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                                                                    Exhibit 10.7

                            ASSET PURCHASE AGREEMENT

THIS AGREEMENT is made this ___ day of May 1997 among RED ONE, INC., a New
Jersey corporation ("Seller") as debtor and debtor-in-possession, JOHN M.
GALLAGHER, as debtor and debtor-in-possession ("Gallagher") (Red One and
Gallagher being hereinafter referred to from time to time as "Sellers") and
MAGIC RESTAURANTS, INC., a Delaware corporation ("Buyer").

                                  WITNESSETH:

WHEREAS, the Red One is a debtor and debtor-in-possession under chapter 11 of
title 11 U.S.C., ss. 101 et seq. (the "Bankruptcy Code") in a case pending in
the United States Bankruptcy Court for the District of New Jersey, Trenton
Division (the "Bankruptcy Court"), case number 96-32119; and

WHEREAS, Gallagher is a debtor and debtor-in-possession under chapter 11 of the
Bankruptcy Code in a case pending before the Bankruptcy Court, case number
96-32120; and

WHEREAS, Red One operates a restaurant owns and operates a restaurant (the
"Restaurant") doing business under the name "Redheads" at premises commonly
known as 500 Highway 35, Union Square, Middletown, New Jersey 07701; and

WHEREAS, Sellers own all right, title and interest to the Concept (as
hereinafter defined); and

WHEREAS, Buyer wishes to purchase certain of the assets owned and used by Red
One in the operation of the Restaurant on the terms and subject to the
conditions set forth in this Agreement; and

WHEREAS, Sellers intend to sell the assets that are the subject of the this
Agreement to Buyer pursuant to a sale of asset of assets under Section 363 of
the Bankruptcy Code;

WHEREAS, Buyer and Red One have entered into an escrow agreement (the "Escrow
Agreement") pursuant to which Buyer has deposited with the Escrow Agent the sum
of $75,000;

NOW, THEREFORE, in consideration of the premises and the mutual covenants,
agreements, representations and warranties herein contained, and subject to the
conditions hereinafter set forth, the parties hereto agree as follows:

1.      PURCHASE AND SALE OF ASSETS

        1.1     Sellers hereby agree to sell, assign, convey, transfer and
                deliver to Buyer on the Closing Date (as hereafter defined), and
                Buyer hereby agrees to purchase and acquire on the Closing Date,
                the following:

                1.1.1   Seller's interest in the lease used in the operation of
                        the Restaurant (the "Lease");

                1.1.2   Sellers' right, title and interest in and to the name
                        "Redheads", and all derivatives thereof, and all other
                        trademarks, trademark rights, trade names, trade name
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                        rights, trade styles, brand names, service marks,
                        patents, logos, copyrights, characterizations, and all
                        other intangible rights and properties (and all
                        applications with respect to all of the foregoing),
                        which are owned or used by Seller in connection with the
                        Business, as set forth on Schedule 1.1.2 hereto
                        (collectively, the "Concept"); provided, however, that
                        in connection with the sale of the Purchased Assets, Red
                        Three, Inc. shall be granted a royalty-free perpetual
                        and non-transferable license to use the name "Redheads"
                        and the Concept in connection with the operation of a
                        restaurant in Eatontown, New Jersey;

                1.1.3   a11 menus, interior design schemes, specifications,
                        renderings, prototypes, drawings, plans, system manuals,
                        training guides, methods and processes relating to the
                        products and services offered by the Restaurant and
                        other similar or related items used in connection with
                        the operation of the Restaurant or the Concept, as set
                        forth on Schedule 1.1.3 hereto;

                1.1.4   a11 machinery, equipment, tools, handling equipment,
                        vehicles, furniture, and other assets, as set forth on
                        Schedule 1.1.4 hereto (the "Fixed Assets"); provided,
                        however, that in no event shall the Seller sell to the
                        Buyer the Excluded Assets (as hereinafter defined);

                1.1.5   a11 designs, plans, specifications, renderings,
                        prototypes, methods and processes relating to the
                        products and services offered by the Restaurant, as
                        described on Schedule 1.1.6 hereto;

                1.1.6   a11 customers, customer lists, and all written
                        information, files, correspondence and documents
                        relating to the Restaurant, as set forth on Schedule
                        1.1.6 hereto;

                1.1.7   a11 right, title, interest, obligation and liability of
                        Seller as lessee or licensee, with respect to the
                        personal property leases and licenses set forth on
                        Schedule 1.1.7 hereto;

                1.1.8   a11 stationery, office supplies, catalogues, product
                        descriptions, advertising materials, forms and other
                        similar supplies and materials used by the Restaurant;

                1.1.9   liquor license number 1331-33-025-005 (the "Liquor
                        License") issued by the State of New Jersey used in the
                        operation of the Restaurant; and

                1.1.10  any and all goodwill associated with the Restaurant;
                        wherever the same shall be located (collectively, the
                        "Purchased Assets").

        1.2     It is the intent of this Agreement that the Purchased Assets
                shall constitute all of the assets, properties and business of
                Seller which are necessary or appropriate to enable Buyer to
                continue to operate the Restaurant as heretofore conducted by
                Seller; provided, however, that the Purchased Assets shall not
                include (i)
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                cash on hand of Red One on or prior to the Closing date, (ii)
                claims or causes of action of either Seller, whether arising
                under chapter 5 of the Bankruptcy Code or otherwise, and (iii)
                any furniture, equipment or fixtures listed on Schedule 1.2
                hereto, and/or on which a creditor of Red One has a valid and
                perfected Lien (as hereinafter defined), which items are
                hereinafter collectively referred to as the "Excluded Assets."

        1.3     It is understood and agreed that the Purchased Assets shall be
                acquired by (i) Buyer free and clear of all Liens (as
                hereinafter defined) pursuant to a Final Order (as hereinafter
                defined) of the Bankruptcy Court, and (ii) except as expressly
                set forth in this Agreement, "as is" and "where is." As used in
                this Agreement:

                1.3.1   "Final Order" means an order or judgment of the
                        Bankruptcy Court that has not been reversed, stayed or
                        vacated and as to which the time to appeal, petition for
                        certiorari or seek reargument or rehearing has expired
                        and as to which no appeal, reargument, petition for
                        certiorari or rehearing is pending or as to which any
                        right to appeal, reargue, petition for certiorari or
                        seek rehearing has been waived in writing, or, if an
                        appeal, reargument, writ or certiorari or rehearing
                        thereof has been sought, the order or judgment of the
                        Bankruptcy Court has been affirmed by the highest court
                        to which the order was appealed or from which the
                        reargument or rehearing was sought, or by which the
                        petition for writ of certiorari has been denied, and the
                        time to take any further appeal or to seek certiorari or
                        further reargument or rehearing has expired.

                1.3.2   "Lien" shall mean any mortgage or deed of trust, pledge,
                        hypothecation, assignment, deposit arrangement, lien,
                        charge, claim, security interest, easement or
                        encumbrance, or preference, priority or other security
                        agreement or preferential arrangement of any kind or
                        nature whatsoever (including, without limitation, any
                        lease or title retention agreement, any financing lease
                        having substantially the same economic effect as any of
                        the foregoing, and the filing of, or agreement to give,
                        any financing statement perfecting a security interest
                        under the New Jersey Uniform Commercial Code or
                        comparable law of any jurisdiction).

2.      LIABILITIES

        2.1     Buyer does not assume or agree to pay, perform or discharge any
                other liability or obligation of either Seller of any nature
                whatsoever, whether known or unknown, direct or indirect,
                contingent or accrued, matured or unmatured, including, without
                limitation, any of the following liabilities or obligations of
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                Sellers whether or not relating to the Purchased Assets or the
                Restaurant, which shall remain the sole liabilities and
                obligations of Sellers:

                2.1.1   Any obligations or liabilities of either Seller in
                        respect of any Federal, state, local or foreign income,
                        sales, franchise, excise, withholding, payroll or any
                        other taxes for the current or any other fiscal period;

                2.1.2   Any obligations or liabilities which are incurred in
                        violation of this Agreement or which are inconsistent
                        with any representation, warranty or covenant contained
                        in this Agreement;

                2.1.3   Any obligations of either Seller to perform under this
                        Agreement;

                2.1.4   Any cost, expense or tax liability of either Seller
                        incident to the preparation of this Agreement or the
                        consummation of the transactions contemplated hereby;

                2.1.5   Any obligations or liabilities of either Seller arising
                        by reason of any default, breach, penalty or delinquency
                        under any agreement, commitment or obligation of either
                        Seller or to which either Seller is a party;

                2.1.6   Any obligations or liabilities of either Seller, or
                        asserted against Buyer or the Purchased Assets, arising
                        from any claim, demand or Lien based upon noncompliance
                        with any applicable bulk sales or bulk transfer law;

                2.1.7   Any obligations or liabilities of either Seller or with
                        respect to the Restaurant which are incurred on or after
                        the Closing Date;

                2.1.8   Any cost, expense or other obligations or liabilities of
                        either Seller relating to or arising from current or
                        future pension, retirement, profit sharing, bonus, group
                        health insurance, group life insurance, or other similar
                        plans for the benefit of either Seller's employees;

                2.1.9   Any obligations or liabilities relating to (i) any
                        employee wages, salaries or benefits incurred prior to
                        the Closing Date; (ii) any collective bargaining
                        agreement or other labor or union agreement or
                        commitment, or any employee benefit arising thereunder,
                        or (iii) compliance with the WARN Act or similar
                        Federal, state or local laws and regulations, or (iv)
                        any other applicable statute, rule, decision, regulation
                        or ordinance;

                2.1.10  Any obligations or liabilities of either Seller under
                        any contracts, agreements, commitments, or purchase
                        orders for finished goods, raw materials or services,
                        except as set forth on Schedule 2.2.10 hereto.

                2.1.11  Any obligations or liabilities of either Seller for
                        amounts owing in respect of the Excluded Assets.
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                2.1.12  After the Closing Date, Buyer shall have no obligation
                        to continue the employment of any employee of Red One or
                        the Restaurant for any length of time, and shall have
                        the right to terminate the employment of any employees.
                        Red One represents that it is not a party to any
                        employment agreements.

3.      CONSIDERATION

        3.1     The consideration (the "Purchase Price") to be paid to Seller
                for the Purchased Assets is Two Hundred Seventy-Five Thousand
                Dollars ($275,000):

                3.2 The Purchase Price shall be payable as follows:

                3.2.1   Up to One Hundred Fifty Thousand Dollars ($150,000) by
                        delivery by Buyer on the Closing Date by wire transfer
                        of immediately available funds to Red One; provided,
                        however, that the amount payable under this Section
                        3.2.1 shall be reduced dollar for dollar by any amount
                        deposited into the Tax Escrow (as hereinafter defined);

                3.2.2   Seventy-Five Thousand Dollars ($75,000) by delivery by
                        the Escrow Agent on the Closing Date, by wire transfer
                        of immediately available funds to Red One, in accordance
                        with the Indemnity Agreement among Red One, Buyer and
                        Karasic, Stone & Marvel dated May 9, 1997; and

                3.2.3   Fifty Thousand Dollars ($50,000) by delivery by Buyer on
                        the Closing Date by wire transfer of immediately
                        available funds to Gallagher, for distribution (i) as
                        Sellers shall agree, or (ii) pursuant to a Final Order.

4.      REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF SELLER

        Sellers, jointly and severally, hereby represent and warrant to, and
        agree with, Buyer that as of the Closing Date:

        4.1     Red One is a corporation duly organized, validly existing and in
                good standing under the laws of the State of New Jersey. Red One
                has the corporate power and authority to own and/or lease its
                properties and to conduct the Business in the manner and in the
                places where such properties are now owned, leased or operated
                or the Business is now conducted.

        4.2     Sellers have has not granted any option or other right, nor has
                either Seller entered into any agreement, to sell or otherwise
                dispose of any of the Purchased Assets, or to convey any
                interest therein.

        4.3     Except for the Concept, which is owned by Red One and Gallagher,
                Red One is the owner of and has valid and marketable title to
                each item constituting the Purchased Assets, free and clear of
                all claims, charges, Liens, security interests, pledges and
                encumbrances whatsoever.

        4.4     Each item of Equipment that is not an Excluded Asset is owned by
                Red One.
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        4.5     (i) Each Seller has timely filed, or will timely file, all tax
                reports and returns (the "Tax Returns") in accordance with the
                Internal Revenue Code of 1986, as amended (the "Code")) which
                have become due for all post-petition taxable periods ending on
                or before the Closing Date, and each Seller has paid or withheld
                all taxes due to Federal, state or local taxing authorities
                required to be paid or withheld in respect of the periods
                covered by such Tax Returns. Except as set forth on Schedule
                4.5, neither Seller is delinquent in the payment of any
                post-petition tax, penalty or interest required to be paid by
                such Seller and no unpaid deficiencies for any tax have been
                assessed against either Seller. All Federal, state and local Tax
                Returns filed by or on behalf of each Seller were true and
                correct when filed and no event has occurred subsequent to such
                filing which would require the filing of an amended or corrected
                Tax Return; (ii) neither Seller is undergoing any tax audits, is
                not contesting any tax claimed to be due, and has not granted an
                extension of any statute of limitations, or similar law, to any
                taxing authority for the assessment of any post-petition taxes.
                On or before the Closing Date, either (A) each Seller will
                furnish Buyer with reasonably satisfactory evidence of payment
                of all post-petition taxes (including, but not limited to, real
                estate and personal property taxes) due for all periods prior to
                the Closing Date, or (B) Buyer and the Sellers shall agree on an
                amount to be deposited in escrow pursuant to a mutually
                satisfactory escrow agreement (the "Tax Escrow") on the Closing
                Date, which fund shall be disbursed solely to pay post-petition
                taxes of Red One.

        4.6     Except as set forth on Schedule 4.6 hereto, Red One is not a
                party to any collective bargaining or other agreement with labor
                unions, labor representatives or any other employee groups.

        4.7     Except as set forth on Schedule 4.7 hereto, Red One is not a
                party to any written or oral:

                4.7.1   lease, license or other agreement with respect to
                        personal property, and Schedule 4.7 lists all of the
                        material terms of each such lease, license or other
                        agreement;

                4.7.2   contract of employment or other outstanding contract
                        with any officer, employee, agent, consultant, salesman,
                        advisor, sales representative, supplier, distributor or
                        dealer;

                4.7.3   contract or commitment with respect to advertising
                        services;

                4.7.4   contract or commitment amounting to or involving more
                        than $10,000;

                4.7.5   contract or commitment with any customer, or

                4.7.6   any other contract, commitment or instrument which is
                        material to the Restaurant or the Purchased Assets.

                To Sellers' knowledge, all contracts, commitments, agreements
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                or leases listed on Schedule 4.7 hereto are in full force and
                effect without any default or breach thereof by Red One which
                cannot be cured under such contract or the Bankruptcy Code (and
                all of which shall be cured on and as of the Closing Date), or,
                to the best knowledge of Sellers, by any other party thereto,
                and the benefit, enforcement or validity of all such contracts,
                commitments, agreements or leases are not affected by the
                transactions contemplated by this Agreement. Accurate and
                complete copies of all such contracts have been delivered to
                Buyer.

        4.8     Schedule 1.1.2 hereto is a complete and correct list of all
                trademarks, trade names (registered or unregistered), service
                marks, brand names, copyrights, patents (and applications for
                any of the foregoing) logos, designs or other intangible rights
                or properties of a similar nature (the "Intangible Properties")
                used by, useful to, owned by, or licensed by or to, Sellers.
                Except as set forth on Schedule 1.1.2, Sellers are the lawful
                owners or licensees of all of the aforesaid and have the right
                to use the same in the conduct of the Restaurant. No proceedings
                have been instituted or are pending for royalties in respect
                thereof or which challenge the exclusive or perpetual rights in
                respect thereto or the validity thereof and none of the
                aforesaid is subject to any outstanding order, decree, judgment,
                stipulation or charge; the enforceability and validity of, and
                the obligations of the parties provided in, any agreement
                granting or relating to the Intangible Properties are not
                affected by the transactions contemplated by this Agreement and
                no consent of any party thereto is necessary or required by the
                transactions contemplated by this Agreement.

        4.9     Schedule 4.9 hereto is a list of all employees of Red One and
                the compensation, benefits and all perquisites paid and afforded
                to such employees as of April 30, 1997, including all changes
                made to compensation and benefits from April 30, 1997 to the
                Closing Date. Except as set forth on Schedule 4.9, there are no
                bonuses in respect of work done prior to the date hereof, due to
                or expected by present or former employees of Red One.

        4.10    Annexed hereto as Schedule 4.10 is a list and brief description
                of all policies of insurance maintained by Red One. All premiums
                due to the date hereof on such insurance policies have been paid
                in full, and, except as set forth on Schedule 4.10, all of such
                policies are currently in effect. No insurance company has ever
                denied, or attempted to deny, coverage based upon any allegation
                that Red One has violated or breached the terms of coverage, or
                violated any law or regulation, or failed to meet any standards,
                governing or relating to the sale of products or the rendering
                of services by Red One. All claims made against Red One which
                are covered by insurance are being defended by such insurance
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                companies.

        4.11    Except as set forth on Schedule 4.11 hereto, Red One does not
                have any group health insurance, group life insurance, current
                or future pension, retirement, profit sharing, bonus, or any
                other "employee benefit" plan as defined in Section 3(3) of the
                Employee Retirement Security Act of 1974, as amended, whether or
                not such plans or obligations are of a legally binding nature or
                are in the nature of informal understandings. All obligations
                due to, or for the benefit of, all employees of Red One pursuant
                thereto are the sole liability of Red One and have been, or
                shall be promptly, satisfied by Seller for all periods ending on
                the Closing Date.

        4.12    Except as set forth on Schedule 4.12 hereto, Red One has no
                obligation to file with the Pension Benefit Guaranty Corporation
                any notice of a reportable event arising out of the transactions
                contemplated herein with respect to any employee benefit plan of
                Red One now in effect or to comply with other requirements of
                the Internal Revenue Service, Department of Labor and Pension
                Benefit Guaranty Corporation arising out of the transactions
                contemplated herein with respect to any such employee benefit
                plan. With respect to all pension plans maintained by Red One,
                Red One has satisfied the minimum funding standard of Section
                412 of the Code, and the regulations promulgated thereunder, and
                the filing requirements of Section 6058 of the Code through the
                last plan year of each such plan, and there is no funding
                deficiency under Section 412 of the Code for any such plan.

        4.13    Except as set forth on Schedule 4.13 hereto, neither the
                execution of this Agreement nor the consummation of the
                transactions contemplated hereby will result in any violation
                of, or be in conflict with, the terms of, or require the consent
                of any party to, any contract, agreement, lease, license
                agreement, instrument, commitment or understanding applicable to
                either Seller or will result in the creation of any Lien on, or
                claim to, any of the Purchased Assets.

        4.14    To the best knowledge of Sellers, Red One is in compliance with
                all terms of any instrument and any law, order, rule or
                regulation of the United States, or any state or political
                subdivision, or any agency thereof (including, but not limited
                to, the Federal Occupational Safety and Health Agency,
                Environmental Protection Agency and Department of
                Transportation, and their equivalent state and local agencies)
                which is applicable to Red One, and no complaint or order has
                been filed against Red One by or with, and no notice has been
                issued to Red One by, any such agency in respect of its business
                or operations; Red One is not liable for any arrears, damages,
                taxes or penalties for failure to comply with any of the
                foregoing.
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        4.15    Except as set forth on Schedule 4.15 hereto, the real estate
                leased by Red One and, to the best knowledge of Red One, the
                land and the buildings in proximity hereto, are not, and have
                not been in the past, the site of any activity or condition
                (currently or in the past) which is in violation of Federal,
                state or local statutes, rules, regulations, ordinances,
                administrative orders or rulings relating to the protection of
                the environment or governing or prohibiting the storage, use,
                disposal or transport of pollutants, hazardous substances or
                toxic materials (as such terms are described in such statutes,
                rules, regulations, ordinances, orders or rulings), including,
                but not limited to, in respect of underground storage tanks.

        4.16    Red One holds all governmental licenses, permits and other
                authorizations necessary for the conduct of the Restaurant,
                including good and valid title to the Liquor License, and all
                such licenses, permits and other authorizations to the extent
                that they can be assigned will be duly assigned and transferred
                to Buyer in connection with the transactions contemplated
                herein. Schedule 4.16 hereto is a true and complete list of all
                such licenses, permits and authorizations setting forth the
                issuing entity and the subject matter thereof. All such
                governmental licenses, permits and other authorizations are
                valid and sufficient in all material respects for the Restaurant
                as it is presently conducted by Red One, and Red One does not
                know of any threatened suspension, cancellation or invalidation
                of any such license, permit or other authorization or any threat
                of any proceeding for the suspension, cancellation or
                invalidation of any such license, permit or authorization.

        4.17    Except for the approval of the Bankruptcy Court, no consent,
                approval or authorization of any governmental agency is required
                in connection with the execution and delivery of this Agreement
                by Sellers or the consummation of the transactions contemplated
                herein. Buyer acknowledges and agrees that the sale of the
                Purchased Assets will be subject to higher and better offers,
                and that Sellers shall have no liability to Buyer (i) if the
                Purchased Assets are sold pursuant to a higher and better offer,
                or (ii) the Bankruptcy Court does not approve the sale of the
                Purchased Assets to Buyer.

        4.18    The execution and delivery of this Agreement, and the
                consummation of the transactions contemplated herein, have been
                duly authorized by the Board of Directors and shareholders of
                Red One and no other proceedings on the part of Red One is
                necessary to authorize this Agreement, nor the carrying out of
                the transactions contemplated herein.

        4.19    The execution, delivery, and performance of this Agreement, and
                the consummation of the transactions contemplated herein, will
<PAGE>   10

                not violate, or result in a breach of, with, or constitute (with
                or without due notice or lapse of time or both) a default or
                give rise to any right of termination, cancellation or
                acceleration under any charter or by law, or agreement,
                instrument, judgment, or decree to which either Seller is a
                party or to which either Seller is subject or bound. This
                Agreement, upon the approval of the Bankruptcy Court, shall be
                the valid and binding obligation of each Seller, enforceable
                against each Seller in accordance with its terms.

        4.20    All persons who have executed this Agreement on behalf of Red
                One are the duly elected, qualified and acting incumbents of the
                corporate offices under authority of which they have purported
                to act, and each of them has been authorized by all necessary
                corporate action of Red One to execute and deliver this
                Agreement and bind Red One to the engagements undertaken by it
                in this Agreement, and the other transactions contemplated
                herein.

        4.21    Except as set forth on Schedule 4.21 hereto, all agreements
                between Sellers and any officer, director or employee of Sellers
                or any of its affiliates relating to the Restaurant shall
                terminate on the Closing Date without liability or obligation of
                Buyer to any of such persons.

        4.22    No representation or warranty made by Sellers in this Agreement,
                or in any document, Schedule, certificate, or other instrument
                delivered or deliverable pursuant to the terms hereof, contains
                or will contain, any untrue statement of a material fact or
                omits, or will omit, to state a material fact necessary in order
                to make the statements made, in light of the circumstances under
                which they were made, not misleading.

        4.23    Sellers may attach, amend or supplement any schedule hereto at
                any time prior to the Closing Date; provided, however, that (1)
                all schedules shall have been completed and delivered at least
                seven days prior to the Closing Date, and (2) Buyer may
                temrinate this Agreement without liability if any schedule
                delivered after the date hereof demonstrates a material adverse
                change in the condition of the Purchased Assets, taken as a
                whole.

5.      REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF BUYER

        Buyer hereby represents and warrants to, and agrees with Seller that on
        the date hereof and the Closing Date:

        5.1     Buyer is a corporation duly organized, validly existing and in
                good standing under the laws of the State of Delaware and has
                full corporate power and authority to own, operate and lease its
                properties and conduct its business as now owned, operated,
                leased and conducted.

        5.2     The execution and delivery of this Agreement, and the
                consummation
<PAGE>   11

                of the transactions contemplated herein, have been duly
                authorized by Buyer, and no other proceedings on the part of
                Buyer are necessary to authorize this Agreement and, nor the
                carrying out of the transactions contemplated herein. Buyer is
                not required to obtain bankruptcy court approval in connection
                with the execution and delivery of this Agreement or the
                consummation of the transactions contemplated hereby.

        5.3     The execution delivery and performance of this Agreement, and
                the consummation of the transactions contemplated herein, will
                not violate, or result in a breach of, or constitute (with or
                without due notice or lapse of time or both) a default (or give
                rise to any right of termination, cancellation or acceleration)
                under any charter or by-law, or agreement, instrument, judgment,
                or decree to which Buyer is a party, or to which it is subject
                or bound.

        5.4     This Agreement will be, upon execution and delivery thereof by
                Buyer, the valid and binding obligations of Buyer, and will be
                enforceable in accordance with its terms, except as limited by
                applicable bankruptcy, insolvency or other laws affecting the
                enforcement of creditors rights generally.

        5.5     Buyer has performed its own due diligence of the Purchased
                Assets, and by execution of this Agreement, has accepted the
                condition of the Purchased Assets as of the date hereof. Buyer
                has reviewed the terms of the Lease, and the terms of the Lease
                is acceptable to Buyer.

        5.6     Buyer has the financial capacity to consummate the acquisition
                of the Purchased Assets.

        5.7     Buyer is current in the payment of all licensing fees owed to
                Red One as of the date of this Agreement; if there are any
                outstanding licensing fees due on the Closing Date to Red One,
                Buyer shall make payment of all amounts due on the Closing Date.
                Nothing contained in this Agreement shall affect Buyer's
                obligation to continue to pay licensing fees to Red One through
                and until the Closing Date pursuant to that certain License
                Agreement dated _________, 1996 between Red One and Buyer. Upon
                Buyer's performance in full of its obligations under this
                Section 5.7, on the Closing Date the licensing fees payable by
                Buyer to Red One shall terminate.

6.      SURVIVAL OF REPRESENTATIONS

        Notwithstanding any investigation or opportunity to investigate by or on
        behalf of Buyer or Seller, all representations and warranties made in
        this Agreement or in any Schedule, Exhibit, certificate, statement or
        other document delivered or deliverable in connection with this
        Agreement, shall remain in full force and effect and shall survive the
        consummation of the transactions contemplated herein.

7.      CONDITIONS TO OBLIGATIONS OF BUYER

        The obligations of Buyer hereunder are, at the option of Buyer, subject
<PAGE>   12

        to and conditioned upon the satisfaction, at or prior to the Closing
        Date, of each of the following conditions:

        7.1     All of the representations and warranties of Sellers contained
                herein or otherwise made in writing in connection with the
                transactions contemplated hereby shall be true and correct as of
                the Closing Date, and Sellers shall have complied with and
                performed all of the agreements and conditions on Sellers' part
                to be complied with or performed pursuant to this Agreement on
                or before the Closing Date. Without limitation of the foregoing,
                Sellers shall have paid all post-petition taxes on or prior to
                the Closing Date and shall have provided Buyer with satisfactory
                evidence of such payment.

        7.2     Buyer shall receive all of the documents required pursuant to
                Section 9 hereof.

        7.3     The Bankruptcy Court shall have issued a Final Order approving
                the sale of the Purchased Assets to Buyer on terms acceptable to
                Buyer. The Final Order shall contain a finding that Red Three
                has no interest in the Concept.

        7.4     Prior to the Closing Date, there shall not have occurred any
                event or condition that would make the premises subject to the
                Lease unfit, in whole or in substantial part, for operation as a
                restaurant. Without limitation of the foregoing, prior to the
                Closing Date, the Restaurant shall not have suffered or
                experienced any fire, flood, tornado or other similar and
                substantial catastrophe or act of God.

        7.5     No litigation shall be pending or, to the knowledge of Seller,
                threatened, involving or affecting the Purchased Assets.

8.      DELIVERIES OF SELLER

        The closing of the transactions contemplated herein (the "Closing")
        shall take place on or about June 2, 1997 (the "Closing Date"). In the
        event the Closing does not occur on said date, the Closing shall occur
        on such other date within three days following satisfaction of all of
        the conditions to Closing as Buyer and Seller shall mutually agree;
        provided, however, that in no event shall the Closing Date occur after
        June 16, 1997. In such event, the terms "Closing" or "Closing Date"
        shall mean such other date on which the closing occurs. If the closing
        occurs on the date of execution of this Agreement, the term "Closing
        Date" shall mean the date hereof. On the Closing Date, Seller shall
        deliver, or cause to be delivered, to Buyer:

        8.1     All conveyances, deeds, assignments, bills of sale,
                confirmations, powers of attorney, approvals, consents,
                agreements and any and all further instruments as may be
                necessary, expedient or proper in order to complete any and all
                conveyances, transfers and assignments herein provided for and
                to convey to Buyer such title to the Purchased Assets as Sellers
                are obligated hereunder to convey,
<PAGE>   13

        8.2     Certified copies of the resolutions adopted by the Board of
                Directors of Red One authorizing this Agreement and the
                transactions contemplated hereby,

        8.3A    certificate of an executive officer of Red One, certifying that
                the representations and warranties made hereunder are true and
                correct on and as of the Closing Date,

        8.4     Possession of the Purchased Assets.

9.      BROKERS

        9.1     Except for Equity Enterprises Inc. whose fee shall be paid by
                Sellers, the parties represent and warrant to each other that no
                broker or finder was retained or used by any of them in
                connection with the transactions contemplated herein.

        9.2     Except as set forth in Section 10.1, the parties each agree to
                indemnify and hold the other harmless from and against any and
                all loss, cost, damage, claim and expense (including reasonable
                attorneys' fees) which the other may sustain or which may be
                asserted against the other by reason of any claim for
                compensation by any person, firm or corporation hired, retained
                or introduced by the indemnifying party in connection with the
                transactions contemplated hereby.

10.     INDEMNIFICATION

        10.1    Sellers agree to and do hereby indemnify and hold harmless
                Buyer, and its respective officers, directors, stockholders,
                affiliates, agents and employees, and their successors and
                assigns, from and against any claim against Buyer and against
                any other loss, cost, liability, judgment, damage or expense
                (including, without limitation, all expenses, reasonable
                attorneys' fees and court costs) incurred by Buyer as a result
                of, or which involves, (i) the inaccuracy of any representation
                or the breach of any warranty made by Sellers or the failure of
                Sellers to perform any covenants contained in this Agreement or
                in any other document or agreement delivered or deliverable
                pursuant hereto, or (ii) any failure of Sellers at any time
                after the petition date and prior to the Closing Date to comply
                with any applicable law, order and regulation of any Federal,
                state, municipal or other governmental department, commission,
                board, agency or instrumentality, domestic or foreign, having
                jurisdiction over it or its operations including, but not
                limited to, any law, order or regulation relating to wages,
                hours, prices, collective bargaining, the payment of
                withholding, payroll and social security taxes, the environment,
                or (iii) any liability of any form or nature asserted against
                Buyer relating to Red One's operation of the Restaurant on or
                prior to the Closing.

        10.2    Buyer agrees to and does hereby indemnify and hold harmless
                Gallagher and Red One, and Red One's officers, directors,
                parent, affiliate, agents and employees, and their successors
                and
<PAGE>   14

                assigns, from and against any claim against Sellers and against
                any other loss, cost, liability, judgment, damage or expense
                (including without limitation, all expenses, reasonable
                attorneys' fees and court costs) incurred by Seller as a result
                of, or which involves, (i) the inaccuracy of any representation
                or the breach of any warranty made by Buyer in this Agreement,
                or (ii) the failure of Buyer to perform any covenants or
                agreements in this Agreement, or in any other document or
                agreement delivered or deliverable pursuant hereto, or (iii) the
                use of the Purchased Assets or the operation of the Restaurant
                on and after the Closing Date.

        10.3    Promptly after receipt by an indemnified party pursuant to the
                provisions of this Section 11 of notice of the commencement of
                any action or the assertion of any claim, such indemnified party
                will notify the indemnifying party if a claim thereto is to be
                made against the indemnifying party. In the event that any
                action is commenced against an indemnified party by a third
                party and the indemnified party promptly notifies the
                indemnifying party of the commencement thereof, the indemnifying
                party will have the option, exercisable by sending written
                notice to the indemnified party, within ten (10) days of receipt
                of the indemnified party's notice, of either (i) approving the
                claim and authorizing payment of the amount set forth in such
                notice; or (ii) assuming the defense of such action with counsel
                satisfactory to the indemnified party; and after notice from the
                indemnifying party to the indemnified party of its election to
                assume the defense of such action, the indemnifying party will
                not be liable to the indemnified party for any legal or other
                expenses subsequently incurred by the indemnified party in
                connection with the defense of such action, other than
                reasonable costs of investigation.

11.     ADDITIONAL PROVISIONS

        11.1    Buyer and Sellers shall execute and deliver or cause to be
                executed and delivered to the other such further instruments,
                documents and conveyances and shall take such other action as
                may be reasonably required to more effectively carry out the
                terms and provisions of this Agreement.

        11.2    This Agreement shall be binding upon and inure to the benefit of
                Buyer and Sellers and their successors and assigns. This
                Agreement shall not be assignable by Sellers or Buyer without
                the prior written consent of the other. Buyer may assign its
                rights pursuant to this Agreement to an entity which is under
                common control with Buyer, or which Buyer controls ("Assignee");
                provided, however, that any such assignment shall not affect,
                the obligations of Buyer to Sellers as set forth herein.

        11.3    This Agreement and the documents referred to herein constitute
                the
<PAGE>   15

                whole agreement among the parties, and there are no terms other
                than as are contained herein or therein. No variation hereof or
                thereof shall be deemed valid unless by full performance by the
                parties hereto or by a writing signed by the parties hereto.

        11.4    This Agreement shall be governed by the laws of the State of New
                Jersey, without giving effect to the principles of conflicts of
                laws.

        11.5    All notices and other communications hereunder shall be in
                writing and shall be given (and shall be deemed to have been
                duly given upon receipt) by delivery in person by recognized
                courier, telegram, telex, facsimile or other standard form of
                telecommunication, or by registered or certified post-paid mail,
                return receipt requested, and addressed as follows, or to such
                other address as any party may notify the other in accordance
                with the provisions hereof:

                To Buyer: Magic Restaurants, Inc.        
                One Executive Boulevard
                Yonkers, New York 10701
                Attention: Charles Olson, Jr.

                       -copy to-

                Berlack, Israels & Liberman LLP
                120 West 45th Street
                New York, N.Y. 10036
                Attention: Stephen B. Selbst, Esq.
                
                To Red One: Red One, Inc.
                c/o Karasic, Stone & Marvel
                255 Monmouth Road
                Oakhurst, New Jersey 07755
                Attention: Joseph Castelluccia. Esq.
                
                To Gallagher: John M. Gallagher
                c/o Ravin, Greenberg & Marks, P.A.
                101 Eisenhower Parkway
                Roseland, New Jersey 07068
                Attention: Larry Lesnik, Esq.

        1.1     This Agreement may be executed in counterparts, each of which
                shall be an original, but all of which shall be deemed to be one
                and the same instrument.

        1.2     The headings in this Agreement are for the convenience of
                reference only, and shall not affect in any manner any of the
                terms or provisions hereof. For purposes of this Agreement,
                where applicable, the masculine gender shall also include the
                feminine gender.

        1.3     Whether or not the transactions contemplated herein are
                consummated, each of parties hereto shall be solely liable for
                the fees and expenses incurred by such party's attorneys,
                accountants and other representatives in connection with the
                preparation of
<PAGE>   16

                this Agreement, the documents deliverable hereunder and any
                investigation or examination authorized herein.

                IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.

MAGIC RESTAURANTS, INC.              


By:__________________________________
Title: Chief Financial Officer


RED ONE, INC., as debtor and
debtor-in-possession


By:__________________________________

Title: ______________________________




_____________________________________
John Michael Gallagher, as debtor and
       debtor-in-possession