         (xiii)agreements,contractsorcommitmentsfor anycharitableorpoliticalcontribution,except astocharitablecontributionsnot inexcess of$1000 inthe caseof anyindividualcommitmentor $5000in theaggregate;         (xiv)agreements,contracts,commitmentsorarrangementsrelatingto anyliquorlicense ofanyrestaurantoperatedby theCompany orany of itssubsidiaries;and         (xv) otheragreements,contractsandcommitmentswhich arematerialto thebusinessof theCompany oritssubsidiariesor whichinvolvepaymentsorreceiptsof morethan$100,000in anysingleyear, orwhich wereenteredinto otherthan intheordinaryand usualcourse ofbusinessconsistentwith pastpracticeand ofsubstantiallythe samecharacter,type andmagnitudeasincurredin thepast.

         AllMaterialContractsare validandbindingobligationsof theCompanyand/or itssubsidiaries(as thecase maybe) andareenforceableagainsttheCompanyand/or itssubsidiaries,as thecase maybe, inaccordancewith theirterms. TheCompanyhas madeavailabletrue,correctandcompletecopies ofallMaterialContractstoParent. AllMaterialContractshave notbeenmodifiedor amendedexcept asdisclosedin theCompanyDisclosureLetter andthere areno othercontractsandcommitmentswhich werematerialto theCompany oritssubsidiariesand theirbusinesseswhich havelapsed inthe lasttwelvemonths andwhich havenot beenreplacedby acomparablecontract. TheCompanyand eachof itssubsidiarieshasperformedallobligationsrequiredto beperformedby them,have beenpaid allamountsrequiredto be paidby themand arenot indefault inanymaterialrespectunder anyMaterialContractand noevent hasoccurredthereunderin eachcasewhich,with thelapse oftime orthe givingof noticeor both,wouldconstitutesuch adefault.To theknowledgeof theCompany: (i) allMaterialContractsare valid,bindingandenforceableagainstthe otherpartiesthereto inaccordancewith theirterms, andare infull forceandeffect;(ii) allparties toMaterialContracts(otherthan theCompany)havecompliedwith theprovisionsthereofand haveperformedallobligationsrequiredto beperformedby each ofthem todate;(iii) nosuch partyis indefaultunder anyof thetermsthereof,and (iv)no eventhasoccurredthat withthepassage oftime orthe givingof noticeor bothwouldconstitutea defaultby anyparty(otherthan theCompany)under anyprovisionthereofexcept, ineach case,for suchnon-complianceor defaultwhich willnot have aMaterialAdverseEffect ontheCompany.

(s)  AffiliatedTransactions. AlltransactionsbetweentheCompany orany of itssubsidiaries,on the onehand, andanyofficer,directoror holderof inexcess offivepercent(5%) oftheCompanyCommonStock, oranyaffiliateof any ofthem, havebeendisclosedin theCompanySECDocumentsor theCompanyDisclosureLetter. Except asdisclosedin theCompanySECDocuments,noofficer,directoror holderof inexcess offivepercent(5%) ofCompanyCommonStock hasanymaterialinterestin (i) anyassets,including,withoutlimitation,anyintellectualproperty,used orheld foruse in thebusinessof theCompanyand itssubsidiariesor (ii)anycreditor,supplierorfranchiseeof theCompany orany or itssubsidiaries.

(t)  Insurance. TheCompanyand eachof itssubsidiariesareadequatelyinsured insuchamountsandagainstsuch risksas areusuallyinsuredagainst bypersonsoperatingin thebusinessesin whichtheCompanyand itssubsidiariesoperate,and allpoliciesrelatingto suchinsuranceare infull forceandeffect. Allproductsliabilityandgeneralliabilitypoliciesmaintainedby or forthebenefit oftheCompany oritssubsidiarieshave been"occurrence"policiesand not"claimsmade"policies.

(u)  Records. Therespectivecorporaterecordbooks oforrelatingto theCompanyand eachof itsSignificantSubsidiariesmadeavailableto Parentby theCompanycontainaccurateandsubstantiallycompleterecords of(x) allmaterialcorporateactions oftherespectivestockholdersanddirectors(andcommitteesthereof)of theCompanyand itssubsidiariesand (y)thecertificateofincorporation,by-lawsand/orothergoverninginstrumentsof theCompanyand itsSignificantSubsidiaries. (ii) Thebooks andrecords oftheCompanyand itssubsidiariesaresubstantiallycompleteandcorrect.

(v)  Section203 of theDGCL. The BoardofDirectorsof theCompanyhasapprovedthe Mergerand thisAgreement,and suchapprovalissufficientto renderinapplicableto theMerger andthisAgreement,and thetransactionscontemplatedby thisAgreement,theprovisionsof Section203 of theDGCL. No otherstatetakeoverstatute orsimilarstatute orregulationapplies orpurportsto applyto theMerger,thisAgreementor thetransactionscontemplatedby thisAgreement. Noprovisionof thecertificateofincorporation,by-lawsand/orothergoverninginstrumentsof theCompany orany of itssubsidiarieswouldrestrictor impairtheability ofParent tovote, orotherwisetoexercisethe rightsof astockholderwithrespectto, sharesof theCompanyand any ofitssubsidiariesthat maybeacquiredorcontrolledby Parent.

(w)  Opinion ofFinancialAdvisor. TheCompanyhasreceivedtheopinion ofDonaldson,Lufkin&Jenrette(the"IndependentAdvisor")datedOctober 4,2000 tothe effectthat, asof suchdate, theconsiderationto bereceivedby thestockholdersof theCompanypursuantto thisAgreementis fair tosuchstockholdersfrom afinancialpoint ofview, asignedcopy ofwhichopinionhas beendeliveredto Parent.

(x)  FranchiseMatters.. TheCompanyDisclosureLettercontains alist oftheagreementswherebytheCompany oritssubsidiarieshasgranteddevelopment,franchiseor licenserights tooperateTacoCabanarestaurants,except foragreementswhich haveexpired orbeenterminated(the"FranchiseAgreements"). TheFranchiseAgreementsarebindingandenforceableagainstthe otherpartiesthereto inaccordancewith theirterms, andare infull forceandeffect. TheCompanyand eachof itssubsidiariesis incompliancewith allapplicablelawsgoverningtheofferingoffranchises. All of theFranchiseAgreementsare validandbindingobligationsof theCompany oritssubsidiaries,as thecase maybe, andareenforceableagainsttheCompany oritssubsidiaries,as thecase maybe, inaccordancewith theirterms. None oftheFranchiseAgreementshave beenamended ormodifiedexcept asdisclosedin theCompanyDisclosureLetter. TheCompany oritssubsidiaries,as thecase maybe, hasperformedallobligationsrequiredto beperformedby itunder theFranchiseAgreements,and theCompany isnot indefault inanymaterialrespectunder anyFranchiseAgreementand noevent hasoccurredthereunderin eachcasewhich,with thelapse oftime orthe givingof noticeor both,wouldconstitutesuchdefault. Allparties totheFranchiseAgreements(otherthan theCompany oritssubsidiaries,as thecase maybe) havecompliedin allmaterialrespectswith theprovisionsthereofand haveperformedin allmaterialrespectsallobligationsrequiredto beperformedby each ofthem todate; and,except asdisclosedin theCompanyDisclosureLetter, nosuch partyis indefault orhas everbeen indefaultunder anyof thematerialtermsthereofand noevent hasoccurredthat withthepassage oftime orthe givingof noticeor bothwouldconstitutea defaultby anysuch partyunder anymaterialprovisionthereof. Except asset forthin theCompanyDisclosureLetter,there areno claims,actions,suits,arbitrations,controversies,investigationsorproceedingspending,or to theknowledgeof theCompany,threatenedorcontemplated,against oraffectingtheCompany orany of itssubsidiariesinconnectionwith theFranchiseAgreements.

(y)  Disclosure. Norepresentation,warrantyorcovenantmade bytheCompany inthisAgreement,anyExhibitsor theCompanyDisclosureLettercontainsan untruestatementof amaterialfact oromits tostate amaterialfactrequiredto bestatedherein ortherein ornecessaryto makethestatementscontainedherein ortherein,in lightof thecircumstancesunderwhich theywere made,notmisleading.

(z)  CompanyRightsAgreement. TheCompanyhasdeliveredto Parenta true andcorrectcopy ofthe RightsAgreementas ineffect asof theexecutionanddeliveryof thisAgreement. The boardofdirectorsof theCompanyhasamendedthe RightsAgreementinaccordancewith itsterms torender itinapplicableto thetransactionscontemplatedby thisAgreement. NeitherParent norSub shallbe deemedto be an"AcquiringPerson"(asdefined inthe RightsAgreement)and the"DistributionDate"(asdefined inthe RightsAgreement)shall notbe deemedto occurand theCompanyRightswill notseparatefrom theCompanyCommonStock as aresult oftheCompanyenteringinto thisAgreementorconsummatingthe Mergerand/or theothertransactionscontemplatedby thisAgreement. NeitherParent,theSurvivingCorporationnor anyof Parent'ssubsidiarieswill haveanyobligationsunder theCompanyRights orthe RightsAgreementand theholders oftheCompanyRightswill haveno rightsunder theCompanyRights orthe RightsAgreementas aresult oftheCompanyenteringinto thisAgreementor theconsummationof theMergerand/or theothertransactionscontemplatedby thisAgreement.

3.2  RepresentationsandWarrantiesof ParentandSub Parent andSubjointlyandseverallyrepresentandwarrant totheCompany asfollows:

(a)  Organization,StandingandPower. Each ofParent andSub is acorporation,dulyorganized,validlyexistingand ingoodstandingunder thelaws ofthejurisdictionof itsincorporation,has allrequisitepower andauthorityand allnecessarygovernmentalapprovalsto own,lease andoperateitspropertiesand tocarry onitsbusinessas it isnow beingconducted,and isdulyqualifiedand ingoodstandingto dobusinessin eachjurisdictionin whichthe natureof itsbusinessor theownershipor leasingof itspropertiesmakes suchqualificationnecessary,other thanin suchjurisdictionswhere thefailure soto qualifywould not,individuallyor in theaggregate,have aMaterialAdverseEffect onParent.

(b)  Authority. (i) Parent andSub haveallrequisitecorporatepower andauthorityto enterinto thisAgreementand toconsummatethetransactionscontemplatedhereby. Theexecutionanddeliveryof thisAgreementand theconsummationof thetransactionscontemplatedherebyhave beendulyauthorizedby allnecessarycorporateaction onthe partof Parentor Sub, asthe casemaybe. ThisAgreementhas beendulyexecutedanddeliveredby Parentand Subandconstitutesa validandbindingobligationof Parentor Sub, asthe casemay be,enforceableinaccordancewith itsterms,except asaffectedbybankruptcy,insolvency,fraudulentconveyance,reorganization,moratoriumand othersimilarlawsrelatingto oraffectingcreditors'rightsgenerallyandgeneralequitableprinciples(whetherconsideredin aproceedingin equityor atlaw).

           (ii)Subject tocompliancewith theapplicablerequirementsof theExchangeAct, theHSR Actand thefiling oftheCertificateof Merger,theexecutionanddeliveryof thisAgreementand theconsummationof thetransactionscontemplatedherebywill notresult inanyViolationpursuantto (x) anyprovisionof thecertificateofincorporationor by-lawsof Parent,thecertificateofincorporationor by-lawsof Sub, orthegoverninginstrumentsof anyothersubsidiaryof Parentor (y)except asdisclosedin theletterdated thedatehereof anddeliveredby Parentto theCompanysimultaneouslywith theexecutionanddeliveryof thisAgreement(the"ParentDisclosureLetter")andsubject toobtainingor makingtheconsents,approvals,orders,authorizations,registrations,declarationsandfilingsreferredto inparagraph(iii)below orin theParentDisclosureLetter,any loanor creditagreement,note,mortgage,indenture,lease,benefitplan orotheragreement,obligation,instrument,permit,concession,franchise,license,judgment,order,decree,statute,law,ordinance,rule orregulationapplicableto Parent,Sub or anyothersubsidiaryof Parentor theirrespectivepropertiesor assetsexceptViolationsunderclause (y)abovewhich donot orwould nothave aMaterialAdverseEffect onParent.

           (iii) Noconsent,approval,order orauthorizationof, orregistration,declarationor filingwith, anyGovernmentalEntity isrequiredby or withrespect toParent,Sub or anyothersubsidiaryof Parentinconnectionwith theexecutionanddeliveryof thisAgreementby Parentand Sub,theconsummationby Parentor Sub, asthe casemay be, ofthetransactionscontemplatedhereby,andcomplianceby Parentand Subwith anyof theprovisionshereof,thefailure toobtainwhichwould havea MaterialAdverseEffect onParent,except for(A) suchfilingsunder theExchangeAct as mayberequiredinconnectionwith thisAgreementand thetransactionscontemplatedhereby,(B) thefiling oftheCertificateof Mergerascontemplatedby Section1.1 andappropriatedocumentswith therelevantauthoritiesof statesin whichParent andSub arequalifiedto dobusiness,and (C)the HSRFilings.

(c)  InformationSupplied. None oftheinformationconcerningParent orSubprovidedby or onbehalf ofParent orSubspecificallyforinclusionorincorporationbyreferencein theProxyStatementwill, atthe dateof mailingtostockholdersand at thetimes ofthemeetingsofstockholdersto be heldinconnectionwith theMerger,containany untruestatementof amaterialfact oromit tostate anymaterialfactrequiredto bestatedtherein ornecessaryin orderto makethestatementstherein,in lightof thecircumstancesunderwhich theywere made,notmisleading.

(d)  InterimOperationsofSub Sub wasincorporatedon October5, 2000,hasengaged inno otherbusinessactivitiesand hasconducteditsoperationsonly ascontemplatedhereby.

(e)  FinancialCapability. Parent haspreviouslydeliveredto theCompany atrue andcompletecopy of acommitmentletter,datedSeptember29, 2000(the"CommitmentLetter"),addressedto Parentfrom ChaseBank ofTexas, N.A.,Parent'sdebtfinancingsource,for theaggregateamount ofup to $250million ofbankfinancing(the"Financing")for, amongotherthings,the fundsnecessaryto fundthe Merger(the"OfferConsideration"). Parent hasno reasonto believethat theconditionsto theFinancingwill notbesatisfiedorwaived. TheFinancingandParent'savailablefunds willbesufficientto fundthe OfferConsideration.

ARTICLEIV

COVENANTSRELATINGTO CONDUCTOFBUSINESS 

4.1  CovenantsofCompany During theperiodfrom thedate ofthisAgreementandcontinuinguntil theEffectiveTime, theCompanyagrees asto itselfand itssubsidiariesthat(except asexpresslycontemplatedorpermittedby thisAgreementor to theextentthatParentshallotherwiseconsent inwriting):

(a)  OrdinaryCourse. TheCompanyand itssubsidiariesshallcarry ontheirrespectivebusinessesin theusual,regularandordinarycourse andusecommerciallyreasonableefforts topreserveintacttheirpresentbusinessorganizations,maintaintheirrights andfranchisesandpreservetheirrelationshipswithemployees,officers,customers,suppliersand othershavingbusinessdealingswiththem. TheCompanyand itssubsidiariesshallmaintainin forceallinsurancepoliciesandConsentswithrespect totheCompanyand itssubsidiariesand shallmaintainall assetsandpropertiesof theCompanyand itssubsidiariesincustomaryrepair,order andcondition,reasonablewear andtearexcepted. TheCompanyshall not,nor shallit permitany of itssubsidiariesto, (i)enter intoany newmaterialline ofbusinessor (ii)incur orcommit toanysignificantcapitalexpendituresor anyobligationsorliabilitiesother thancapitalexpendituresandobligationsorliabilitiesincurredorcommittedto asdisclosedin theCompanyDisclosureLetter. TheCompanyand itssubsidiarieswillcomplywith allapplicablelaws andregulationswhereveritsbusinessisconducted,includingwithoutlimitationthe timelyfiling ofallreports,forms orotherdocumentswith theSECrequiredpursuantto theSecuritiesAct or theExchangeAct,exceptwhere suchnoncompliancewould nothave aMaterialAdverseEffect ontheCompany. TheCompanyand itssubsidiariesshall notenter intoany newFranchiseAgreements. TheCompanyand itssubsidiariesshall notamend ormodify anyexistingFranchiseAgreementsor thenature ofitsrelationshipwith theirfranchisees,or agreeto doeither oftheforegoing.

(b)  Dividends;Changes inStock. TheCompanyshall not,nor shallit permitany of itssubsidiariesto, norshall theCompanyproposeto, (i)declare orpay anydividendson or makeotherdistributionsin respectof any ofitscapitalstock,other thancashdividendspayable byasubsidiaryof theCompany totheCompany orone of itssubsidiaries,(ii)split,combine orreclassifyany of itscapitalstock orissue orauthorizeor proposetheissuanceof anyothersecuritiesin respectof, inlieu of orinsubstitutionfor sharesof itscapitalstock, or(iii)repurchase,redeem orotherwiseacquire,or permitanysubsidiarytopurchaseorotherwiseacquireany sharesof itscapitalstock oranysecuritiesconvertibleinto orexercisablefor anyshares ofitscapitalstock.

(c)  IssuanceofSecurities. TheCompanyshall not,nor shallit permitany of itssubsidiariesto, issue,deliver orsell, orauthorizeor proposetheissuance,deliveryor saleof, anyshares ofitscapitalstock ofany class,any VotingDebt oranysecuritiesconvertibleinto orexercisablefor(includingany stockappreciationrights,phantomstockplans orstockequivalents),or anyrights,warrantsor optionstoacquire,any suchshares orVotingDebt, orenter intoanyagreementwithrespect toany of theforegoing,other thanissuancesof CompanyCommonStockpursuanttoexercisesof CompanyStockOptions orCompanyCommonStockawards todirectorslisted intheCompanyDisclosureLetter.

(d)  GoverningDocuments. TheCompanyshall notamend orpropose toamend, norshall itpermit anyof itssubsidiariesto amend,theirrespectivecertificatesofincorporation,by-laws orothergoverninginstruments.

(e)  NoSolicitations. TheCompanyshall not,nor shallit permitany of itssubsidiariesto,directlyorindirectly,throughanyofficer,director,employeeor agent,initiate,solicit orknowinglyencourage(includingby way offurnishinginformationorassistance),or takeany otheraction tofacilitateknowingly,anyinquiriesor themaking ofanyproposalthatconstitutes,or wouldreasonablybeexpectedto leadto, anyCompetingTransaction,or enterinto ormaintainorcontinuediscussionsornegotiatewith anyperson infurtheranceof suchinquiriesor toobtain aCompetingTransaction,or agreeto orendorseanyCompetingTransaction,orauthorizeor permitany of theofficers,directorsoremployeesof theCompany orany of itssubsidiariesor anyinvestmentbanker,financialadvisor,attorney,accountantor otherrepresentativeretainedby theCompany orany of itssubsidiariesto takeany suchaction. TheCompanyshallnotifyParent inwriting(aspromptlyaspracticable)if anywritten ororalrequestforinformationorproposalrelatingto aCompetingTransactionis madeand shallkeepParentpromptlyadvised ofall suchrequestsandproposals,and shallprovide acopy ofanywrittenproposalsorrequestsand asummary ofall oralproposalsorrequests. Nothingcontainedin thisSection4.1(e)shallprohibittheCompanyfrom (i)furnishinginformationto, orenteringintodiscussionsornegotiationswith, anypersonthat makesanunsolicitedwritten,bona fideproposalto acquireitpursuantto amerger,consolidation,shareexchange,businesscombination,tender orexchangeoffer orothersimilartransaction,if,(A) thefailure totake suchactionwould beinconsistentwith theBoard ofDirectors'fiduciaryduties totheCompany'sstockholdersunderapplicablelaw, and(B) priortofurnishingsuchinformationto, orenteringintodiscussionsornegotiationswith, suchperson,theCompany(x)providesreasonablenotice toParent tothe effectthat it isfurnishinginformationto, orenteringintodiscussionsornegotiationswith, suchperson and(y)receivesfrom suchperson anexecutedconfidentialityagreementno lessfavorableto theCompanythan theConfidentialityAgreementbetweenParent andtheIndependentAdvisor,on behalfof theCompany,dated June4, 1999(the"ConfidentialityAgreement"),(ii)complyingwith Rule14d-9 orRule 14e-2promulgatedunder theExchangeAct withregard toa tenderorexchangeoffer, or(iii)failing tomake orwithdrawingormodifyingitsrecommendationreferredto inSection5.2, orrecommendinganunsolicited,bona fideproposalto acquiretheCompanypursuantto amerger,consolidation,shareexchange,businesscombination,tender orexchangeoffer orothersimilartransaction,followingthereceipt ofsuch aproposal,if thefailure totake suchactionwould beinconsistentwith theBoard ofDirectors'fiduciaryduties totheCompany'sstockholdersunderapplicablelaw. Inaddition,if theCompanyproposesto enterinto anagreementwithrespect toanyCompetingTransaction,it shallconcurrentlywithenteringinto suchagreementpay, orcause tobe paid,to Parentanyamountsdue toParentfrom theCompanypursuantto Section7.3. As used inthisAgreement,"CompetingTransaction"shall meanany of thefollowing(otherthan thetransactionscontemplatedby thisAgreement)involvingtheCompany orany of itssubsidiaries:(i) anymerger,consolidation,shareexchange,exchangeoffer,businesscombination,recapitalization,liquidation,dissolutionor othersimilartransactioninvolvingsuchperson;(ii) anysale,lease,exchange,mortgage,pledge,transferor otherdispositionof assetsrepresenting20% ormore ofthe totalassets ofsuchperson anditssubsidiaries,in asingletransactionor seriesoftransactions;(iii) anytenderoffer orexchangeoffer for20% ormore oftheoutstandingshares ofcapitalstock ofsuchperson orthe filingof aregistrationstatementunder theSecuritiesAct inconnectiontherewith;(iv) anyperson orgrouphavingacquiredbeneficialownershipof 15% ormore oftheoutstandingshares ofcapitalstock ofsuchpersonwithrespect toCompanyCommonStock); or(v) anypublicannouncementof aproposal,plan orintentionto do anyof theforegoingor anyagreementto engagein any oftheforegoing.

(f)  NoAcquisitions. TheCompanyshall not,nor shallit permitany of itssubsidiariesto, (i)acquire oragree toacquire bymerging orconsolidatingwith, orbypurchasingasubstantialequityinterestin or asubstantialportion ofthe assetsof, or byany othermanner,anybusinessor anycorporation,limitedliabilitycompany,partnership,associationor otherbusinessorganizationordivisionthereof or(ii)otherwiseacquire oragree toacquireany assetswhich, inthe caseof thisclause(ii), arematerial,individuallyor in theaggregate,to theCompany,exceptwithrespect tothedevelopmentof plannednewrestaurantsasdescribedin theCompanyDisclosureLetter.

(g)  NoDispositions. TheCompanyshall not,nor shallit permitany of itssubsidiariesto, sell,lease,encumberorotherwisedisposeof, oragree tosell,lease,encumberorotherwisedispose ofany of itsassets(includingcapitalstock ofsubsidiaries),except asdisclosedin theCompanyDisclosureLetter andfordispositionsin theordinarycourse ofbusinessconsistentwith pastpracticeand ofsubstantiallythe samecharacter,type andmagnitudeasdispositionsin thepast.

(h)  Indebtedness. TheCompanyshall not,nor shallit permitany of itssubsidiariesto, (i)incur anyindebtednessforborrowedmoney orguaranteeany suchindebtednessor issueor sellany debtsecuritiesorwarrantsor rightsto acquireanylong-termdebtsecuritiesof theCompany orany of itssubsidiariesorguaranteeanylong-termdebtsecuritiesof othersor enterinto oramend anycontract,agreement,commitmentorarrangementwithrespect toany of theforegoing,other than(x) inreplacementforexistingormaturingdebt, (y)indebtednessof anysubsidiaryof theCompany totheCompany orto anothersubsidiaryof theCompany or(z) otherborrowingunderexistinglines ofcredit intheordinarycourse ofbusinessconsistentwith priorpracticeand ofsubstantiallythe samecharacter,type andmagnitudeasborrowingsmade inthe pastor (ii)make anyloans,advancesor capitalcontributionsto anyperson.

(i)  OtherActions. TheCompanyshall not,nor shallit permitany of itssubsidiariesto, takeany actionthatwould, ormightreasonablybeexpectedto, resultin any ofitsrepresentationsandwarrantiesset forthin thisAgreementbeing orbecominguntrue inanymaterialrespect,or in anyof theconditionsto theMerger setforth inArticle VInot beingsatisfied,or whichwouldadverselyaffect theability ofany ofthem toobtain anyof theRequisiteRegulatoryApprovalswithoutimpositionof aconditionorrestrictionof thetypereferredto inSection6.2(d) andtheCompanyshall, inthe eventof, orpromptlyafter theoccurrenceof, orpromptlyafterobtainingknowledgeof theoccurrenceof or theimpendingorthreatenedoccurrenceof, anyfact oreventwhichwouldcause orconstitutea breachof any oftherepresentationsandwarrantiesset forthin thisAgreement,thenon-satisfactionof any oftheconditionsto theMerger setforth inArticle VIor thefailure toobtain theRequisiteRegulatoryApprovals,in eachcase atany timeafter thedatehereof andthroughtheClosingDate, givedetailednoticethereof toParent,and theCompanyshall useits bestefforts toprevent orpromptlyto remedysuchbreach,non-satisfactionorfailure,as thecase maybe.

(j)  Advice ofChanges;GovernmentFilings. TheCompanyshallconfer ona regularbasis withParent,report onoperationalmattersandpromptlyadviseParent,orally andinwriting,of anymaterialchange orevent orany changeor eventwhichwouldcause orconstitutea materialbreach ofany of therepresentations,warrantiesorcovenantsof theCompanycontainedherein. TheCompanyshall fileallreportsrequiredto befiled bytheCompanywith theSECbetweenthe dateof thisAgreementand theEffectiveTime andshalldeliver toParentcopies ofall suchreportspromptlyafter thesame arefiled. TheCompanyshallcooperatewithParent indeterminingwhetheranyfilingsarerequiredto be madewith, orconsentsrequiredto beobtainedfrom, orfees orexpensesrequiredto be paidto, anythirdparty orGovernmentalEntityprior totheEffectiveTime inconnectionwith thisAgreementor thetransactionscontemplatedhereby,and shallcooperatein makingany suchfilingspromptlyand inseeking toobtaintimely anysuchconsentsand,subject toParent'sapproval,paying anysuch feesorexpenses. TheCompanyshallpromptlyprovideParentwithcopies ofall otherfilingsmade bytheCompanywith anystate orFederalGovernmentalEntity(excludingthe HSRFiling) inconnectionwith thisAgreement,the Mergeror theothertransactionscontemplatedhereby.

(k)  AccountingMethods. TheCompanyshall notchange itsmethods ofaccountingin effectat July 2,2000,except asrequiredby changesin GAAP asconcurredin by theCompany'sindependentauditors.

(l)  BenefitPlans. During theperiodfrom thedate ofthisAgreementandcontinuinguntil theEffectiveTime, theCompanyagrees asto itselfand itssubsidiariesthat itwill not,withoutthe priorwrittenconsent ofParent,except asset forthin theCompanyDisclosureLetter, (i)enterinto,adopt,amend(except asmay berequiredby law) orterminateanyCompanyBenefitPlan orany otheremployeebenefitplan oranyagreement,arrangement,plan orpolicybetweentheCompany orany of itssubsidiaries,on the onehand, andone ormore ofits ortheirdirectorsorofficers,on theotherhand, (ii)except fornormalincreasesin theordinarycourse ofbusinessconsistentwith pastpracticeand ofsubstantiallythe samecharacter,type andmagnitudeasincreasesin thepast that,in theaggregate,do notresult ina materialincreaseinbenefitsorcompensationexpense totheCompany orany of itssubsidiaries,increasein anymanner thecompensationor fringebenefitsof anydirector,officer oremployeeor pay anybenefitnotrequiredby anyplan andarrangementas ineffect asof thedatehereof(including,withoutlimitation,thegrantingof stockoptions,stockappreciationrights,restrictedstock,restrictedstockunits orperformanceunits orshares) orenter intoanycontract,agreement,commitmentorarrangementto do anyof theforegoingor (iii)enter intoor renewanycontract,agreement,commitmentorarrangementprovidingfor thepayment toanydirector,officer oremployeeof theCompany orany of itssubsidiariesofcompensationorbenefitscontingent,or theterms ofwhich aremateriallyaltered,upon theoccurrenceof any ofthetransactionscontemplatedby thisAgreement.

(m)  TaxElections. Except intheordinarycourse ofbusinessandconsistentwith pastpracticeand ofsubstantiallythe samecharacter,type andmagnitudeaselectionsmade inthe past,theCompanyshall notmake anymaterialtaxelectionor settleorcompromiseanymaterialfederal,state,local orforeignincome taxclaim orliabilityor amendanypreviouslyfiled taxreturn inanyrespect.

4.2  CovenantsofParent. Except asexpresslycontemplatedby thisAgreement,after thedatehereof andprior totheEffectiveTime,withoutthe priorwrittenconsent oftheCompany:

(a)  OtherActions. NeitherParent norSub shall,nor shallit permitany oftheirrespectivesubsidiariesto, takeany actionthatwould, ormightreasonablybeexpectedto, resultin any ofitsrepresentationsandwarrantiesset forthin thisAgreementbeing orbecominguntrue inanymaterialrespect,or in anyof theconditionsto theMerger setforth inArticle VInot beingsatisfied,or whichwouldadverselyaffect theability ofany ofthem toobtain anyof theRequisiteRegulatoryApprovalswithoutimpositionof aconditionorrestrictionof thetypereferredto inSection6.2(d).

(b)  GovernmentFilings. The Parentshallcooperatewith theCompany indeterminingwhetheranyfilingsarerequiredto be madewith, orconsentsrequiredto beobtainedfrom, anythirdparty orGovernmentalEntityprior totheEffectiveTime inconnectionwith thisAgreementor thetransactionscontemplatedhereby,and shallcooperatein makingany suchfilingspromptlyand inseeking toobtaintimely anysuchconsents. The ParentshallpromptlyprovidetheCompanywithcopies ofall otherfilingsmade bythe Parentwith anystate orFederalGovernmentalEntity(excludingthe HSRFilings)inconnectionwith thisAgreement,the Mergeror theothertransactionscontemplatedhereby.

(c)  ExtraordinaryTransactions. Parentshall not,nor shallit permitany of itssubsidiariesto,knowinglyenter intoorconsummateanyextraordinarytransactionoragreement,whichwould havea MaterialAdverseEffect onParent.

ARTICLEV

ADDITIONALAGREEMENTS

5.1  Preparationof theProxyStatement TheCompanyshall aspromptlyaspracticableprepareand file aproxy orinformationstatementrelatingto Companystockholders'meeting tobe held inconnectionwith theapprovalof theMerger(togetherwith allamendments,supplementsandexhibitsthereto,the"ProxyStatement")with theSEC andwill useits bestefforts torespond tothecommentsof the SECand tocause theProxyStatementto bemailed totheCompany'sstockholdersat theearliestpracticaltime. TheCompanywillnotifyParentpromptlyof thereceipt ofanycommentsfrom theSEC or itsstaff andof anyrequest bythe SEC orits staffforamendmentsorsupplementsto theProxyStatementor foradditionalinformationand willsupplyParentwithcopies ofallcorrespondencebetweentheCompany orany of itsrepresentatives,on the onehand, andthe SEC orits staff,on theotherhand, withrespect tothe ProxyStatementor theMerger. If at anytime priorto thestockholders'meetingthereshalloccur anyevent thatshould beset forthin anamendmentorsupplementto theProxyStatement,theCompanywillpromptlyprepareand mailto itsstockholderssuch anamendmentorsupplement. TheCompanywill notmail anyProxyStatement,or anyamendmentorsupplementthereto,to whichParentreasonablyobjects. TheCompanyherebyconsentsto theinclusionin theProxyStatementof therecommendationof theBoard ofDirectorsof theCompanydescribedin Section5.2,subject toanymodification,amendmentorwithdrawalthereof,andrepresentsthat theIndependentAdvisorhas,subject tothe termsof itsengagementletterwith theCompany,consentedto theinclusionofreferencesto itsopinion inthe ProxyStatement.

5.2  StockholderMeeting. TheCompanyshall calla meetingof itsstockholdersto be heldaspromptlyaspracticablefor thepurpose ofvotingupon theapprovalof thisAgreement,the Mergerand theothertransactionscontemplatedhereby. TheCompanywill,throughits BoardofDirectors,recommendto itsstockholdersapprovalof suchmatters,unless thetaking ofsuchactionwould beinconsistentwith theBoard ofDirectors'fiduciaryduties tostockholdersunderapplicablelaws. TheCompanyshall, atthedirectionof Parent,solicitfromCompanystockholdersentitledto vote attheCompanystockholders'meetingproxies infavor ofsuchapprovaland shalltake allotheractionnecessaryor, in thejudgmentof Parent,helpful tosecure thevote orconsent ofsuchholdersrequiredby theDGCL orthisAgreementto effecttheMerger. TheCompanyshallcoordinateandcooperatewithParentwithrespect tothe timingof suchmeeting.

5.3  LegalConditionstoMerger. Each oftheCompanyand Parentshall, andshallcause itssubsidiariesto, useallreasonableefforts (i)to take,or causeto betaken, allactionsnecessaryto complypromptlywith alllegalrequirementswhich maybe imposedon suchparty oritssubsidiarieswithrespect tothe Mergerand toconsummatethetransactionscontemplatedby thisAgreement,subject totheappropriatevote ofstockholdersof theCompanydescribedin Section6.1 (a),and (ii)to obtain(and tocooperatewith theotherparty toobtain)anyconsent,authorization,order orapprovalof, or anyexemptionby, anyGovernmentalEntity andof anyotherpublic orprivatethirdpartywhich isrequiredto beobtainedor made bysuch partyor any ofitssubsidiariesinconnectionwith theMerger andthetransactionscontemplatedby thisAgreement;provided,however,that apartyshall notbeobligatedto takeany actionpursuantto theforegoingif thetaking ofsuchaction orsuchcomplianceor theobtainingof suchconsent,authorization,order,approvalorexemptionis likely,in suchparty'sreasonableopinion,(x) to bemateriallyburdensometo suchparty anditssubsidiariestaken as awhole orto impactin amateriallyadversemanner theeconomicorbusinessbenefitsof thetransactionscontemplatedby thisAgreementso as torenderuneconomictheconsummationof theMerger or(y) in thecase oftheCompany,to resultin theimpositionof aconditionorrestrictionon theCompany,theSurvivingCorporationor any oftheirrespectivesubsidiariesof thetypereferredto inSection6.2(d).Each oftheCompanyand Parentwillpromptlycooperatewith andfurnishinformationto theother inconnectionwith anysuchburdensufferedby, orrequirementimposedupon, anyof them orany oftheirsubsidiariesinconnectionwith theforegoing.

5.4  Access toInformation. Uponreasonablenotice,theCompanyand eachof itssubsidiariesshallafford totheofficers,employees,accountants,counseland otherrepresentativesof Parent,access,duringnormalbusinesshoursduring theperiodprior totheEffectiveTime, toall itsproperties,books,commitmentsandrecordsand,duringsuchperiod,each oftheCompanyand itssubsidiariesshall makeavailableto Parent(a) a copyof eachreport,schedule,registrationstatementand otherdocumentfiled orreceivedby itduringsuchperiodpursuantto therequirementsof Federalsecuritieslaws and(b) allotherinformationconcerningitsbusiness,propertiesandpersonnelas Parentmayreasonablyrequest. Thepartieswill holdany suchinformationwhich isnonpublicinconfidenceto theextentrequiredby, and inaccordancewith, theprovisionsof theConfidentialityAgreement. Noinvestigationby eitherParent ortheCompanyshallaffect therepresentationsandwarrantiesof theother,except tothe extentsuchrepresentationsandwarrantiesare bytheirtermsqualifiedbydisclosuresmade tosuch firstparty.

5.5  Brokers orFinders. Except asdisclosedto theotherpartyprior tothe datehereof,each ofParent andtheCompanyrepresents,as toitself,itssubsidiariesand itsaffiliates,that noagent,broker,investmentbanker,financialadvisor orother firmor personis or willbeentitledto anybroker'sorfinder'sfee or anyothercommissionor similarfee inconnectionwith anyof thetransactionscontemplatedby thisAgreement,except theIndependentAdvisor,whose feesandexpenseswill bepaid bytheCompany inaccordancewith theCompany'sagreementwith suchfirm (acopy ofwhich hasbeendeliveredby theCompany toParentprior tothe dateof thisAgreement),and eachpartyagrees toindemnifythe otherparty andhold theotherpartyharmlessfrom andagainstany andallclaims,liabilitiesorobligationswithrespect toany otherfees,commissionsorexpensesassertedby anyperson onthe basisof any actorstatementalleged tohave beenmade bysuch firstparty oritsaffiliates.

5.6  Indemnification;Directors'andOfficers'Insurance. (a) As oftheEffectiveTime, thecertificateofincorporationof theSurvivingCorporationshallcontainprovisionsno lessfavorablewithrespect toindemnificationthan areset forthin thecertificationofincorporationof theCompany,whichprovisionsshall notbeamended,repealedorotherwisemodifiedfor aperiod ofsix yearsfrom theEffectiveTime inany mannerthat wouldadverselyaffect therightsthereunderofindividualswho at theEffectiveTime weredirectors,officersoremployeesof theCompany. Parent andCompanyagree thatthedirectors,officersandemployeesof theCompanycoveredtherebyareintendedto bethirdpartybeneficiariesunder thisSection5.6 andshall havethe rightto enforcetheobligationsof theSurvivingCorporationand theParent.

(b) TheSurvivingCorporationshallmaintainin effectfor sixyears (orsuchshorterperiod asParentmaintainssimilarpoliciesfor thebenefit ofitsdirectorsandofficers)from theEffectiveTime thecurrentpoliciesof thedirectors'andofficers'liabilityinsurancemaintainedby theCompany(providedthat theSurvivingCorporationmaysubstitutethereforpoliciesof atleast thesamecoveragecontainingterms andconditionswhich arenotmateriallylessadvantageous)withrespect tomattersoccurringprior totheEffectiveTime tothe extentavailable;provided,however,thatParent andtheSurvivingCorporationshall notberequiredto pay anannualpremiumfor suchinsurancein excessof 150% ofthe annualpremiumcurrentlypaid bytheCompanyfor suchinsurance,but insuch caseshallpurchaseas muchsuchcoverageaspossiblefor suchamount.

5.7  ShareholderLists. TheCompanyshallpromptlyuponrequest ofParent, orshallcause itstransferagent topromptly,furnishParentwithmailinglabelscontainingthe namesandaddressesof allrecordholders ofCompanyCommonStock andwithsecuritypositionlistingsof CompanyCommonStock heldin stockdepositories,each as ofthe mostrecentpracticabledate,togetherwith allotheravailablelistingsandcomputerfilescontainingnames,addressesandsecuritypositionlistingsof recordholdersandbeneficialowners ofCompanyCommonStock. TheCompanyshallfurnishParentwith suchadditionalinformation,including,withoutlimitation,updatedlistingsandcomputerfiles ofstockholders,mailinglabels andsecuritypositionlistings,and suchotherassistanceas Parentor itsagents mayreasonablyrequest. 

5.8  ShareholderLitigation. TheCompanyshall giveParent theopportunitytoparticipatein thedefense orsettlementof anyshareholderlitigationagainsttheCompanyand itsdirectorsrelatingto thetransactionscontemplatedby thisAgreement;provided,however,that nosuchsettlementshall beagreed towithoutCompany'sandParent'sconsent,whichshall notbeunreasonablywithheld.

5.9  CommunicationtoEmployees. TheCompanyand Parentwillcooperatewith eachother withrespectto, andendeavorin goodfaith toagree inadvanceupon themethod andcontentof, allwritten ororalcommunicationsordisclosuretoemployeesof theCompany orany of itssubsidiarieswithrespect tothe Mergerand anyothertransactionscontemplatedby thisAgreement. Uponreasonablenotice,theCompanyshallprovideParentaccess totheCompany'sand itssubsidiaries'employeesandfacilities.

5.10  EnvironmentalMatters. TheCompanyshallcooperatewithParent andtake orcause tobe takenallactionsnecessarytocompleteanyquestionnairesor surveyswhichParent oritslendersmayrequire inconnectionwithEnvironmentalMattersrelatingto theCompany,any of itssubsidiariesor any oftheirrespectivepropertiesorassets. Parentshall havethe right,ifrequiredby itslenders,to causeanindependentenvironmentalconsultantchosen byit at itssolediscretion,toinspect,audit, andtest anyof theCompany'sor itssubsidiaries'premisesfor theexistenceof any andallEnvironmentalLiabilitiesand anyand allviolationsof lawsrelated toEnvironmentalMatters(the"EnvironmentalAudit")and todeliver areportdescribingthefindingsandconclusionsof theEnvironmentalAudit. The scope,sequence,and timingof theEnvironmentalAuditshall beat thesolediscretionof Parent,and theEnvironmentalAudit maybecommencedat anytime on orafter thedatehereof.

ARTICLEVI

CONDITIONSPRECEDENT

6.1  Conditionsto EachParty'sObligationTo EffecttheMerger. Therespectiveobligationof eachparty toeffect theMergershall besubject tothesatisfactionprior totheClosingDate ofthefollowingconditions:

(a)  StockholderApproval. ThisAgreementshall havebeenapprovedandadopted bytheaffirmativevote oftheholders ofa majorityof theoutstandingshares ofCompanyCommonStockentitledto votethereon.

(b)  OtherApprovals. Allauthorizations,consents,orders orapprovalsof, ordeclarationsor filingswith, andallexpirationsor earlyterminationsof waitingperiodsimposedby, anyGovernmentalEntity(all theforegoing,"Consents")which arenecessaryfor theconsummationof theMergershall havebeenfiled,occurredor beenobtained(all suchpermits,approvals,filingsandconsentsand thelapse ofall suchwaitingperiodsbeingreferredto as the"RequisiteRegulatoryApprovals")and allsuchRequisiteRegulatoryApprovalsshall bein fullforce andeffect,includingwithoutlimitation,withrespect toany liquorlicensesorpermits.

(c)  NoInjunctionsorRestraints;Illegality. Notemporaryrestrainingorder,preliminaryorpermanentinjunctionor otherorderissued byany courtofcompetentjurisdictionor otherlegalrestraintorprohibitionpreventingtheconsummationof theMergershall bein effect,nor shallanyproceedingby anyGovernmentalEntityseekingany of theforegoingbepending. Thereshall notbe anyactiontaken, oranystatute,rule,regulationor orderenacted,entered,enforcedor deemedapplicableto theMerger,whichmakes theconsummationof theMergerillegal.

6.2  ConditionstoObligationsof ParentandSub. Theobligationsof Parentand Sub toeffect theMerger aresubject tothesatisfactionof thefollowingconditionsunlesswaived byParent andSub:

(a)  RepresentationsandWarranties. Therepresentationsandwarrantiesof theCompanyset forthin thisAgreementshall betrue andcorrect inallmaterialrespectsas of thedate ofthisAgreementand(except tothe extentsuchrepresentationsandwarrantiesspeak asof anearlierdate) asof theClosingDate asthoughmade onand as oftheClosingDate, andParentshall havereceived acertificatesigned onbehalf oftheCompany bythePresidentand ChiefExecutiveOfficer oftheCompany,and by theChiefFinancialOfficer oftheCompany tosucheffect.

(b)  PerformanceofObligationsofCompany. TheCompanyshall haveperformedandcompliedin allmaterialrespectswith allobligationsrequiredto beperformedorcompliedwith by itunder thisAgreementat orprior totheClosingDate, andParentshall havereceived acertificatesigned onbehalf oftheCompany bythePresidentand ChiefExecutiveOfficer oftheCompanyand by theChiefFinancialOfficer oftheCompany tosucheffect.

(c)  ConsentsUnderAgreements. TheCompanyshall haveobtainedtheconsent orapprovalof (i) thelandlordsor lessorswhoseconsent orapprovalshall berequiredin orderto permitthesuccessionby theSurvivingCorporationor itssubsidiariespursuantto theMerger toanyobligation,right orinterestof theCompany orany of itssubsidiariesunder therealpropertyleases setforth inSection6.2(c) ofthe ParentDisclosureLetter and(ii)except forthoseconsentsorapprovalsfor whichfailure toobtainsuchconsentsorapprovalscould not,individuallyor in theaggregate,reasonablybeexpectedto have aMaterialAdverseEffect ontheCompany,eachperson(otherthan theRequisiteRegulatoryApprovalsor withrespect toany realpropertyleases setforth inSection6.2(c) ofthe ParentDisclosureLetter)whoseconsent orapprovalshall berequiredin orderto permitthesuccessionby theSurvivingCorporationpursuantto theMerger toanyobligation,right orinterestof theCompany oranysubsidiaryof theCompanyunder anyloan orcreditagreement,note,mortgage,indenture,lease,license orotheragreementorinstrument(otherthan theconsent ofInternationalBank ofCommercewithrespect tothe SixthAmendedLoanAgreementdated asof March10, 2000,the FifthAmendedRevolvingLoanAgreementdated asof March10, 2000andassociatedrealestatelien notesandmortgagesto whichtheCompany isaparty). 

(d)  BurdensomeCondition. Thereshall notbe anyactiontaken, oranystatute,rule,regulationor orderenacted,entered,enforcedor deemedapplicableto theMerger, byanyGovernmentalEntitywhich, inconnectionwith thegrant of aRequisiteRegulatoryApproval,imposesanyrequirementuponParent,theSurvivingCorporationor theirrespectivesubsidiarieswhichwould somateriallyadverselyimpact theeconomicorbusinessbenefitsof thetransactionscontemplatedby thisAgreementas torenderuneconomictheconsummationof theMerger, orwhichwouldrequireParent orany of itssubsidiariesto disposeof anyassetwhich ismaterialto Parentprior totheEffectiveTime.

(e)  MaterialAdverseEffect. Since thedate ofthisAgreement,thereshall nothaveoccurred aMaterialAdverseEffectwithrespect totheCompanyand nofacts orcircumstancesarisingafter thedate ofthisAgreementshall haveoccurredwhich,individuallyor in theaggregate,couldreasonablybeexpectedto have aMaterialAdverseEffectwithrespect totheCompany.

(f)  Proceedings. Allproceedingsto betaken onthe partof theCompany inconnectionwith thetransactionscontemplatedby thisAgreementand alldocumentsincidenttheretoshall bereasonablysatisfactoryin formandsubstanceto Parent,and Parentshall havereceivedcopies ofall suchdocumentsand otherevidencesas Parentmayreasonablyrequest inorder toestablishtheconsummationof suchtransactionsand thetaking ofallproceedingsinconnectiontherewith.

(g)  Financing. Parentshall nothave beenunable toconsummatethe Mergerand theothertransactionscontemplatedby thisAgreementby reasonofinadequatefinancingas aresult ofthelendersdescribedin theCommitmentLetterrefusingtoconsummatethefinancingspecifiedthereinpursuantto and inaccordancewith thetermsthereof byreason oftheirassertionthat theconditionprecedentregardingnomaterialadversechangescontainedthereinhas notbeenfulfilledorsatisfied. 

6.3  ConditionstoObligationsofCompany. Theobligationof theCompany toeffect theMerger issubject tothesatisfactionof thefollowingconditionsunlesswaived bytheCompany:

(a)  RepresentationsandWarranties. Therepresentationsandwarrantiesof Parentand Subset forthin thisAgreementshall betrue andcorrect inallmaterialrespectsas of thedate ofthisAgreementand(except tothe extentsuchrepresentationsandwarrantiesspeak asof anearlierdate) asof theClosingDate asthoughmade onand as oftheClosingDate, andtheCompanyshall havereceived acertificatesigned onbehalf ofParent bytheChairmanand ChiefExecutiveOfficer ofParent, oraCorporateVicePresidentof Parent,and by theSeniorVicePresidentand ChiefFinancialOfficer ofParent ortheCorporateVicePresidentandTreasurerof Parentto sucheffect.

(b)  PerformanceofObligationsof ParentandSub. Parent andSub shallhaveperformedandcompliedin allmaterialrespectswith allobligationsrequiredto beperformedby themunder thisAgreementat orprior totheClosingDate, andtheCompanyshall havereceived acertificatesigned onbehalf ofParent bythePresidentand ChiefExecutiveOfficer ofParent oraCorporateVicePresidentof Parent,and by theSeniorVicePresidentand ChiefFinancialOfficer ofParent ortheCorporateVicePresidentandTreasurerof Parentto sucheffect;provided,however,that theperformanceandcomplianceof Parentand itssubsidiarieswithSection4.2(c)shall notbe aconditionprecedentto theobligationof theCompany toeffect theMergerunless thelendersdescribedin theCommitmentLetterrefuse toconsummatethefinancingspecifiedtherein onthegroundsthat theconditionprecedentregardingnomaterialadversechangesrelatingto Parentand itssubsidiaries,taken as awhole,containedin theCommitmentLetter wasnotfulfilledorsatisfiedas aresult ofParent orany of itssubsidiariesenteringinto anextraordinarytransactionprohibitedunder Section4.2(c).

ARTICLEVII

TERMINATIONANDAMENDMENT

7.1  Termination. ThisAgreementmay beterminatedat anytime priorto theEffectiveTime,whetherbefore orafterapprovalof thematterspresentedinconnectionwith theMerger bythestockholdersof theCompany:

(a) bymutualconsent ofParent andtheCompany ina writteninstrument,whether ornot theMerger hasbeenapprovedby thestockholdersof theCompany;

(b) byParent,upon amaterialbreach ofanyrepresentation,warranty,covenantoragreementon thepart oftheCompanyset forthin thisAgreement,or if anyrepresentationorwarrantyof theCompanyshall havebecomeuntruesuch thattheconditionsset forthin Section6.2(a) orSection6.2(b), asthe casemay be,would beincapableof beingsatisfiedby June30, 2001;

(c) bytheCompany,upon amaterialbreach ofanyrepresentation,warranty,covenantoragreementon thepart ofParent orSub setforth inthisAgreement,or if anyrepresentationorwarrantyof Parentor Subshall havebecomeuntruesuch thattheconditionsset forthin Section6.3(a) orSection6.3(b), asthe casemay be,would beincapableof beingsatisfiedby June30, 2001;

(d) byeitherParent ortheCompany,if anypermanentinjunctionor actionby anyGovernmentalEntitypreventingtheconsummationof theMergershall havebecomefinal andnonappealable;

(e) byeitherParent ortheCompany ifthe Mergershall nothave beenconsummatedon orprior toJune 30,2001 (orsuch laterdate asmay beagreed toin writingby theCompanyandParent)(otherthan dueto thefailure ofthe partyseeking toterminatethisAgreementto performitsobligationsunder thisAgreementrequiredto beperformedat orprior totheEffectiveTime);

(f) byeitherParent ortheCompany,if anyapprovalof thestockholdersof theCompanyrequiredfor theconsummationof theMergershall nothave beenobtainedby reasonof thefailure toobtain therequiredvote at aduly heldmeeting ofstockholdersor at anyadjournmentthereof;

(g) byParent, ifthe BoardofDirectorsof theCompanyshall have(i)withdrawn,modifiedor changeditsapprovalorrecommendationof thisAgreement,the Mergeror any ofthe othertransactionscontemplatedherein inany mannerwhich isadverse toParent orSub orshall haveresolvedto do theforegoing;or (ii)approvedor haverecommendedto thestockholdersof theCompany aCompetingTransactionor shallhaveresolvedto do theforegoing;

(h) byParent, if(i) theCompanyshall haveexerciseda rightspecifiedin clause(i) of thethirdsentenceof Section4.1(e)withrespect toanytransactionreferredto thereinand shall,directlyor throughagents orrepresentatives,continuediscussionswith anythirdpartyconcerningsuchtransactionfor morethan 21calendardays afterthe dateof receiptof suchCompetingTransaction,or (ii)(x) atenderoffer orexchangeoffer or aproposalby a thirdparty toacquiretheCompanypursuantto amerger,consolidation,shareexchange,businesscombination,tender orexchangeoffer orsimilartransactionshall havebeencommencedorpubliclyproposedwhichcontains aproposalas toprice(withoutregard tothespecificityof suchpriceproposal)and (y)theCompanyshall nothaverejectedsuchproposalwithin 10businessdays ofitscommencementor thedate suchproposalfirstbecomespubliclydisclosed,if sooner.

(i) Theright ofany partyhereto toterminatethisAgreementpursuantto thisSection7.1 shallremainoperativeand infull forceand effectregardlessof anyinvestigationmade by oron behalfof anypartyhereto,any personcontrollingany suchparty orany oftheirrespectiveofficersordirectors,whetherprior toor aftertheexecutionof thisAgreement.

7.2  Effect ofTermination. In theevent ofterminationof thisAgreementandabandonmentof theMerger byeither theCompany orParent asprovidedin Section7.1, thisAgreementshallforthwithterminateand thereshall benoliabilityorobligationon thepart ofParent,Sub or theCompany ortheirrespectiveofficersordirectorsexceptwithrespect tothepenultimatesentenceof Section5.4 andSections5.5 and7.3;provided,however,that,subject totheprovisionsof Section8.8,nothinghereinshallrelieveany partyofliabilityfor anybreachhereof.

7.3  Fees,Expensesand OtherPayments. (a) Except asotherwiseprovidedin thisSection7.3,whether ornot theMerger isconsummated,all costsandexpensesincurredinconnectionwith thisAgreementand thetransactionscontemplatedhereby(including,withoutlimitation,fees anddisbursementsofcounsel,financialadvisorsandaccountants)shall bebornesolely andentirelyby thepartywhich hasincurredsuch costsandexpenses(withrespect tosuchparty, its"Expenses").

(b) TheCompanyagreesthat ifthisAgreementshall beterminatedpursuantto:

           (i)Section7.1(b) and(x) suchterminationis theresult ofmaterialbreach ofanycovenant,agreement,representationorwarrantycontainedherein and(y) at anytimeduring theperiodcommencingon thedatehereof andendingtwelvemonthsafter thedate ofterminationof thisAgreement,a BusinessCombination(asdefined inSection7.3(e))involvingtheCompanyshall haveoccurredor theCompanyshall haveenteredinto adefinitiveagreementprovidingfor such aBusinessCombination,whichBusinessCombinationcontains aproposalas to theprice persharewhich isin excessof theMergerConsideration;

           (ii)Section7.1(f)becausetheAgreement,the Mergerand theothertransactionscontemplatedherebyshall failto receivetherequisitevote forapprovalandadoptionby thestockholdersof theCompany ata meetingof thestockholdersof theCompanycalled tovotethereon,and at thetime ofsuchmeetingthereshallexist aproposalwithrespect toa BusinessCombinationwithrespect totheCompanywhicheither (x)the BoardofDirectorsof theCompanyhas notpubliclyopposed or(y) isconsummated,or adefinitiveagreementwithrespect towhich isenteredinto, atany timeduring theperiodcommencingon thedatehereof andendingtwelvemonthsafter thedate ofterminationof thisAgreement;or

           (iii)Section7.1(g) orSection7.1(h);then ineach suchevent theCompanyshall payto Parentan amountequal to$4,500,000,plus allofParent'sExpensesnot toexceed$850,000.

(c) TheCompanyagreesthat ifthisAgreementshall beterminatedpursuantto Section7.1(b),then theCompanyshall payto Parentan amountequal toParent'sExpensesnot toexceed$850,000;providedthat theCompanyshall notbeobligatedto makeanypaymentpursuantto thisSection7.3(c) iftheCompanyshall beobligatedto make apayment toParentpursuantto Section7.3(b).

(d)Parentagreesthat ifthisAgreementshall beterminatedsolely asa resultof thenon-satisfactionornon-fulfillmentof theconditionset forthin Section6.2(g) dueto thelendersdescribedin theCommitmentLetterassertingthat theconditionprecedentregardingnomaterialadversechangescontainedin theCommitmentLetter wasnotfulfilledorsatisfiedfor anyreasonother thana materialadversechange inoraffectingthebusiness,operations,property,condition(financialorotherwise)orprospectsof theCompanyand itssubsidiaries,taken as awhole,thenParentshall payto theCompany anamountequal totheCompany'sExpensesnot toexceed$850,000.

(e) Anypaymentrequiredto be madepursuantto Section7.3(b),Section7.3(c) orSection7.3(d)shall bemade aspromptlyaspracticablebut notlater thanfivebusinessdays afterterminationof thisAgreementand shallbe made bywiretransferofimmediatelyavailablefunds toan accountdesignatedby Parent,exceptthat anypayment tobe made asthe resultof aneventdescribedin Section7.3(b)(i)or clause(y) ofSection7.3(b)(ii) shallbe made aspromptlyaspracticablebut notlater thanfivebusinessdays aftertheoccurrenceof theBusinessCombinationor theexecutionof thedefinitiveagreementprovidingfor aBusinessCombination.

(f) Forpurposesof thisSection7.3, theterm"BusinessCombination"shall meanany of thefollowinginvolvingtheCompany: (i)anymerger,consolidation,shareexchange,businesscombinationor similartransaction;(ii) anysale,lease,exchange,transferor otherdispositionof 20% ormore ofthe assetsof theCompanyand itssubsidiaries,taken as awhole, ina singletransactionor seriesoftransactions,or (iii)theacquisitionby aperson orany groupofbeneficialownershipof 20% ormore ofthecapitalstock oftheCompanywhether bytenderoffer orexchangeoffer orotherwise.

7.4  Amendment. ThisAgreementmay beamended bythepartieshereto, byactiontaken orauthorizedby theirrespectiveBoards ofDirectors,at anytimebefore orafterapprovalof thematterspresentedinconnectionwith theMerger bythestockholdersof theCompany orof Parent,but, afterany suchapproval,noamendmentshall bemade whichby lawrequiresfurtherapprovalby suchstockholderswithoutsuchfurtherapproval. ThisAgreementmay not beamendedexcept byaninstrumentin writingsigned onbehalf ofeach ofthepartieshereto.

7.5  Extension;Waiver. At anytime priorto theEffectiveTime, thepartieshereto, byactiontaken orauthorizedby theirrespectiveBoard ofDirectors,may, tothe extentlegallyallowed, (i)extend thetime fortheperformanceof any oftheobligationsor otheracts ofthe otherpartieshereto,(ii) waiveanyinaccuraciesin therepresentationsandwarrantiescontainedherein orin anydocumentdeliveredpursuanthereto and(iii)waivecompliancewith anyof theagreementsorconditionscontainedherein. Anyagreementon thepart of apartyhereto toany suchextensionor waivershall bevalid onlyif setforth in awritteninstrumentsigned onbehalf ofsuchparty.

ARTICLEVIII

GENERALPROVISIONS 

8.1  NonsurvivalofRepresentations,WarrantiesandAgreements. None oftherepresentations,warranties,covenantsandagreementsin thisAgreementor in anyinstrumentdeliveredpursuantto thisAgreementshallsurvivetheEffectiveTime,except fortheagreementscontainedinSections2.1, 2.2,2.3,4.2(a),5.6, 5.8,7.3 andArticleVIII. 

8.2  Notices. Allnoticesand othercommunicationshereundershall bein writingand shallbe deemedgiven ifdeliveredpersonally,telecopied(withconfirmation)or mailedbyregisteredorcertifiedmail(returnreceiptrequested)to theparties atthefollowingaddresses(or atsuch otheraddressfor aparty asshall bespecifiedby likenotice): 

(a) if toParent orSub, 

 to:CarrolsCorporation968 JamesStreetSyracuse,NY 13203Attention: Joseph A.Zirkman,Esq.Facsimile: (315)475-9616 

With acopy to:Rosenman&Colin LLP575MadisonAvenueNew York,New York10022-2585Attention: Wayne A.Wald, Esq.Facsimile: (212)940-8776 

(b) if totheCompany,to:TacoCabana,Inc.8918Tesoro Dr.SanAntonio,TX 78217Attention: ChiefExecutiveOfficerFacsimile: (210)280-0616 

With acopy to:Akin GumpStraussHauer& Feld,L.L.P.300ConventStreet,Suite 1500SanAntonio,TX 78205Attention: CecilSchenker,Esq.Facsimile: (210)224-2035 

8.3  CertainDefinitions. Forpurposesof thisAgreement: 

(a)an"affiliate"of anypersonmeansanotherpersonthatdirectlyorindirectly,throughone ormoreintermediaries,controls,iscontrolledby, or isundercommoncontrolwith, suchfirstperson; 

(b)"beneficiallyown"or"beneficialownership"withrespect toanysecurities,meanshaving"beneficialownership"of suchsecuritiesinaccordancewith theprovisionsof Rule13d-3under theExchangeAct. Withoutduplicativecountingof thesamesecuritiesby thesameholder,securitiesbeneficiallyowned by apersonincludesecuritiesbeneficiallyowned byall otherpersonswith whomsuchpersonwouldconstitutea group; 

(c)"group"means twoor morepersonsactingtogetherfor thepurpose ofacquiring,holding,voting ordisposingof anysecurities,whichpersonswould berequiredto file aSchedule13D orSchedule13G withthe SEC asa"person"within themeaning ofSection13(d)(3)of theExchangeAct ifsuchpersonsbeneficiallyowned asufficientamount ofsuchsecuritiesto requiresuch afilingunder theExchangeAct; 

(d)"person"means anindividual,corporation,limitedliabilitycompany,partnership,jointventure,association,trust,unincorporatedorganizationor otherlegalentity; 

(e)a"subsidiary"of anypersonmeansanotherperson, anamount ofthe votingsecurities,othervotingownershipor votingpartnershipinterestsof whichissufficientto electat least amajorityof itsBoard ofDirectorsor othergoverningbody (or,if thereare nosuchvotinginterests,50% ormore ofthe equityinterestsof which)is owneddirectlyorindirectlyby suchfirstperson;and 

(f)Anyaccountingterm thatis used inthecontext ofdescribingorreferringto anaccountingconceptand thatis notspecificallydefinedhereinshall beconstruedinaccordancewith GAAPas appliedin thepreparationof thefinancialstatementsof theCompanyincludedin theCompanySECDocuments(including,withoutlimitation,theYear-EndFinancialStatementsand theBalanceSheet). 

8.4  Interpretation. When areferenceis made inthisAgreementtoSectionsorExhibits,suchreferenceshall beto aSection ofor Exhibitto thisAgreementunlessotherwiseindicated. Therecitalsheretoconstituteanintegralpart ofthisAgreement. The tableofcontentsandheadingscontainedin thisAgreementare forreferencepurposesonly andshall notaffect inany waythemeaning orinterpretationof thisAgreement. Wheneverthe words"include","includes"or"including"are usedin thisAgreement,they shallbe deemedto befollowedby thewords"withoutlimitation". The phrase"madeavailable"in thisAgreementshall meanthat theinformationreferredto hasbeen madeavailableifrequestedby theparty towhom suchinformationis to bemadeavailable. Thephrases"thedate ofthisAgreement","thedatehereof'and termsof similarimport,unless thecontextotherwiserequires,shall bedeemed torefer toOctober 6,2000. 

8.5  Counterparts. ThisAgreementmay beexecutedin two ormorecounterparts,all ofwhichshall beconsideredone andthe sameagreementand shallbecomeeffectivewhen twoor morecounterpartshave beensigned byeach ofthepartiesanddeliveredto theotherparties,it beingunderstoodthat allpartiesneed notsign thesamecounterpart. 

8.6  EntireAgreement;No ThirdPartyBeneficiaries;Rights ofOwnership. ThisAgreement(includingthedocumentsand theinstrumentsreferredto herein)(a)constitutesthe entireagreementandsupersedesall prioragreementsandunderstandings,bothwrittenand oral,among thepartieswithrespect tothesubjectmatterhereof;providedthat theConfidentialityAgreementshallsurvivetheexecutionanddeliveryof thisAgreement,and (b)except asprovidedinSections2.2, 2.3and 5.6,is notintendedto conferupon anypersonother thanthepartieshereto anyrights orremedieshereunder. Thepartiesherebyacknowledgethat,except ashereinafteragreed toinwriting,no partyshall havethe rightto acquireor shallbe deemedto haveacquiredshares ofcommonstock ofthe otherpartypursuantto theMergeruntilconsummationthereof. 

8.7  GoverningLaw. ThisAgreementshall begovernedandconstruedinaccordancewith thelaws ofthe Stateof NewYork,except tothe extentDelawarelaw shallgovern theMerger,withoutregard toanyapplicableconflictsof lawprovisionsthereof. 

8.8  Severability;No Remedyin CertainCircumstances. Any termorprovisionof thisAgreementthat isinvalid orunenforceablein anysituationin anyjurisdictionshall notaffect thevalidityorenforceabilityof theremainingterms andprovisionshereof orthevalidityorenforceabilityof theoffendingterm orprovisionin anyothersituationor in anyotherjurisdiction. If thefinaljudgmentof a courtofcompetentjurisdictiondeclaresthat anyterm orprovisionhereof isinvalid orunenforceable,thepartiesagree thatthe courtmaking thedeterminationofinvalidityorunenforceabilityshall havethe powerto reducethe scope,duration,or area ofthe termorprovision,to deletespecificwords orphrases,or toreplaceanyinvalid orunenforceableterm orprovisionwith aterm orprovisionthat isvalid andenforceableand thatcomesclosest toexpressingtheintentionof theinvalid orunenforceableterm orprovision,and thisAgreementshall beenforceableas somodifiedafter theexpirationof thetimewithinwhich thejudgmentmay beappealedunless theforegoinginconsistentaction orthefailure totake anactionconstitutesa materialbreach ofthisAgreementor makesthisAgreementimpossibletoperform,in whichcase thisAgreementshallterminatepursuantto ArticleVIIhereof. Except asotherwisecontemplatedby thisAgreement,to theextentthat apartyheretotook anactioninconsistentherewithor failedto takeactionconsistentherewithorrequiredherebypursuantto anorder orjudgmentof a courtor othercompetentauthority,such partyshallincur noliabilityorobligationunlesssuch partydid not ingood faithseek toresist orobject totheimpositionorenteringof suchorder orjudgment. 

8.9  Publicity. Except asotherwiserequiredby law orthe rulesof theNasdaqNationalMarket, solong asthisAgreementis ineffect,neithertheCompanynor Parentshall, orshallpermit anyof itssubsidiariesto, issueor causethepublicationof anypressrelease orotherpublicannouncementwithrespect tothetransactionscontemplatedby thisAgreementwithouttheconsent ofthe otherparty,whichconsentshall notbeunreasonablywithheld. 

8.10  Assignment. NeitherthisAgreementnor any oftherights,interestsorobligationshereundershall beassignedby any ofthepartieshereto(whetherbyoperationof law orotherwise)withoutthe priorwrittenconsent ofthe otherparties. Subject totheprecedingsentence,thisAgreementwill bebindingupon,inure tothebenefit ofand beenforceableby thepartiesand theirrespectivesuccessorsandassigns. 

8.11  Adjustment. All dollaramountsand sharenumbersset forthherein,includingwithoutlimitationthe MergerConsideration,shall besubject toequitableadjustmentin theevent ofany stocksplit,stockdividend,reversestocksplit orsimilareventaffectingtheCompanyCommonStock,betweenthe dateof thisAgreementand theEffectiveTime, tothe extentappropriate. 

8.12  SpecificPerformance. Thepartiesagree thatirreparabledamagewouldoccur inthe eventthat anyof theprovisionsof thisAgreementwere notperformedinaccordancewith theirspecificterms orwereotherwisebreached. It isaccordinglyagreedthat thepartiesshall beentitledto aninjunctionorinjunctionsto preventbreachesof thisAgreementand toenforcespecificallythe termsandprovisionsof thisAgreementin anycourt ofapplicablejurisdiction,this beinginadditionto anyotherremedy towhich theyareentitledat law orinequity. Inaddition,each ofthepartieshereto (i)consentsto submitsuch partyto thepersonaljurisdictionof anyFederalcourtlocated inthe Stateof NewYork orany NewYork statecourt inthe eventanydisputearises outof thisAgreementor any ofthetransactionscontemplatedhereby,(ii)agreesthat suchparty willnotattempt todeny ordefeatsuchpersonaljurisdictionby motionor otherrequestfor leavefrom anysuchcourt,(iii)agreesthat suchparty willnot bringany actionrelatingto thisAgreementor any ofthetransactionscontemplatedhereby inany courtother thana Federalcourtsitting inthe stateof NewYork or aNew Yorkstatecourt and(iv)waives anyright totrial byjury withrespect toany claimorproceedingrelated toor arisingout ofthisAgreementor any ofthetransactionscontemplatedhereby.  

INWITNESSWHEREOF,Parent,Sub andtheCompanyhavecausedthisAgreement,to besigned bytheirrespectiveofficersthereuntodulyauthorized,all as ofOctober 6,2000.

                                                            CARROLS CORPORATION

                                                                 /s/ JosephZirkman                        

                                                                             Name: JosephZirkman                                                                            Title: VicePresident

                                                                            SPURACQUISITIONCORP.

                                                                            /s/ JosephZirkman  

                                              Name: JosephZirkman                                          Title: VicePresident

                                              TACOCABANA,INC.

                                                                          /s/ Stephen V.Clark                                                                                                                                                                                                                                                                                                                                                                                                                            

                                                                           Name: Stephen V. Clark                                                                           Title: Presidentand CEO