Exhibit 10.38

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF
UNDER SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO THE COMPANY AND ITS COUNSEL AND FROM ATTORNEYS REASONABLY
ACCEPTABLE TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED.

No. 1                                                          December 21, 1998
                          GALVESTON'S STEAKHOUSE CORP.
                            SECURED EXCHANGEABLE NOTE
                             DUE SEPTEMBER 28, 2003

         FOR VALUE RECEIVED, GALVESTON'S STEAKHOUSE CORP., a Delaware
corporation (the "Company") hereby promises to pay to Talisman Capital
Opportunity Fund Ltd. having an address at 16101 La Grande Drive, Suite 100,
Little Rock, Arkansas, 72211 (the "Noteholder"), or registered assigns, on or
before September 28, 2003 (the "Maturity Date"), the principal sum of
$1,350,000.00 (one million three hundred fifty thousand dollars) and to pay
interest from the date hereof on the principal sum remaining unpaid at the rate
of 12.000% per annum based on a 360-day year, such interest to accrue from the
date hereof and to be payable upon exchange of the Note into common stock, until
the whole amount of principal hereof shall be paid. The Coupon Rate of the Note
shall increase by 225 basis points every 360 days, up to a maximum of 25%.
Principal and interest shall be payable in lawful money of the United States of
America at the principal office of the Noteholder or at such other place as the
registered holder may designate from time to time in writing to the Company.


1.       EXCHANGE.

          (a) For the first 90 calendar days following Closing the Exchange
              Price shall be $ 5.50. On the 91st calendar day following Closing,
              the Exchange Price shall be the Noteholders option of:

              (i)      $5.500; or

   
              (ii)     The average of the four low trades in the primary
                       market for trading in the Company's common stock
                       (as defined by Bloomberg L.P.) over the 22
                       trading days immediately preceding the Exchange
                       Date, reduced by the Exchange Discount (as
                       defined below) in effect during that particular
                       calendar month. The Exchange Discount shall be as
                       follows:

                                       1

<PAGE>
                 DAYS FROM DECEMBER 21,1998         DISCOUNT
                 91-180                             15.0%
                 181-270                            20.0%
                 271- maturity                      25.0%
    

          (b) In order to effect the exchange of all or part of the Note, the
              Noteholder shall issue a Notice of Exchange substantially in the
              form attached hereto (the "Notice of Exchange") which may be sent
              via facsimile or regular mail and surrender the Note for Exchange
              within three (3) business days if the Note is not already in
              possession of the Company. The Notice of Exchange pertaining to
              any portion of the Note may be tendered for exchange up to 12:00
              p.m. Central Standard Time (the "Exchange Date") and is deemed to
              have been tendered upon confirmation of facsimile being sent or
              deposit into the mail. Exchange occurs once the Notice of Exchange
              has been delivered to the Company (which delivery may be by
              facsimile). The Notice of Exchange will include all pricing
              observations up to and including the trading date immediately
              preceding the Exchange Date. To the extent that any portion of the
              Note is exchanged, the rights of the Noteholder with respect to
              such portion of the Note shall cease and the Noteholder shall be
              deemed to have become the holder of record of the shares of
              Exchange Shares represented thereby.

          (c) No fractional Common shares shall be issued upon Exchange of the
              Note. In lieu of any fractional share to which the holder would
              otherwise be entitled, the Company shall round up to the nearest
              whole Common Size. In the case of a dispute as to the calculation
              of the Exchange Price, the Purchaser's calculation shall be deemed
              conclusive absent manifest error.

          (d) Within five days after exchange has been effected, the Company
              will deliver, either via Express Mail or DTC/DWAC electronic
              transfer to the Noteholder:

                                (i) a certificate or certificates representing
                                    the number of exchange Shares issuable by
                                    reason of exchange in the name of the
                                    Noteholder and in such denomination or
                                    denominations as the Noteholder has
                                    specified; and

                               (ii) a new Note representing any principal
                                    balance which was not exchanged into
                                    Exchange Shares in connection with such
                                    exchange.

          (e) The issuance of certificates for Exchange Shares upon Exchange of
              the Note and/or interest will be delivered by the Company within
              five business days of the Notice of Exchange or the interest 
              payment due date and will be made without charge to the Noteholder
              for any issuance tax in respect thereof or other cost incurred by 
              the Company in connection with such exchange and the related
              issuance of Exchange Shares. In the event the certificates are not

                                       2
<PAGE>

              delivered within such five business day period, the Company shall 
              pay to the Noteholder Liquidated Damages as listed below for each 
              day until the date such certificates are delivered to the 
              Noteholder. Such Liquidated Damages shall be paid within three (3)
              days of delivery of the shares or within three (3) days of the end
              of each 30 day period.
   
                                              Liquidated Damages For Each
                                              $10,000 of Note Principal
                No. Business Days Late        Amount Being Exchanged
                ----------------------        ----------------------
                         1                    $100
                         2                    $200
                         3                    $300
                         4                    $400
                         5                    $500
                         6                    $600
                         7                    $700
                         8                    $800
                         9                    $900
                         10                   $1000
                         >10                  1000 + $200 for each Business Day
                                              Late beyond 10 days.
    

          (f) The Company shall at all times have authorized, reserved and set
              aside a sufficient number of Common Shares for the exchange of all
              shares with respect to the Note and interest then outstanding to
              facilitate exchange thereof.

          (g) The Exchange Price in effect at any time and the number and kind
              of securities issuable upon the exercise of the Note shall be
              subject to adjustment from time to time upon the happening of
              certain events as follows after the date hereof and through and
              including the Maturity Date:

                              (i) In case the Company shall (1) declare a
                                  dividend or make a distribution to its
                                  outstanding shares of Common Stock in shares
                                  of Common Stock, (2) subdivide or reclassify
                                  its outstanding shares of Common Stock into a
                                  greater number of shares, or (3) combine or
                                  reclassify its outstanding shares of Common
                                  Stock into a smaller number of shares, the
                                  Exchange Price in effect at the time of the
                                  record date for such dividend or distribution
                                  or of the effective date of such subdivision,
                                  combination or reclassification shall be
                                  adjusted so that it shall equal the price
                                  determined by multiplying the Exchange Price
                                  by a fraction, the denominator of which shall
                                  be the number of shares of Common Stock
                                  outstanding after giving effect to such
                                  action, and the numerator of which shall be
                                  the number of shares of Common Stock
                                  immediately prior to such action. Such
                                  adjustment shall be made each time any event
                                  listed above shall occur.

                             (ii) Whenever the Exchange Price is adjusted
                                  pursuant to Subsection (i) above, the number
                                  of Exchange Shares purchasable upon exchange
                                  of the Note shall be simultaneously be
                                  adjusted by multiplying the number of Exchange
                                  Shares initially issuable upon exchange of the
                                  Note by the 

                                        3

<PAGE>
                                  Exchange Price in effect on the date hereof 
                                  and dividing the product so obtained by the
                                  Exchange Price, as adjusted.

                            (iii) All calculations under this Section 1.3(g)
                                  shall be made to the nearest cent or to the
                                  nearest one-hundredth of a share, as the
                                  case may be.

                             (iv) Whenever the Exchange Price is adjusted, as
                                  herein provided, the Company shall promptly
                                  cause a notice setting forth the adjusted
                                  Exchange Price and adjusted number of Exchange
                                  Shares issuable upon exercise of the Note to
                                  be mailed to the Noteholder, at its last
                                  address appearing in the Company's register.
                                  The Company may retain a firm of independent
                                  certified public accountants selected by the
                                  Board of Directors (who may be the regular
                                  accountants employed by the Company) to make
                                  any computation required by this Section
                                  1.3(g)(iii), and a certificate signed by such
                                  firm or the Company's Chief Financial Officer
                                  shall be conclusive evidence of the
                                  correctness of such adjustment.

         (h)  In the event of a merger, reorganization, recapitalization or
              similar event of or with respect to the Company (a "Corporate
              Change") (other than a Corporate Change in which all or
              substantially all of the consideration received by the holders of
              the Company's equity securities upon such Corporate Change
              consists of cash or assets other than securities issued by the
              acquiring entity or any affiliate thereof), this Note shall be
              exchangeable into such class and type or securities as the holder
              would have received had the holder exchanged the Note immediately
              prior to such Corporate Change, as appropriately adjusted to
              equitably reflect the Exchange Price and any stock dividend, stock
              split or share combination of the Common Stock after such
              corporate event.

         (i)  Effective as of September 28, 2003, all remaining principal amount
              of this Note not exchanged plus all accrued and unpaid interest
              and fees shall automatically and without further action on the
              part of such holders, be paid in cash.

         (j)  If the Common Stock issuable upon exchange of this Note at any
              time or from time to time after the Issuance Date shall be changed
              into the same or different number of shares of any class or
              classes of stock, whether by reclassification, exchange,
              substitution or otherwise (other than by way of a stock split or
              combination of shares or stock dividends provided for in Sections
              1g(i) and g(ii), or a reorganization, merger, consolidation or
              sale of assets provided for in Section 1h, then, and in each
              event, an appropriate revision to the exchange Price shall be made
              and provisions shall be made (by adjustments of Exchange Price or
              otherwise) so that the holder of this Note shall have the right
              thereafter to convert such Note into the kind and amount of shares
              of stock and other securities receivable upon reclassification,
              exchange, substitution or other change, by the Holder of the
              number of shares of Common Stock into which such Note might have
              been exchanged immediately prior to such reclassifications,
              exchange, substitution or other change, all subject to further
              adjustment as provided herein.

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<PAGE>

         (k)  For the life of the Note, if there shall be a capital
              reorganization of the Company (other than by way of a stock split
              or combination of shares or stock dividends provided for in
              Sections g(i) and (ii)), or a reorganization, merger,
              consolidation or sale of assets provided for in Section h, then,
              and in each event, an appropriate revision to the Exchange Price
              shall be made and provisions shall be made (by adjustments of
              Exchange Price or otherwise) so that the holder of this Note shall
              have the right thereafter to convert this Note into the kind and
              amount of shares of stock and other securities or property of the
              Company or any successor corporation resulting from such
              reorganization, merger, consolidation, or sale, to which a holder
              of Common Stock deliverable upon exchange of such shares would
              have been entitled upon such reorganization, merger,
              consolidation, or sale. In any such case, appropriate adjustment
              shall be made in the application of the provisions of this Section
              1(k) with respect to the rights of the Holder of this Note after
              the reorganization, merger, consolidation or sale to the end that
              the provisions of this Section 1(k) (including any adjustment in
              the applicable Exchange Ratio then in effect and the number of
              shares of stock or other securities deliverable upon exchange of
              this Note) shall be applied after that event in as nearly an
              equivalent manner as may be practicable.

         (l)  For 36 months following the Issuance Date, if the Company shall
              issue or sell any shares of Common Stock to any party other than
              Company Employees for a consideration per share which shall be
              less than eighty (80%) percent of the Average Closing Bid Price
              per share of Common Stock for the five (5) consecutive trading
              days immediately prior to the time of such issue or sale (the
              "Trigger Price"), then forthwith upon such issue or sale, the
              number of shares of Common Stock issuable upon exchange of the
              Note in effect immediately prior to such issue or sale shall be
              adjusted by multiplying the number of shares of Common Stock
              issuable upon exchange of the Note in effect immediately prior to
              the time of such issue or sale by a fraction:

                       (A) the numerator of which shall be (i) the total number
                           of shares of Common Stock issued and outstanding
                           immediately after such issue or sale, multiplied by
                           (ii) the Trigger Price; and

                       (B) the denominator of which shall be the sum of (i) the
                           number of shares of Common Stock outstanding
                           immediately prior to such issue or sale multiplied by
                           the Trigger Price, plus (ii) the consideration
                           received by the Company upon such issue or sale.

         (m)  In case at any time the Company shall grant, issue or sell
              (whether directly or by assumption in a merger or otherwise) any
              rights or warrants to subscribe for or to purchase, or any options
              for the purchase of Common Stock or any stock or securities
              exchangeable into or exchangeable for Common Stock, whether or not
              such rights or warrants or options or the right to convert or
              exchange any such Exchangeable Securities are immediately
              exercisable, and the price per share for which Common Stock is
              issuable upon the exercise of 

                                       5
<PAGE>

              such rights or warrants or options or upon exchange or exchange of
              such Exchangeable Securities shall be less than the Trigger Price 
              as of the date of granting such rights or warrants or options as 
              the case may be, then the total maximum number of shares of Common
              Stock issuable upon the exercise of such rights (other than rights
              issued pursuant to a stockholders rights plan adopted by the
              Company) or warrants or options or upon exchange or exchange of
              the total maximum amount of such Exchangeable Securities issuable
              upon the exercise of such rights or warrants or options shall (as
              of the date of granting of such rights or warrants or options) be
              deemed to be outstanding and to have been issued for such price
              per share.

         (n)  No further adjustments of the number of shares of Common Stock
              issuable upon exchange of this Note shall be made upon the actual
              issue of such Common Stock or of such Exchangeable Securities upon
              exercise of such rights or warrants or options or upon the actual
              issue of such Common Stock upon exchange of such Exchangeable
              Securities.

         (o)  The Company shall not, by amendment of its Certificate of
              Incorporation or through any reorganization, transfer of assets,
              consolidation, merger, dissolution, issue or sale of securities or
              any other voluntary action, avoid or seek to avoid the observance
              or performance of any of the terms to be observed or performed
              hereunder by the Company, but will at all times in good faith,
              assist in the carrying out of all the provisions herein and in the
              Note Purchase Agreement in the taking of all such action as may be
              necessary or appropriate in order to protect the Exchange Rights
              of the Holder against impairment.

         (p)  Upon occurrence of each adjustment or readjustment of the Exchange
              Price or number of shares of Common Stock issuable upon exchange
              of the Note pursuant to this Section 1, the Company at its expense
              shall promptly compute such adjustment or readjustment in
              accordance with the terms hereof and furnish notice to each holder
              of such Note, a certificate setting forth such adjustment and
              readjustment. The Company shall, upon written request of the
              Holder, furnish or cause to be furnished to such Holder a like
              certificate setting forth such adjustments and readjustments, the
              applicable Exchange Price in effect at the time and the number of
              shares of Common Stock and the amount, if any, of other securities
              or property which at the time would be received upon the exchange
              of such Note.

         (q)  The Company shall pay any and all issue and other taxes, excluding
              federal, state or local income taxes, that may be payable in
              respect of any issue or delivery of shares of Common Stock on
              exchange of this Note pursuant hereto; provided that the Company
              shall not be obligated to pay any transfer taxes resulting from
              any transfer requested by any holder in connection with any such
              exchange.

                                       6

<PAGE>

         (r)  The Company shall at all times reserve and keep available, out of
              its authorized but unused shares of Common Stock, solely for the
              purpose of effecting the exchange of the Note, the full number of
              shares deliverable upon exchange of all the Note from time to time
              outstanding. The Company shall, from time to time in accordance
              with the Delaware General Corporations Law, as amended, increase
              the authorized number of shares of Common Stock if at any time the
              unused number of authorized shares shall not be sufficient to
              permit the exchange of all of the Note at the time outstanding. In
              such connection, the Company shall hold a special meeting of
              stockholders for the purpose of authorizing additional shares of
              Common Stock not later than 120 days after any date in which the
              Company shall have insufficient shares of Common Stock so
              reserved. Failure to keep available and authorized unissued shares
              available to facilitate exchanges of the Notes shall constitute an
              Event of Default hereunder.

   
         (s)  At any time after the Closing Date, the Company may call the Note
              from the Holder at the greater of: (a) 150% premium to par value
              of the Note plus all accrued and unpaid interest and fees; or (b)
              the intrinsic value of the Note plus accrued interest and any
              unpaid fees and expenses; intrinsic value is herein defined as:
              (applicable market price - maximum exchange price) x ((principal
              amount of Note outstanding + any and all accrued and unpaid
              interest + fees)/ (maximum exchange price)). The Company must give
              the Holder ten (10) trading days notice, via facsimile and
              overnight courier prior to calling the Note. The company expressly
              warrants that by the issuance of a Call for Redemption of the
              Note, that it has cash available to make such redemption. A Call
              for Redemption of the Note is irrevocable once issued by the
              Company. Redemptions must be paid in cash on the 10th trading day
              following its issuance. Failure to pay such redemption shall
              constitute an Event of Default under the terms of this Note.
    

         (t)  Once the Buyer submits a Notice of Exchange, as described in
              Section 1(b) herein, the Company may not Call that portion of the
              Note tendered for exchange.

2.   REGISTRAR. The Company shall maintain at its principal office a register of
     the Notes and shall record therein the names and addresses of the
     registered holders of the Notes, the address to which notices are to be
     sent and the address to which payments are to be made as designated by the
     registered holder if other than the address of the holder, and the
     particulars of all transfers, exchanges and replacements of Notes. No
     transfer of a Note shall be valid unless the registered holder or his or
     its duly appointed attorney request such transfer to be made on such
     register, upon surrender thereof for exchange as hereinafter provided,
     accompanied by an instrument in writing, in form and execution reasonably
     satisfactory to the Company. Each Note issued hereunder, whether originally
     or upon transfer, exchange or replacement of a Note, shall be registered on
     the date of execution thereof by the Company. The registered holder of a
     Note shall be that person or entity in whose 


                                       7

<PAGE>
     name the Note has been so registered by the Company. A registered holder 
     shall be deemed the owner of a Note for all purposes, and the Company shall
     not be affected by any notice to the contrary.

3.   TRANSFER AND EXCHANGE. Subject to compliance with the restriction on
     transfer set forth in the Notice Purchase Agreement, the registered holder
     of any Note or Notes may, prior to maturity, surrender such Note or Notes
     at the principal office of the Company for holder of its intention to make
     such exchange and without expense (other than applicable transfer taxes, if
     any) to such registered holder, the Company shall issue in exchange
     therefor another Note or Notes dated the date to which interest has been
     paid on, and for the unpaid principal amount of, the Note or Notes so
     surrendered, containing the same provisions and subject to the same terms
     and conditions as the Note or Notes so surrendered. Subject to the
     restrictions on transfer set forth in the Note Purchase Agreement, each new
     Note shall be made payable to such person or entity, as the registered
     holder of such surrendered Note or Notes may designate.

4.   REPLACEMENT. Upon receipt of evidence satisfactory to the Company of the
     loss, theft, destruction, or mutilation of any Note and, if requested by
     the Company in the case of any such loss, theft or destruction, upon
     delivery of an indemnity bond or other agreement or security reasonably
     satisfactory to the Company, or, in the case of any such mutilation, upon
     surrender and cancellation of such Note, the Company will issue a new Note,
     of like tenor, in the amount of unpaid principal of such Note, and dated
     the date to which interest has been paid, in lieu of such lost, stolen,
     destroyed or mutilated Note.

5.   DEFAULT. The Company shall be in default under this Note upon the
     occurrence of: (i) any of the events specified in Section 5 hereof and
     failure to cure such default within five (5) days after receipt of written
     notice thereof from the Noteholder; (ii) any of the events specified in
     Section 5(b) or 5(d) hereof and the failure to cure such default within ten
     (10) days after receipt of written notice thereof from the Noteholder; or
     (iii) any of the events specified in Section 5(c) hereof (any of the
     foregoing being an "Event of Default"):

                       (a) Failure to make any principal or interest payment 
                           required under this Note on the due date of such
                           payment;

                       (b) If the Company shall default in the performance of or
                           compliance with any of its material covenants or
                           agreements contained herein, whether expressed or
                           implied, or in the Purchase Agreement, and such
                           default shall not have been remedied within ten (10)
                           calendar days after written notice thereof shall have
                           been delivered to the Company by the Holder of this
                           Note;

                       (c) Insolvency of, business failure of, or an assignment
                           for the benefit of creditors by or the filing of a
                           petition under bankruptcy, 


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<PAGE>

                           insolvency or debtor's relief law, or for any 
                           readjustment of indebtedness, composition or 
                           extension by the Company, or commenced against the 
                           Company which is not discharged within thirty (30) 
                           days;

                       (d) If the Company shall not, at the time of receipt of a
                           exchange Notice hereunder, have a sufficient number
                           of authorized and unissued shares of its Common Stock
                           available for issuance to the holder of this Note
                           upon exchange of all or any portion of this Note in
                           accordance with the terms hereof, and such default
                           shall not have been remedied within thirty (30)
                           calendar days from the date of such Exchange Notice;

                       (e) If any representation or warranty made in writing by
                           or on behalf of the Company in the Purchase Agreement
                           shall prove to have been false or incorrect in any
                           material respect on the date as of which made;

                       (f) If the Company shall make an assignment for the
                           benefit of creditors, or shall admit in writing its
                           inability to pay its debts as they become due, or
                           shall file a voluntary petition in bankruptcy or
                           shall have an order for relief under the Bankruptcy
                           Act granted against it or them, or shall be
                           adjudicated bankrupt or insolvent, or shall file any
                           answer seeking for itself any reorganization,
                           arrangement, composition, readjustment, liquidation,
                           dissolution or similar relief under any present or
                           future statute, law or regulation, or shall file any
                           answer admitting or not contesting the material
                           allegations of a petition filed against the Company
                           in any such proceeding, or shall seek or consent to
                           or acquiesce in the appointment of any trustee,
                           custodian, receiver or liquidator of the Company or
                           of all or any substantial part of the properties of
                           the Company, or the Company or its directors shall
                           take any action looking to the dissolution or
                           liquidation of the Company.

                       (g) If the Company fails to deliver Exchange Shares
                           within 10 days from the Notice of Exchange Date;

                       (h) If the Company fails to pay Liquidated Damage amounts
                           due to lack of registration or late SEC registration
                           of underlying common shares;

                       (i) If the Company fails to pay Liquidated Damages due to
                           the Noteholder due to the late delivery of shares;

                       (j) If the Company fails to pay the Redemption amount
                           within 10 days as specified in Section 1(s) herein;

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<PAGE>

                       (k) If the Company fails to deliver to the Purchaser
                           completed collateral security documentation with
                           regard to the Collateral, Pledge and Security
                           Agreement, and such default shall not have been
                           remedied within five (5) calendar days after written
                           notice thereof shall have been delivered to the
                           Company by the Holder of this Note.

6.   REMEDIES UPON EVENT OF DEFAULT. Upon the occurrence of an Event of Default,
     the Company agrees that monetary damages may be difficult or impossible to
     determine, and alone are inadequate protections for the Noteholders.
     Therefore, the Purchaser may, in its sole determination upon the occurrence
     of an Event of Default, declare the Note immediately due and payable.

     The Noteholder shall have all the rights and remedies, at law and in
     equity, by statue or otherwise, and no remedy herein conferred upon the
     Noteholder is intended to be exclusive of any other remedy and each remedy
     shall be cumulative and shall be in addition to every other remedy given
     hereunder or now or hereafter existing at law, in, equity by statue or
     otherwise. Furthermore, the Noteholder shall been able to call on
     injunctive relief and/or a specific order for compliance as determined by
     the Noteholders in their sole discretion and as so ordered by a court of
     law.

7.   CHANGES: PARTIES. This Note can only be changed by an agreement in writing 
     signed by the Company and the Noteholder. This Note shall inure to the 
     benefit of and be binding upon the Company and the Noteholder and their 
     respective successors and assigns.

8.   WAIVER OF PRESENTMENT. The Company hereby waives, presentment, demand,
     notice, protest and all other demands and notices in connection with the
     delivery acceptance, performance, default or enforcement of this Note.




             [The remainder of this page left intentionally blank.]

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<PAGE>


9.   GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED ACCORDING TO THE LAWS OF
     THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF
     RELATING TO CONFLICTS OF LAWS.


         IN WITNESS WHEREOF, the Company has executed this Note as of the day
         and year set forth above.




                                                GALVESTON'S STEAKHOUSE CORP.


                                                By: ____________________________

                                                Its: ___________________________


                                       11


<PAGE>

                                                                   EXHIBIT 10.39

                              EMPLOYMENT AGREEMENT




                  AGREEMENT made as of December 15, 1998, by and between
GALVESTON'S STEAKHOUSE CORP., a Delaware corporation having its principal office
at 151 E. Alessandro Boulevard, Riverside, California 92508 (hereinafter
referred to as the "Company"), and DAVID N.
TREAT (hereinafter referred to as "Executive").



                              W I T N E S S E T H:



                  WHEREAS, the Company desires to employ Executive, and
Executive desires to be employed by the Company, pursuant to the terms and
conditions hereof;

                  NOW THEREFORE, in consideration of the premises and of the
mutual promises herein contained, the parties hereto agree as follows:

                  1.       EMPLOYMENT.  The Company hereby employs Executive and
Executive hereby agrees to be employed by the Company, subject to the terms and 
conditions hereinafter set forth.

                  2. TERM. The initial term of this Agreement shall begin on the
date hereof (the "Employment Date") and shall continue for a period of five (5)
years from that date, subject to prior termination in accordance with the terms
hereof. Thereafter, the term of this Agreement may be extended for such
additional period or periods as shall be mutually agreed to in writing by
Executive and the Company.

                  3. DUTIES. The Executive shall perform such duties and
functions as Senior Director of Operations for the Company as are determined
from time to time by the Board of Directors of the Company. Executive
acknowledges that the Company intends to promote him to the position of Vice
President of Operations for the Company as soon as the Company's stated
streamline savings program goals are achieved, for which goals he will be
responsible for implementing within six months. In the performance of his
duties, Executive shall comply with the policies of and be subject to the
reasonable direction of the Board of Directors of the Company.

                  The Executive agrees to devote his entire working time,
attention and energies to the performance of the business of the Company and of
any of its subsidiaries or affiliates by which he may be employed; and Executive
shall not, directly or indirectly, alone or as a member of any partnership, or
as an officer, director or employee of any other corporation, partnership or
other organization, be actively engaged in or concerned with any other duties or
pursuits which interfere

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<PAGE>
with the performance of his duties hereunder, or which, even if non-interfering,
may be inimical to or contrary to the best interests of the Company.

                  4. COMPENSATION. As compensation for the services to be
rendered by Executive hereunder, the Company agrees to pay or cause to be paid
to Executive, and Executive agrees to accept, an annual salary of Eighty
Thousand ($80,000.00) Dollars payable in bi-weekly installments. Following the
Executive's promotion to the position of Vice President of Operations for the
Company, the Company agrees to pay or cause to be paid to Executive, and
Executive agrees to accept, an annual salary of One Hundred Fifty Thousand
($150,000.00) Dollars payable in bi-weekly installments.

                  5. COMPENSATION. The Company shall grant to the Executive,
effective as of the date hereof, stock options (the "Options") to purchase up to
75,000 shares of the Company's common stock at an exercise price of $4.96 per
share, being the average of the closing market prices of the Company's common
stock for the seven (7) business days prior to the date hereof. The Options
shall not be exercisable in any respect until the first anniversary of their
date of grant and shall thereafter be exercisable over a five-year period in
accordance with the following vesting schedule:


Anniversary Date of Grant                Number of Vested Shares
--------------------------------------------------------------------------------
First Anniversary Date                   15,000 (or 20%)
Second Anniversary Date                  30,000 (or 40%)
Third Anniversary Date                   45,000 (or 60%)
Fourth Anniversary Date                  60,000 (or 80%)
Fifth Anniversary Date                   75,000 (or 100%)

                  The Company may also pay Executive such other additional
compensation as may from time to time be determined by the Company.

                  6. EMPLOYEE BENEFITS. During the period Executive is employed
hereunder, Executive shall be permitted to participate in all group health,
hospitalization and disability insurance programs, pension plans and similar
benefits that are now or may become available to employees of the Company. In
addition, the Company shall purchase a term life insurance policy on the life of
Executive with a death benefit in the amount of $100,000 as to which Executive
shall have the right to designate one or more beneficiaries. During the period
Executive is employed hereunder, Executive shall be entitled to vacations in
accordance with the vacation policy of the Company.

                  7. REIMBURSEMENT OF EXPENSES. During the period Executive is
employed hereunder, the Company shall reimburse Executive for reasonable and
necessary out-of-pocket expenses advanced or expended by Executive or incurred
by him for or on behalf of the Company in connection with his duties hereunder
in accordance with its customary policies and practices, including but not
limited to, the out-of-pocket expenses for a national pager, a cellular

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phone and a leased automobile; provided however, that the reimbursement for the
leased automobile (exclusive of gas and insurance) shall not exceed $500 per
month.

                  8.       TERMINATION OF EMPLOYMENT; EFFECT OF TERMINATION.

                           (a)      The Executive's employment hereunder may be
terminated at any time upon written notice by the Company, upon the occurrence 
of any of the following events:

                                    (i) the death of Executive;

                                    (ii) the disability of Executive (as defined
in paragraph (b)); or

                                    (iii) the determination that there is cause
(as hereinafter defined) for such termination upon ten (10) days' prior written 
notice to Executive.

                           (b)      For purposes hereof, the term "disability" 
shall mean the inability of Executive, due to illness, accident or any other 
physical or mental incapacity, to perform his duties in a normal manner for a 
period of three (3) consecutive months or for a total of six (6) months (whether
or not consecutive) in any twelve (12) month period during the term of this 
Agreement.

                           (c) For purposes hereof, "cause" shall mean and be 
limited to (i) Executive's conviction (which, through lapse of time or
otherwise, is not subject to appeal) of any crime or offense involving money or
other property of the Company or its subsidiaries or which constitutes a felony
in the jurisdiction involved; (ii) Executive's performance of any act or his
failure to act, for which if he were prosecuted and convicted, a crime or
offense involving money or property of the Company or its subsidiaries, or which
would constitute a felony in the jurisdiction involved would have occurred,
(iii) Executive's breach of any of the representations, warranties or covenants
set forth in this Agreement, or (iv) Executive's continuing, repeated, wilful
failure or refusal to perform his duties required by this Agreement. Whether or
not "cause" shall exist in each case shall be determined by the Board of
Directors of the Company in its sole discretion.

                           (d)      In the event that the Executive's employment
is terminated by the Company pursuant to the provisions of clause (i), (ii) or
(iii) of subparagraph 8(a), Executive (or his estate, as the case may be) will
be entitled to only his accrued salary through the termination date and nothing
more.

                           (e)      Notwithstanding anything to the contrary set
forth above, the Company shall also have the right to terminate Executive's
employment hereunder at any time without cause, in which case the Company, as
payment in full of all amounts due and owing by the Company to Executive, shall
continue to pay Executive his salary for the period commencing on the effective
date of such termination and ending on the date which is six (6) months
thereafter.

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<PAGE>
                  9.       REPRESENTATIONS AND AGREEMENTS OF EXECUTIVE.

                  The Executive represents and warrants that he is free to enter
into this Agreement and to perform the duties required hereunder, and that there
are no employment contracts, restrictive covenants or other restrictions
preventing the performance of his duties hereunder.

                  10. NON-COMPETITION.

                           (a)      Executive agrees that if his employment is 
terminated for any reason or if he leaves the employ of the Company for any
reason, for a period of one (1) year from the date of such termination of
employment, he will not directly or indirectly, as owner, partner, joint
venturer, stockholder, employee, broker, agent, principal, trustee, corporate
officer or director, licensor or in any capacity whatsoever engage in, become
financially interested in, be employed by, render consulting services to, or
have any connection with, any business which is competitive with the business
activities of the Company or its subsidiaries ("Competitive Business"), in any
geographic area where, during the time of his employment, the business of the
Company or any of its subsidiaries is being or had been conducted in any manner
whatsoever, or hire or attempt to hire for any Competitive Business any employee
of the Company or any subsidiary thereof, or solicit, call on or induce others
to solicit or call on, directly or indirectly, any customers or prospective
customers of the Company for the purpose of inducing them to purchase or lease a
product or service which may compete with any product or service of the Company;
provided, however, that Executive may own any securities of any corporation
which is engaged in such business and is publicly owned and traded but in an
amount not to exceed at any one time one percent of any class of stock or
securities of such company.

                           (b)      If any portion of the restrictions set forth
in paragraph (a) should, for any reason whatsoever, be declared invalid by a
court of competent jurisdiction, the validity or enforceability of the remainder
of such restrictions shall not thereby be adversely affected.

                           (c)      The Executive declares that the foregoing 
territorial and time limitations are reasonable and properly required for the
adequate protection of the business of the Company. In the event any such
territorial or time limitation is deemed to be unreasonable by a court of
competent jurisdiction, Executive agrees to the reduction of either said
territorial or time limitation to such area or period which said court shall
have deemed reasonable.

                           (d)      The existence of any claim or cause of 
action by Executive against the Company or any subsidiary other than under this
Agreement shall not constitute a defense to the enforcement by the Company or
any subsidiary of the foregoing restrictive covenants, but such claim or cause
of action shall be litigated separately.

                  11.      NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.

                           (a)      The Executive shall not, during the term of 
this Agreement, and at any time following termination of this Agreement,
directly or indirectly, disclose or permit to be known, to any person, firm or
corporation, any confidential information acquired by him during the course

                                        4

<PAGE>
of or as an incident to his employment hereunder, relating to the Company or any
of its subsidiaries, the directors of the Company or its subsidiaries, any
client of the Company or any of its subsidiaries, or any corporation,
partnership or other entity owned or controlled, directly or indirectly, by any
of the foregoing, or in which any of the foregoing has a beneficial interest,
including, but not limited to, the business affairs of each of the foregoing.
Such confidential information shall include, but shall not be limited to,
proprietary information, trade secrets, know-how, market studies and forecasts,
competitive analyses, the substance of agreements with clients and others,
client lists and any other documents embodying such confidential information.

                           (b)      All information and documents relating to 
the Company, its affiliates as hereinabove described (or other business affairs)
shall be the exclusive property of the Company, and Executive shall use his best
efforts to prevent any publication or disclosure thereof. Upon termination of
Executive's employment with the Company, all documents, records, reports,
writings and other similar documents containing confidential information,
including copies thereof, then in Executive's possession or control shall be
returned and left with the Company.

                  12. RIGHT TO INJUNCTION. The Executive recognizes that the
services to be rendered by him hereunder are of a special, unique, unusual,
extraordinary and intellectual character involving skill of the highest order
and giving them peculiar value, the loss of which cannot be adequately
compensated for in damages. In the event of a breach of this Agreement by
Executive, the Company shall be entitled to injunctive relief or any other legal
or equitable remedies. Executive agrees that the Company may recover by
appropriate action the amount of the actual damage caused the Company by any
failure, refusal or neglect of Executive to perform his agreements,
representations and warranties herein contained. The remedies provided in this
Agreement shall be deemed cumulative and the exercise of one shall not preclude
the exercise of any other remedy at law or in equity for the same event or any
other event.

                  13. AMENDMENT OR ALTERATION. No amendment or alteration of the
terms of this Agreement shall be valid unless made in writing and signed by both
of the parties hereto.

                  14. GOVERNING LAW. All matters concerning the validity,
construction, enforcement, interpretation and performance under this Agreement
shall be governed by the laws of the State of California, without giving effect
to any conflict of laws principles thereunder.

                  15. SEVERABILITY. The holding of any provision of this
Agreement to be illegal, invalid or unenforceable by a court of competent
jurisdiction shall not affect any other provision of this Agreement, which shall
remain in full force and effect.

                  16. NOTICES. Any notices required or permitted to be given
hereunder shall be sufficient if in writing, and if delivered by hand or sent by
certified mail to the addresses set forth above or such other address as either
party may from time to time designate in writing to the other, and shall be
deemed given as of the date of the delivery or mailing.

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<PAGE>
                  17. WAIVER OR BREACH. It is agreed that a waiver by either
party of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach by that same party.

                  18. ENTIRE AGREEMENT AND BINDING EFFECT. This Agreement
contains the entire agreement of the parties with respect to the subject matter
hereof and shall be binding upon and inure to the benefit of the parties hereto
and their respective legal representatives, heirs, distributees, successors and
assigns.

                  19. ASSIGNMENT. This Agreement may not be transferred or
assigned by either party without the prior written consent of the other party.

                  20. SURVIVAL. The termination of Executive's employment
hereunder shall not affect the enforceability of Sections 10 and 11 hereof.

                  21. FURTHER ASSURANCES. The parties agree to execute and
deliver all such further instruments and take such other and further action as
may be reasonably necessary or appropriate to carry out the provisions of this
Agreement.

                  22. HEADINGS. The Section headings appearing in this Agreement
are for purposes of easy reference and shall not be considered a part of this
Agreement or in any way modify, amend or affect its provisions.

                  23.      COUNTERPARTS.  This Agreement may be executed in any 
number of counterparts, each of which shall be an original, but all of which
together, shall constitute one instrument.

                  IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date and year first above written.

GALVESTON'S STEAKHOUSE CORP.


By:  ------------------------------------
     Richard M. Lee
     Chairman and Chief Executive Officer

-----------------------------------------
DAVID N. TREAT

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