Loan Agreement

Loan Agreement

by Eateries Inc
March 5th, 1999

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                                                                   EXHIBIT 10.39

                                 LOAN AGREEMENT


         THIS LOAN AGREEMENT (this "Agreement") dated as of February 19, 1999,
is made by and between LOCAL FEDERAL BANK, F.S.B. ("Lender"); EATERIES, INC., an
Oklahoma corporation ("Eateries"); and FIESTA RESTAURANTS, INC., an Oklahoma
corporation, PEPPERONI GRILL, INC., an Oklahoma corporation, and GARFIELD'S
MANAGEMENT, INC., an Oklahoma corporation (collectively, the "Subsidiaries" and
together with Eateries, "Borrowers").

         In consideration of the Loan or Loans described below and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, Lender and Borrowers agree as follows:

1.       Definitions and Reference Terms. In addition to any other terms
defined herein, the following terms shall have the meaning set forth with
respect thereto:

                  "Agreement" means this Agreement and all Exhibits attached
         thereto, as the same may from time to time be amended, supplemented or
         modified.

                  "Current Assets" means the aggregate amount of all of
         Borrowers' assets which would, in accordance with GAAP, properly be
         defined as current assets.

                  "Current Liabilities" means the aggregate amount of all
         current liabilities as determined in accordance with GAAP, but in any
         event shall include all liabilities except those having a maturity date
         which is more than one year from the date as of which such computation
         is being made.

                  "Debt" means, as to any person, all indebtedness, liabilities
         and obligations of such person as may be required to be reflected on
         the balance sheet of such person as a liability, all capital lease
         obligations and all guaranties of indebtedness of other persons, all as
         determined in accordance with GAAP.

                  "EBITDA" means the Borrowers' net income before taxes and tax
         accruals, plus interest, depreciation and amortization expenses
         pursuant to GAAP, all during the period of the last four fiscal
         quarters immediately preceding the date of determination.

                  "ERISA" means the Employee Retirement Income Security Act of
         1974, as amended, together with all regulations issued pursuant
         thereto.

                  "Funded Debt" means, as of any date of determination, the
         amount outstanding on any long term Debt of the Borrowers plus the
         current portion of long term Debt, including any capital leases.

                  "GAAP" means generally accepted accounting principles.





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                  "Hazardous Materials" means and includes all materials defined
         as hazardous materials or substances under any local, state or federal
         environmental laws, rules or regulations, and petroleum, petroleum
         products, oil and asbestos.

                  "Lien" means any lien, mortgage, security interest, tax lien,
         pledge, encumbrance, conditional sale or title retention arrangement,
         or any other interest in property of the Borrowers designed to secure
         the repayment of Debt of the Borrowers, whether arising by agreement or
         under any statute or law, or otherwise.

                  "Line" has the meaning set forth in Section 2.b.

                  "Loan" means any loan described in Section 2 hereof and any
         subsequent loan which states that it is subject to this Agreement,.

                  "Loan Documents" means this Agreement and any and all
         promissory notes executed by Borrowers in favor of Lender and all other
         documents, instruments, guarantees, certificates and agreements
         executed and/or delivered by Borrowers, any guarantor or third party in
         connection with any Loan.

                  "Material Adverse Effect" means any set of circumstances or
         events which (i) has an adverse effect upon the validity, performance
         or enforceability of this Agreement or any other Loan Documents, (ii)
         is material and adverse to the financial condition or business
         operations of the Borrowers, (ii) materially impairs the ability of the
         Borrowers to perform its obligations under this Agreement or any other
         Loan Documents, or (iv) constitutes an Event of Default.

                  "Net Worth" means the difference between Borrowers (i) Total
         Assets, and (ii) Total Liabilities, all as set forth in the
         consolidated financial statements of Borrowers.

                  "Note" has the meaning set forth in Section 2.a.

                  "PBGC" means the Pension Benefit Guaranty Corporation and any
         successor to all or any of its functions under ERISA.

                  "Permitted Liens" means (i) pledges or deposits made to secure
         payment of workers' compensation insurance (or to participate in any
         fund in connection with workers' compensation insurance), unemployment
         insurance, pensions or social security programs, (ii) Liens imposed by
         mandatory provisions of law such as for materialmen's, mechanics',
         warehousemen's and other like Liens arising in the ordinary course of
         business, securing Debt whose payment is not yet due or if the same is
         due, it is being contested in good faith by appropriate proceedings and
         the imposition of which would not have a Material Adverse Effect on the
         Borrowers, (iii) Liens for taxes, assessments and governmental charges
         or levies imposed upon a person or upon such person's income or profits
         or property, if the same are not yet due and payable or if the same are
         being contested in good faith by appropriate proceedings and the
         imposition of which would not have a Material Adverse Effect on the
         Borrowers, (iv) pledges or deposits to secure



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         public or statutory, obligations and deposits to secure (or in lieu of)
         surety, stay, appeal or customs bonds and deposits to secure the
         payment of taxes, assessments, customs duties or other similar charges,
         (v) Liens in favor of NationsBank, N.A. encumbering the real property,
         improvements and related assets of Borrower's location in Newark, Ohio
         and (vi) Liens encumbering assets of Borrowers related to real property
         formerly owned by Borrowers, provided, however, that any such Liens
         described in this clause (vi) shall be discharged and released no later
         than April 30, 1999.

                  "Regulation D" means Regulation D of the Board of Governors of
         the Federal Reserve System, as in effect from time to time.

                  "Regulation U" means Regulation U of the Board of Governors of
         the Federal Reserve System, as in effect from time to time.

                  "Regulation X" means Regulation X promulgated by the Board of
         Governors of the Federal Reserve System, as in effect from time to
         time.

                  "Total Assets" means the Total Assets of Borrowers as
         reflected on Borrowers' financial statements and as accounted for under
         GAAP.

                  "Total Liabilities" shall mean the Total Liabilities of
         Borrowers as reflected on Borrowers' financial statements and as
         accounted for under GAAP.

         All accounting terms not specifically defined or specified herein shall
have the meanings generally attributed to such terms under GAAP, as in effect
from time to time, consistently applied throughout the periods involved, with
respect to the financial statements referenced in Section 3.h. hereof

2.       Loans.

         a.       Loans. Lender hereby agrees to make (or has made) one or more
                  loans to Borrowers in the aggregate principal face amount of
                  $14,600,000.00. The obligation to repay the loans is evidenced
                  by promissory notes of even date herewith (the promissory
                  notes together with any and all renewals, extensions or
                  rearrangements thereof being hereafter collectively referred
                  to as the "Notes") having maturity dates, repayment terms and
                  interest rates as set forth in the Notes. Each of the Notes
                  shall be executed by all Borrowers and shall be the joint and
                  several obligation of each Borrowers.

         b.       Revolving Credit Feature. One of the Loans is in the principal
                  face amount of $6,000,000.00 provides for a revolving line of
                  credit (the "Line") under which Borrowers may from time to
                  time, borrow, repay and re-borrow funds in accordance with the
                  terms of the Note evidencing such obligation.

         c.       Term Credit Feature. One of the Loans is in the principal face
                  amount of $8,600,000.00 (the "Term Loan") for which Borrowers
                  shall receive advances by




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                  no later than February 19, 1999 and thereafter repay in
                  quarterly amortizing installments of principal plus accrued
                  interest in accordance with the terms and conditions of this
                  Agreement and the Note evidencing such obligation.

3.       Representations and Warranties. Borrowers hereby represent and
warrant to Lender as follows:

         a.       Good Standing. Each Borrower is an Oklahoma corporation, duly
                  organized, validly existing and in good standing under the
                  laws of the State of Oklahoma and has the power and authority
                  to own its property and to carry on its business in each
                  jurisdiction in which each Borrower does business.

         b.       Authority and Compliance. Each Borrower has full power and
                  authority to execute and deliver the Loan Documents and to
                  incur and perform the obligations provided for therein, all of
                  which have been duly authorized by all proper and necessary
                  action of the appropriate governing body of Borrowers. No
                  consent or approval of any public authority or other third
                  party is required as a condition to the validity of any Loan
                  Document, and each Borrower is in substantial compliance with
                  all laws and regulatory requirements to which it is subject.

         c.       Binding Agreement. This Agreement and the other Loan Documents
                  executed by Borrowers constitute valid and legally binding
                  obligations of Borrowers, enforceable in accordance with their
                  terms.

         d.       Litigation. There is no proceeding involving Borrowers pending
                  or, to the knowledge of Borrowers, threatened before any court
                  or governmental authority, agency or arbitration authority
                  which could have a Material Adverse Effect on Borrowers.

         e.       No Conflicting Agreements. There is no charter, bylaw, stock
                  provision, partnership agreement or other document pertaining
                  to the organization, power or authority of Borrowers and no
                  provision of any existing agreement, mortgage, indenture or
                  contract binding on any Borrower or affecting its property,
                  which would prevent, hinder or delay the execution, delivery
                  or carrying out of the terms of this Agreement and the other
                  Loan Documents.

         f.       Ownership of Assets. Borrowers have good title to their
                  assets, and such assets are free and clear of liens, except
                  for Permitted Liens and as otherwise disclosed to Lender in
                  writing prior to the date of this Agreement.

         g.       Taxes. All taxes and assessments due and payable by Borrowers
                  have been paid or are being contested in good faith by
                  appropriate, proceedings and Borrowers have filed all tax
                  returns which they are required to file.


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         h.       Financial Statements. The financial statements of Borrowers
                  heretofore delivered to Lender have been prepared in
                  accordance with GAAP applied on a consistent basis throughout
                  the period involved and fairly present Borrowers' financial
                  condition as of the date or dates thereof, and there has been
                  no material adverse change in Borrowers' financial condition
                  or operations since September 27, 1998. All factual
                  information furnished by Borrowers to Lender in connection
                  with this Agreement and the other Loan Documents is and will
                  be accurate and complete on the date as of which such
                  information is delivered to Lender and is not and will not be
                  incomplete by the omission of any material fact necessary to
                  make such information not misleading.

         i.       Place of Business. Borrowers' chief executive offices are
                  located at 3240 W. Britton Road, Suite 202, Oklahoma City,
                  Oklahoma 73120.

         j.       Environmental. The conduct of Borrowers' business operations
                  and the condition of Borrowers' property does not and will not
                  violate any federal laws, rules or ordinances for
                  environmental protection, regulations of the Environmental
                  Protection Agency, any applicable local or state law, rule,
                  regulation or rule of common law or any judicial
                  interpretation thereof relating primarily to the environment
                  or Hazardous Materials.

         k.       Permits. The Borrowers have all licenses, permits,
                  certificates, consents and franchises, and all necessary
                  filings associated thereto have been made, in order to carry
                  on its business as now being conducted and to own or lease and
                  operate its properties as now owned, leased or operated. All
                  such licenses, permits, certificates, consents, and franchises
                  are valid and subsistent, and the Borrowers are not in
                  violation thereof to the extent such violation would cause a
                  Material Adverse Effect.

         l.       Full Disclosure. Except as otherwise disclosed to Lender in
                  writing prior to the execution of this Agreement, there is no
                  material fact known to Borrowers that Borrowers have not
                  disclosed to Lender which could have a Material Adverse Effect
                  on the properties, business, prospects or condition (financial
                  or otherwise) of Borrowers. Neither financial statements
                  referenced herein, nor any certificate or statement delivered
                  herewith or heretofore by Borrowers to Lender in connection
                  with the negotiations of this Agreement, contains any untrue
                  statement of a material fact or omits to state any material
                  fact necessary to keep the statements contained herein or
                  therein from being misleading which would have a Material
                  Adverse Effect.

         m.       Use of Proceeds; Margin Stock. The proceeds of the Loans will
                  be used by Borrowers solely for the purposes described herein.
                  None of such proceeds will be used in violation of Regulation
                  U or Regulation X, or for the purpose of reducing or retiring
                  any Debt which was originally incurred to purchase or carry a
                  "margin stock" as defined in Regulation U or Regulation X or
                  for any other purpose which might constitute this transaction
                  a "purpose credit" within the meaning of such 


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                  Regulation U or Regulation X. Borrowers are not engaged in the
                  business of extending credit for the purpose of purchasing or
                  carrying margin stocks. Borrowers have not taken or will not
                  take any action which might cause the Loans or any of the
                  other Loan Documents, including this Agreement, to violate
                  Regulation U or Regulation Y, or any other regulations of the
                  Board of Governors of the Federal Reserve System or to violate
                  Section 8 of the Securities Exchange Act of 1934 or any rule
                  or regulation thereunder, in each case as now in effect or as
                  the same may hereinafter be in effect. Borrowers do not own
                  margin stock.

         n.       ERISA. Borrowers are in compliance with all ERISA requirements
                  and interpretations with respect to any employee benefit. plan
                  of Borrowers and have not incurred any liability to PBGC with
                  respect to any such plan.

         o.       Compliance With Law. Borrowers are not in material violation
                  of any law, rule, regulation, order or decree which is
                  applicable to Borrowers or their properties the result of
                  which could have a Material Adverse Effect.

         p.       Casualties. Neither the business nor the properties of
                  Borrowers are currently affected by any environmental hazard,
                  fire, explosion, accident, strike, lockout or other labor
                  dispute, drought, storm, hail, earthquake, embargo, act of God
                  or other casualty (whether or not covered by insurance), which
                  could have a Material Adverse Effect.

         q.       No Event of Default. No Event of Default has occurred and is
                  continuing.

         r.       Survival of Representations. All representations and
                  warranties made under this Agreement shall be deemed to be
                  made at and as of the date hereof and at and as of the date of
                  any advance under any Loan. All of the representations and
                  warranties made by the Borrowers herein and in any Loan
                  Document will survive the delivery of the Loan Documents and
                  any renewal and extension of the Loans hereunder. All
                  statements contained in any certificate or other instrument
                  delivered by or on behalf of the Borrowers under or pursuant
                  to this Agreement or in connection with the transactions
                  contemplated hereby shall constitute representations and
                  warranties made by the Borrowers hereunder as applicable.

4.       Conditions of Lending. The obligation of Lender to perform this
Agreement and to extend the Loans as described herein is subject to the
performance of the following conditions precedent:

         a.       Loan Documents. This Agreement and the other Loan Documents,
                  and all other documents required by Lender shall have been
                  duly executed, acknowledged (where appropriate) and delivered
                  to Lender, all in form and substance satisfactory to Lender.

         b.       Information. The Borrowers shall have furnished to Lender such
                  financial statements and other information as Lender shall
                  have requested.


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         c.       No Default, Representations and Warranties. No Events of
                  Default shall have occurred and be continuing under this
                  Agreement or the Loan Documents. All representations and
                  warranties contained herein shall be true and correct.

         d.       Authority. Borrowers shall have delivered to Lender such
                  resolutions and other documents reasonably required to
                  authorize the: execution, delivery and performance of the Loan
                  Documents, all in form and substance satisfactory to Lender,
                  together with certified copies of the Borrowers' respective
                  Certificates of Incorporation (and amendments), Bylaws (and
                  amendments), and original Good Standing Certificates from the
                  State of Oklahoma for each Borrower.

         e.       Incumbency Certificates. Lender shall have received a
                  certificate of an officer of each Borrower which shall certify
                  the names of the persons authorized to sign each of the Loan
                  Documents to be executed by such person and the other
                  documents or certificates to be delivered by such person
                  pursuant to the Loan Documents, together with the true
                  signatures of each of such persons. Lender may conclusively
                  rely on the certificates until Lender shall receive a further
                  certificate of an officer of each Borrowers canceling or
                  amending the prior certificate and submitting the signatures
                  of the persons named in such further certificate.

         f.       Opinion of Counsel. A favorable opinion of legal counsel for
                  Borrowers, in such form as shall be acceptable to Lender and
                  Lender's counsel, shall have been delivered to Lender,
                  covering such matters as: (i) each Borrower's due organization
                  and qualification under the laws of the State of Oklahoma, and
                  good standing under the laws of the State of Oklahoma and all
                  other states as may be required by applicable law; (ii) each
                  Borrower's authorization to enter into this Agreement and the
                  other Loan Documents, and that such documents, when executed
                  and delivered, will be the valid and binding obligations of
                  the Borrowers, enforceable according to their respective
                  terms; and (iii) that the execution and delivery of this
                  Agreement and the other Loan Documents shall not violate any
                  applicable law, regulation or rule.

         g.       UCC Information. Lender shall have received and reviewed
                  copies of UCC lien searches for the Borrowers in such
                  jurisdictions as the Borrowers may require, and all Liens of
                  any party as evidenced by such information shall have been
                  released to the satisfaction of Lender.

         h.       Expenses. Each party shall have paid all of their respective
                  costs and expenses, including reasonable fees of legal
                  counsel, incurred in the negotiation and preparation of the
                  Loan Documents and in closing and perfecting any rights and
                  interests under the Loan Documents.

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5.       Affirmative Covenants. Until full payment and performance of all
obligations of Borrowers under the Loan Documents, Borrowers will, unless Lender
consents otherwise in writing (and without limiting any requirement of any other
Loan Document):

         a.       Financial Condition. Maintain Borrowers' financial condition
                  as follows, determined in accordance with GAAP applied on a
                  consistent basis throughout the period involved except to the
                  extent modified by the following definitions:

                  i.       Net Worth. Borrowers shall maintain a Net Worth of at
                           least $6,500,000.00 during the term of this
                           Agreement, and the Borrowers shall increase their
                           consolidated Net Worth by an amount of not less than
                           fifty percent (50 %) of the Borrowers' quarterly net
                           income for each calendar quarter. This covenant shall
                           be tested quarterly as of the close of each such
                           calendar quarter, and the minimum consolidated Net
                           Worth increased quarterly based upon the financial
                           statements submitted pursuant to Section 5.c.i.

                  ii.      Funded Debt to EBITDA. Borrowers will not allow their
                           ratio of Funded Debt to EBITDA to be in excess of
                           3.00 to 1.00 during the term of this Agreement. This
                           covenant shall be tested quarter as of the close of
                           each such fiscal quarter.

                  iii.     Debt Coverage. Borrowers shall not permit the ratio
                           of their (i) net income after taxes and tax accruals,
                           plus interest, depreciation and amortization
                           expenses, all during the period of the last four
                           fiscal quarters immediately preceding the date of
                           determination, to (ii) the sum of (a) the current
                           portion of long term Debt of the Borrowers for the
                           last fiscal quarter, and (b) all interest expense of
                           Borrowers, during the last four fiscal quarters after
                           the date of determination, to be less than 2.00 to
                           1.00. Such ratio shall be determined quarterly as of
                           the close of each fiscal quarter, beginning with the
                           first fiscal quarter of 1999. In the event the above
                           ratio exceeds 2.75 to 1.00 at any time, all excess
                           cash flow of Borrowers as indicated in such ratio
                           calculation shall be required to reduce the principal
                           balance of the Term Loan on the next scheduled
                           installment date as provided in the Note evidencing
                           the Term Loan. Such prepayments of excess cash flow
                           shall continue until the scheduled installments of
                           principal as provided in the Note evidencing the Term
                           Loan are sufficient to fully amortize the Term Loan
                           by the stated Maturity Date as set forth in such
                           Note.

         b.       Financial Statements and Other Information. Maintain a system
                  of accounting satisfactory to Lender and in accordance with
                  GAAP applied on a consistent basis throughout the period
                  involved, permit Lender's officers or authorized
                  representatives to visit and inspect Borrowers' books of
                  account and other records at such reasonable times and as
                  often as Lender may desire, and pay the reasonable fees and
                  disbursements of any accountants or other agents of Lender
                  selected by Lender for the foregoing purposes. Unless written
                  notice of another 

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                  location is given to Lender, Borrowers' books and records will
                  be located at Borrowers' chief executive office at the address
                  set forth in Section 3.i. All financial statements called for
                  below shall be prepared in form and content acceptable to
                  Lender and by independent certified public accountants
                  acceptable to Lender.

         c.       Purposes of Loans. The Term Loan shall be utilized solely for
                  (i) the purchase by Eateries of up to 1,056,200 of its issued
                  and outstanding shares at a price not to exceed $5.125 per
                  share, such shares to be held as treasury stock by Eateries
                  and not to at any time constitute "margin stock" or otherwise
                  cause Borrowers or Lender to be in violation of Section 3.m.
                  of this Agreement, (ii) refinance existing indebtedness of
                  Borrowers with NationsBank, N.A., and (iii) such other
                  purposes as may be approved by Lender. The Line shall be used
                  (i) to refinance the existing revolving facility of Borrowers
                  with NationsBank, N.A. and (ii) for general corporate purposes
                  of Borrowers, but shall not be used for the purchase by
                  Eateries of any of its shares.

         In addition, Borrowers will:

                  i.       Furnish to Lender audited, consolidated, annual
                           financial statements of Borrowers for each fiscal
                           year of Borrowers, within 120 days after the close of
                           each such fiscal year.

                  ii.      Furnish to Lender unaudited, consolidated quarterly
                           financial statements (including a balance sheet and
                           profit and loss statement) of Borrowers for each
                           fiscal quarter of each fiscal year of Borrowers,
                           within 60 days after the close of each such period.

                  iii.     Furnish to Lender a quarterly compliance certificate
                           for (and executed by an authorized representative of)
                           Borrowers concurrently with and dated as of the date
                           of delivery of each of the financial statements as
                           required in paragraphs i and ii above, containing (a)
                           a certification that the financial statements of even
                           date are true and correct and that Borrowers are not
                           in default under the terms of this Agreement, and (b)
                           computations and conclusions, in such detail as
                           Lender may request, with respect to compliance with
                           this Agreement, and the other Loan Documents,
                           including computations of all quantitative covenants.

                  iv.      Furnish to Lender promptly such additional
                           information, reports and statements respecting the
                           business operations and financial condition of
                           Borrowers, from time to time, as Lender may
                           reasonably request including but not limited to: (a)
                           all quarterly and other periodic reports to the
                           Securities and Exchange Commission (Forms 10-Q, 10-K,
                           etc.) which, reports among other information
                           provided, shall detail all new store openings and
                           other material business matters of Borrowers; and (b)
                           written 

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                           notification, in form acceptable to Lender, of any
                           potential merger, acquisition, reorganization or sale
                           of a material part of the assets of Borrowers to any
                           other party.

         d.       Insurance. Maintain insurance with responsible insurance
                  companies on such of its properties, in such amounts and
                  against such risks, as is customarily maintained by similar
                  businesses operating in the same vicinity, specifically to
                  include fire and extended coverage insurance covering all
                  assets, business interruption insurance, workers compensation
                  insurance and liability insurance, all to be with such
                  companies and in such amounts as are satisfactory to Lender
                  and providing for at least 30 days prior notice to Lender of
                  any cancellation thereof. Satisfactory evidence of such
                  insurance will be supplied to Lender prior to funding under
                  the Loan(s) and 30 days prior to each policy renewal.

         e.       Existence and Compliance. Maintain its existence, good
                  standing and qualification to do business, where required and
                  comply with all laws, regulations and governmental
                  requirements including, without limitation, environmental laws
                  applicable to it or to any of its property, business
                  operations and transactions.

         f.       Adverse Conditions or Events. Promptly advise Lender in
                  writing of (i) any condition, event or act which comes to its
                  attention that would or might materially adversely affect
                  Borrowers' financial condition or operations or Lender's
                  rights under the Loan Documents, (ii) any material litigation
                  filed by or against Borrowers, (iii) any event that has
                  occurred that would constitute an event of default under any
                  Loan Documents and (iv) any uninsured or partially uninsured
                  loss through fire, theft, liability or property damage in
                  excess of an aggregate of $25,000.00.

         g.       Taxes and Other Obligations. Pay, prior to delinquency, all of
                  its taxes, assessments and other obligations, including, but
                  not limited to taxes, costs or other expenses arising out of
                  this transaction, as the same become due and payable, except
                  to the extent the same are being contested in good faith by
                  appropriate proceedings in a diligent manner.

         h.       Maintenance. Maintain all of its tangible property in good
                  condition and repair and make all necessary replacements
                  thereof, and. preserve and maintain all licenses, trademarks,
                  privileges, permits, franchises, certificates and the like
                  necessary for the operation of its business.

         i.       Environmental. Immediately advise Lender in writing of (i) any
                  and all enforcement, cleanup remedial, removal, or other
                  governmental or regulatory actions instituted, completed or
                  threatened pursuant to any applicable federal, state, or local
                  laws, ordinances or regulations relating to any Hazardous
                  Materials affecting Borrowers' business operations; and (ii)
                  all claims made or threatened by any third party against
                  Borrowers relating to damages, contribution, cost recovery,
                  compensation, loss or injury resulting from any Hazardous
                  Materials. Borrowers 


   11

                  shall immediately notify Lender of any remedial action taken
                  by Borrowers with respect to Borrowers' business operations.
                  Borrowers will not use or permit any other party to use any
                  Hazardous Materials at any of Borrowers' places of business or
                  at any other property owned by Borrowers except such materials
                  as are incidental to Borrowers' normal course of business,
                  maintenance and repairs and which are handled in compliance
                  with all applicable environmental laws. Borrowers agree to
                  permit Lender, its agents, contractors and employees to enter
                  and inspect any of Borrowers' places of business or any other
                  property of Borrowers at any reasonable times upon three (3)
                  days prior notice for the purposes of conducting an
                  environmental investigation and audit (including taking
                  physical samples) to insure that Borrowers are complying with
                  this covenant and Borrowers shall reimburse Lender on demand
                  for the costs of any such environmental investigation and
                  audit. Borrowers shall provide Lender, its agents,
                  contractors, employees and representatives with access to and
                  copies of any and all data and documents relating to or
                  dealing with any Hazardous Materials used, generated,
                  manufactured, stored or disposed of by Borrowers' business
                  operations within five (5) days of the request therefor.

         j.       Authorizations and Approvals. Borrowers shall promptly obtain,
                  from time to time at their own expense, all such governmental
                  licenses, authorizations, consents, permits and approvals
                  which may be required or necessary in the Borrowers' business
                  or with respect to their assets and properties if the failure
                  to obtain the same could have a Material Adverse Effect.

         k.       ERISA Compliance. Borrowers shall (i) at all times, make
                  prompt payment of all contributions required under all
                  employee benefit plans and as required to meet the minimum
                  funding standard set forth in ERISA with respect to its plans,
                  (ii) notify Lender immediately of any fact, including, but not
                  limited to, any reportable event arising in connection with
                  any of its plans, which might constitute grounds for
                  termination thereof by the PBGC or for the appointment by the
                  appropriate United States District Court of a trustee to
                  administer such plan, together with a statement, if requested
                  by Lender, as to the reason therefor and the action, if any,
                  proposed to be taken with respect thereto, and (iii) furnish
                  to Lender, upon its request, such additional. information
                  concerning any of their plans as may be reasonably requested.

         l.       Maintenance of Tangible Assets. Borrowers will do all things
                  necessary to maintain, preserve, protect and keep all their
                  tangible assets in good condition, and make all necessary and
                  proper repairs, renewals and replacements thereto so that the
                  business anticipated by the Borrowers through the ownership,
                  operation or use of such assets can be performed and conducted
                  at all times.

         m.       Maintenance of Accounts. On or before August 31, 1999,
                  Borrowers will have begun to utilize the major cash management
                  services offered through Lender and all Oklahoma-based
                  depository services available through Lender .

   12

6.       Negative Covenants. Until full payment and performance of all
obligations of Borrowers under the Loan Documents, Borrowers will not, without
the prior written consent of Lender (and without limiting any requirement of any
other Loan Documents):

         a.       Capital Expenditures. Make capital expenditures during each
                  fiscal year (including capitalized leases) exceeding in the
                  aggregate $3,000,000.00, net of landlord reimbursements.

         b.       Transfer of Assets or Control. Sell, lease, assign or
                  otherwise dispose of or transfer any assets, except in the
                  normal course of its business, or enter into any merger or
                  consolidation, or transfer control or ownership of the
                  Subsidiaries or form or acquire any other subsidiary.

         c.       Dividends. No dividends shall be declared or paid to the
                  shareholders of Eateries during the term of this Agreement.

         d.       Liens. Grant, suffer or permit any contractual or
                  non-contractual lien on or security interest in its assets,
                  except those that may be granted in favor of Lender or
                  Permitted Liens, or fail to promptly pay when due all lawful
                  claims, whether for labor, materials or otherwise which would
                  have a Material Adverse Effect.

         e.       Extensions of Credit. Make or permit any Subsidiary or other
                  subsidiary to make, any loan or advance to any person or
                  entity (other than one of the Borrowers), or purchase or
                  otherwise acquire, or permit any subsidiary to purchase or
                  otherwise acquire, any capital stock, assets, obligations, or
                  other securities of, make any capital contribution to, or
                  otherwise invest in or acquire any interest in any entity
                  (provided, however, that Eateries may repurchase up to an
                  additional 500,000 of its issued and outstanding shares at a
                  price not to exceed $7.00 per share so long as any such
                  repurchase does not cause Borrowers to violate any provision
                  of this Agreement, including without limitation the financial
                  covenants set forth in Section 5.a.), or participate as a
                  partner or joint venturer with any person or entity, except
                  for the purchase of direct obligations of the United States or
                  any agency thereof with maturities of less than one year.

         f.       Borrowings. Create, incur, assume or become liable in any
                  manner for any indebtedness (for borrowed money, deferred
                  payment for the purchase of assets, lease payments, as surety
                  or guarantor for the debt for another, or otherwise) other
                  than to Lender, in excess of $300,000.00 except debts incurred
                  in the ordinary course of Borrowers' business, and except for
                  existing indebtedness disclosed to Lender in writing and
                  acknowledged by Lender prior to the date of this Agreement.

         g.       Character of Business. Change the general character of
                  business as conducted at the date hereof, or engage in any
                  type of business not reasonably related to their business as
                  presently conducted.

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         h.       Management Change. Make any substantial change in their
                  present executive or management personnel without giving prior
                  notice to Lender.

7.       Default. Borrowers shall be in default under this Agreement and
under each of the other Loan Documents if any Borrower shall: (i) default in the
payment of any amounts due and owing under a Loan and it shall have failed to
cure such default within five (5) days after written notice thereof to Borrowers
as provided herein; or (ii) fail to timely and properly observe, keep or perform
any term, covenant, agreement or condition in any Loan Document or in any other
loan agreement, promissory note, security agreement, deed of trust, deed to
secure debt, mortgage, assignment or other contract securing or evidencing
payment of any indebtedness of Borrowers to Lender or any affiliate or
subsidiary of Lender, and it shall have failed to cure such default within
twenty (20) days after written notice thereof to Borrowers as provided herein.

8.       Remedies upon Default. If an event of default shall occur, Lender
shall have all rights, powers and remedies available under each of the Loan
Documents as well as all rights and remedies available at law or in equity.

9.       Notices. All notices, requests or demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to the other party at the following
address:

                         
         Borrowers:         c/o Eateries, Inc.
                            3240 West Britton Road, Suite 202
                            Oklahoma City, Oklahoma 73120
                            Attention: Vincent F. Orza, Jr., President
                            Fax.  No. (405) 751-7348

         With a copy to:    Thomas F. Golden, Esq.
                            Hall, Estill, Hardwick, Gable, Golden & Nelson, P.C.
                            320 South Boston, Suite 400
                            Tulsa, Oklahoma 74103-3708
                            Fax. No. (918) 594-0505

         Lender:            Local Federal Bank, F.S.B.
                            3601 N.W. 63rd Street
                            Oklahoma City, Oklahoma 73120
                            Attention: Kelly H. Sachs, Senior Vice President
                            Fax No. (405) 841-2175

         With a copy to:    Phillips McFall McCaffrey McVay & Murrah, P.C.
                            One Leadership Square, 12th Floor
                            Oklahoma City, Oklahoma 73102
                            Attention: J. Mark Lovelace, Esq.
                            Fax.  No. (405) 235-4133
14 or to such other address as any party may designate by written notice to the other party. Each such notice, request and demand shall be deemed given or made as follows: a. If sent by mail, upon the earlier of the date of receipt or five (5) days after deposit in the U.S. Mail, first class postage prepaid; b. If sent by any other means, upon delivery. 10. Costs, Expenses and Attorneys' Fees. Borrowers shall pay to Lender immediately upon demand the full amount of all costs and expenses, including reasonable attorney fees (to include outside counsel fees and all allocated costs of Lender's in-house counsel if permitted by applicable law), incurred by Lender in connection with (a) the enforcement of this Agreement and each of the Loan Documents, and (b) all other costs and attorneys' fees incurred by Lender for which Borrowers are obligated to reimburse Lender in accordance with the terms of the Loan Documents. 11. Miscellaneous. Borrowers and Lender further covenant and agree as follows, without limiting any requirement of any other Loan Document: a. Cumulative Rights and No Waiver. Each and every right granted to Lender under any Loan Document, or allowed it by law or equity shall be cumulative of each other and may be exercised in addition to any and all other rights of Lender, and no delay in exercising any right shall operate as a waiver thereof, nor shall any single or partial exercise by Lender of any right preclude any other or future exercise thereof or the exercise of any other right. Borrowers expressly waive any presentment, demand, protest or other notice of any kind, including but not limited to notice of intent to accelerate and notice of acceleration. No notice to or demand on Borrowers in any case shall, of itself, entitle Borrowers to any other or future notice or demand in similar or other circumstances. b. Applicable Law. This Agreement and the rights and obligations of the parties hereunder shall be governed by and interpreted in accordance with the laws of Oklahoma and applicable United States federal law. c. Amendment. No modification, consent, amendment or waiver of any provision of this Agreement, nor consent to any departure by Borrowers therefrom, shall be effective unless the same shall be in writing and signed by an officer of Lender, and then shall be effective only in the specified instance and for the purpose for which given. This Agreement is binding upon Borrowers, their respective successors and assigns, and inures to the benefit of Lender, its successors and assigns; however, no assignment or other transfer of Borrowers' rights or obligations hereunder shall be made or be effective without Lender's prior written consent, nor shall it relieve Borrowers of any obligations hereunder. There is no third party beneficiary of this Agreement. 15 d. Documents. All documents, certificates and other items required under this Agreement to be executed and/or delivered to Lender shall be in form and content satisfactory to Lender and its counsel. e. Partial Invalidity. The unenforceability or invalidity of any provision of this Agreement shall not affect the enforceability or validity of any other provision herein and the invalidity or unenforceability of any provision of any Loan Document to any person or circumstance shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances. f. Indemnification. Borrowers shall jointly and severally indemnify, defend and hold Lender and its successors and assigns harmless from and against any and all claims, demands, suits, losses, damages, assessments, fines, penalties, costs or other expenses (including reasonable attorneys' fees and court costs) arising from or in any way related to any of the transactions contemplated hereby, including but not limited to actual or threatened damage to the environment, agency costs of investigation, personal injury or death, or property damage, due to a release or alleged release of Hazardous Materials, arising from Borrowers' business operations, any other property owned by Borrowers or in the surface or ground water arising from Borrowers' business operations, or gaseous emissions arising from Borrowers' business operations or any other condition existing or arising from Borrowers' business operations resulting from the use or existence of Hazardous Materials, whether such claim proves to be true or false. Borrowers further agree that their indemnity obligations shall include, but are not limited to, liability for damages resulting from the personal injury or death of an employee of the Borrowers, regardless, of whether the Borrowers have paid the employee under the workmen' s compensation laws of any state or other similar federal or state legislation for the protection of employees. The term "property damage" as used in this paragraph includes, but is not limited to, damage to any real or personal property of the Borrowers, Lender, and of any third parties. Borrowers' obligations under this paragraph shall survive the repayment of the Loan. g. Survivability. All covenants, agreements, representations and warranties made herein or in the other Loan Documents shall survive the making of the Loan and shall continue in full force and effect so long as the Loan is outstanding or the obligation of Lender to make any advances under the Line shall not have expired. 12. NO ORAL AGREEMENT. THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 16 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed under seal by their duly authorized representatives as of the date first above written. "BORROWERS": EATERIES, INC. By: Vincent F. Orza, Jr., President FIESTA RESTAURANTS, INC. By: Vincent F. Orza, Jr., Chairman of the Board PEPPERONI GRILL, INC. By: Vincent F. Orza, Jr., President GARFIELD'S MANAGEMENT, INC. By: Vincent F. Orza, Jr., Chairman of the Board "LENDER": LOCAL FEDERAL BANK, F.S.B. By: Kelly H. Sachs, Senior Vice President