EXHIBIT 10.13

 

 

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MEMBERSHIP INTEREST PURCHASE AGREEMENT

BETWEEN

PARAGON STEAKHOUSE RESTAURANTS, INC.

AND

DELAWARE TRUST COMPANY, N.A. AS OWNER TRUSTEE AND WELLS FARGO BANK, N.A. AS
INDENTURE TRUSTEE OF THE ACLC BUSINESS LOAN RECEIVABLES TRUST

1999-2

AND

DELAWARE TRUST COMPANY, N.A. AS OWNER TRUSTEE AND WELLS FARGO BANK, N.A. AS
INDENTURE TRUSTEE OF THE ACLC BUSINESS LOAN RECEIVABLES TRUST

2000-1

OCTOBER ____, 2006

 

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TABLE OF CONTENTS

 

          Page 1.    Definitions    2 2.    Purchase and Sale of Interests    7
  

(a)      Basic Transaction.

   7   

(b)      Purchase Price and Payment

   7   

(c)       Post-Closing Adjustment

   8   

(d)      Closing

   9   

(e)       Deliveries at Closing

   9   

(f)       Security for Note

   10   

(g)      Liquor Licenses

   10   

(h)      Proration of Expenses

   10   

(i)       Gift Cards

   11 3.    Representations and Warranties Concerning Transaction    11   

(a)      Sellers’ Representations and Warranties

   11   

(b)      Buyer’s Representations and Warranties

   12 4.    Representations and Warranties Concerning Each Company and Its
Subsidiaries    12   

(a)      Organization, Qualification, and Corporate Power

   13   

(b)      Capitalization

   13   

(c)       Noncontravention

   13   

(d)      Brokers’ Fees

   14   

(e)       Title to Assets

   14   

(f)       Subsidiaries

   14   

(g)      Financial Statements

   14   

(h)      Events Subsequent to Most Recent Fiscal Year End:

   15   

(i)       Undisclosed Liabilities

   17   

(j)       Legal Compliance

   17   

(k)      Tax Matters

   17   

(l)       Real Property

   19   

(m)     Intellectual Property

   22   

(n)      Tangible Assets

   23   

(o)      Inventory

   23   

(p)      Contracts

   24   

(q)      Notes and Accounts Receivable

   25   

(r)       Powers of Attorney

   25   

(s)       Insurance

   25   

(t)       Litigation

   26   

(u)      Reserved

   26   

(v)      Liability

   26   

(w)     Employees

   26

 

-i-

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TABLE OF CONTENTS

(continued)

 

          Page   

(x)      Employee Benefits

   26   

(y)      Guaranties

   28   

(z)       Environmental, Health, and Safety Matters

   28   

(aa)    Certain Business Relationships with Company and Its Subsidiaries

   29   

(bb)   Suppliers

   29   

(cc)    Disclosure

   29 5.    Pre-Closing Covenants    29   

(a)      General

   29   

(b)      Notices and Consents

   29   

(c)       Operation of Business

   29   

(d)      Preservation of Business

   30   

(e)       Full Access

   30   

(f)       Notice of Developments

   30   

(g)      Exclusivity

   30   

(h)      Maintenance of Real Property

   30   

(i)       Leases

   30   

(j)       Title Insurance and Surveys

   30   

(k)      Tax Matters

   31   

(l)       Payroll Expenses

   31   

(m)     Employment Taxes

   31 6.    Post-Closing Covenants    31   

(a)      General

   31   

(b)      Litigation Support

   31   

(c)       Transition

   31   

(d)      Confidentiality

   32   

(e)       Reserved

   32   

(f)       Reserved

   32   

(g)      Employee Benefits

   32   

(h)      Sales and Use Taxes

   32   

(i)       Handling of Prior Claims

   32 7.    Conditions to Obligation to Close    32   

(a)      Conditions to Buyer’s Obligation

   32   

(b)      Conditions to Sellers’ Obligation

   36   

(c)       Fees and Costs

   36 8.    Remedies for Breaches of This Agreement    37   

(a)      Survival of Representations and Warranties

   37   

(b)      Indemnification Provisions for Buyer’s Benefit

   37

 

-ii-

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TABLE OF CONTENTS

(continued)

 

          Page   

(c)       Indemnification Provisions for Sellers’ Benefit

   38   

(d)      Matters Involving Third Parties

   38   

(e)       Determination of Adverse Consequences

   39 9.    Tax Matters    39   

(a)      Tax Indemnification

   39   

(b)      Straddle Period

   39   

(c)       Responsibility for Filing Tax Returns

   39   

(d)      Cooperation on Tax Matters

   39   

(e)       Tax Sharing Agreements

   40 10.    Reserved    40 11.    Termination    40   

(a)      Termination of Agreement

   40   

(b)      Effect of Termination

   41 12.    Miscellaneous    41   

(a)      Press Releases and Public Announcements

   41   

(b)      No Third-Party Beneficiaries

   41   

(c)       Entire Agreement

   41   

(d)      Succession and Assignment

   41   

(e)       Counterparts

   41   

(f)       Headings

   41   

(g)      Notices

   41   

(h)      Governing Law

   42   

(i)       Amendments and Waivers

   42   

(j)       Severability

   42   

(k)      Expenses

   42   

(l)       Construction

   42   

(m)     Incorporation of Exhibits and Schedules

   43   

(n)      Specific Performance

   43   

(o)      Submission to Jurisdiction

   43   

(p)      Governing Language

   43

 

-iii-

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Exhibit A    Form of Promissory Note Exhibit B    Form of Escrow Agreement
Exhibit C    Financial Statements Exhibit D    Employee Benefits
Disclosure Schedule    Exceptions to Representations and Warranties Concerning
Each Company and    its Subsidiaries

 

-iv-

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MEMBERSHIP INTEREST PURCHASE AGREEMENT

THIS MEMBERSHIP INTEREST PURCHASE AGREEMENT (the "Agreement") is entered into on
October____, 2006, by and between Paragon Steakhouse Restaurants, Inc., a
Delaware corporation and wholly-owned subsidiary of Steakhouse Partners, Inc., a
Delaware corporation (the “Buyer”), and Delaware Trust Company, N.A as Owner
Trustee and Wells Fargo Bank, N.A. as Indenture Trustee of the ACLC Business
Loan Receivables Trust 1999-2, and Delaware Trust Company, N.A as Owner Trustee
and Wells Fargo Bank, N.A. as Indenture Trustee of the ACLC Business Loan
Receivables Trust 2000-1 (each a “Seller” and collectively, the “Sellers”),
acting through AMRESCO Commercial Finance, LLC, a Delaware limited liability
company (“AMRESCO”) as the servicing agent for Sellers. The Buyer and the
Sellers are referred to collectively herein as the “Parties.” This Agreement is
entered into with reference to the following facts:

A. The Sellers own One Hundred Percent (100%) of the outstanding membership
interests (collectively the “Interests”) in each of DWH I, LLC, an Idaho limited
liability company (“DWHI”), DWH II, LLC, an Idaho limited liability company
(“DWHII”), and Pittsfield DWH, LLC, an Idaho limited liability company
(“Pittsfield”). DWHI owns One Hundred Percent (100%) of the issued and
outstanding capital stock of Saloon Beverage, Inc., a Vermont corporation
(“SBI”).

B. The Sellers were the lienholders on the Restaurants described below.
Hospitality Well Done!, Inc., a Vermont corporation, Sirloin Saloon, Inc., a
Vermont corporation, Sirloin Saloon of Shelburne, Inc., a Vermont corporation,
Sirloin Saloon of Rutland, Inc., a Vermont corporation, Sirloin Saloon of
Manchester, Inc., a Vermont corporation, Dakota of Avon, Inc., a Vermont
corporation, Dakota of Milford, Inc., a Vermont corporation, Adirondack’s
Restaurants, Inc., a Vermont corporation, Perry Development Group, Inc., a
Vermont corporation, and Angler Enterprise, L.L.C., a Vermont limited liability
company (collectively, the “Borrowers”), owned the Restaurants, as applicable,
and have transferred the Restaurants to the Companies and Subsidiary in lieu of
foreclosure.

C. SBI holds the operating assets in the operation of three Sirloin Saloon
restaurants located at: 2545 Shelburne Road Shelburne, VT 05482 (the “Shelburne
Restaurant”), 200 South Main Street, Rutland, VT 05701 (the “Rutland
Restaurant”), and 135 Depot Street, Manchester Center, VT 05255 (the “Manchester
Restaurant”). DWHI holds the operating assets in the operation of three Dakota
restaurants located at 1651 Boston Post Road, Milford, CT 06460 (the “Milford
Restaurant”), 225 West Main Street, Avon, CT 06001 (the “Avon Restaurant”), and
579 Troy-Schenectady Road Suite 79-80, Latham, NY 12110 (the “Latham
Restaurant”). Pittsfield holds the operating assets in the operation of the
Dakota restaurants located at 1035 South Street, Pittsfield, MA 01201 (the
“Pittsfield Restaurant”, and collectively with the Shelburne Restaurant, Rutland
Restaurant, Manchester Restaurant, Milford Restaurant, Latham Restaurant and
Avon Restaurant, the “Restaurants”).

D. DWHII owns fee simple title to the real estate and improvements located at
the Shelburne, Rutland, Manchester and Pittsfield Restaurants (collectively, the
“Owned Real Property”), and leases such Owned Real Property to SBI or
Pittsfield, as applicable.

E. SBI holds the alcoholic beverage licenses for the Shelburne, Rutland and
Manchester Restaurants; DWHI holds the alcoholic beverage licenses for the
Latham Restaurant; Pittsfield holds the alcoholic beverage licenses for the
Pittsfield Restaurant; and D. Craig Christensen, Vice President and General
Counsel of AMRESCO, holds the alcoholic beverage licenses for the Avon and
Milford Restaurants (collectively the “Alcohol Licenses”).

 

1

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F. DWHI, DWHII, Pittsfield and SBI are referred to herein individually as a
“Company” and collectively as the “Companies.”

G. The operation of the Restaurants and the goodwill associated therewith is
referred to herein as the “Business.”

H. Each Seller desires to sell, transfer and assign to the Buyer, and the Buyer
desires to purchase and acquire from the Seller, all of the Interests, all on
the terms set forth herein.

NOW, THEREFORE, in consideration of the premises and the mutual promises herein
made, and in consideration of the representations, warranties, and covenants
herein contained, the Parties agree as follows.

 

1. Definitions.

“Adverse Consequences” means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and attorneys’ fees and expenses.

“Affiliate” has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.

“Affiliated Group” means any affiliated group within the meaning of Code
Section 1504(a) or any similar group defined under a similar provision of state,
local or foreign law.

“Basis” means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.

“Closing” has the meaning set forth in Section 2(d) below.

“Closing Date” has the meaning set forth in Section 2(d) below.

“COBRA” means the requirements of Part 6 of Subtitle B of Title I of ERISA and
Code Section 4980B and of any similar state law.

“Code” means the Internal Revenue Code of 1986, as amended.

“Company” and “Companies” have the meanings set forth in the preface above.

“Confidential Information” means any information concerning the businesses and
affairs of the Buyer, the Sellers or each Company and its Subsidiaries that is
not already generally available to the public.

“Disclosure Schedule” has the meaning set forth in Section 4 below.

“Employee Benefit Plan” means any “employee benefit plan” (as such term is
defined in ERISA Section 3(3)) and any other employee benefit plan, program or
arrangement of any kind.

“Employee Pension Benefit Plan” has the meaning set forth in ERISA Section 3(2).

 

2

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“Employee Welfare Benefit Plan” has the meaning set forth in ERISA Section 3(1).

“Encumbrance Documents” has the meaning set forth in Section 4(l) below.

“Environmental, Health, and Safety Requirements” shall mean all federal, state,
local, and foreign statutes, regulations, ordinances, and other provisions
having the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations, and all common law concerning
public health and safety, worker health and safety, and pollution or protection
of the environment, including, without limitation, all those relating to the
presence, use, production, generation, handling, transportation, treatment,
storage, disposal, distribution, labeling, testing, processing, discharge,
release, threatened release, control, or cleanup of any hazardous materials,
substances, or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise, or radiation, each as amended and as now or
hereafter in effect.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“ERISA Affiliate” means each entity that is treated as a single employer with
Company for purposes of Code Section 414.

“Estoppel Certificates” has the meaning set forth in Section 7(a) below.

“Fiduciary” has the meaning set forth in ERISA Section 3(21).

“Financial Statements” has the meaning set forth in Section 4(g) below.

“FIRPTA Affidavit” has the meaning set forth in Section 7(a) below.

“GAAP” means United States generally accepted accounting principles as in effect
from time to time, consistently applied.

“Improvements” has the meaning set forth in Section 4(l) below.

“Indemnified Party” has the meaning set forth in Section 8(d) below.

“Indemnifying Party” has the meaning set forth in Section 8(d) below.

“Intellectual Property” means all of the following in any jurisdiction
throughout the world: (a) all inventions (whether patentable or unpatentable and
whether or not reduced to practice), all improvements thereto, and all patents,
patent applications, and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof, (b) all trademarks, service marks, trade dress, logos, slogans, trade
names, mascots, corporate names, Internet domain names, and rights in telephone
numbers, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets,
recipes, menus and confidential business information (including ideas, research
and development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, facility plans,
training materials, facility opening materials and business and marketing plans
and proposals), (f) all computer software (including

 

3

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source code, executable code, data, databases, and related documentation),
(g) all advertising, marketing and promotional materials, (h) all other
proprietary rights, and (i) all copies and tangible embodiments thereof (in
whatever form or medium).

“Interests” means the membership interests in DWHI, DWHII and Pittsfield.

“Knowledge” means actual knowledge after reasonable investigation.

“Lease Consents” has the meaning set forth in Section 7(a) below.

“Leased Real Property” means all leasehold or subleasehold estates and other
rights to use or occupy any land, buildings, structures, improvements, fixtures,
or other interest in real property held by each Company or any of its
Subsidiaries.

“Leases” means all leases, subleases, licenses, concessions and other agreements
(written or oral), including all amendments, extensions, renewals, guaranties,
and other agreements with respect thereto, pursuant to which each Company or any
of its Subsidiaries holds any Leased Real Property, including the right to all
security deposits and other amounts and instruments deposited by or on behalf of
each Company or any of its Subsidiaries thereunder.

“Liability” means any liability or obligation of whatever kind or nature
(whether known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due), including any liability for Taxes.

“Lien” means any mortgage, pledge, lien, encumbrance, charge, or other security
interest, other than (a) liens for Taxes not yet due and payable, (b) purchase
money liens and liens securing rental payments under capital lease arrangements,
and (c) other liens arising in the Ordinary Course of Business and not incurred
in connection with the borrowing of money.

“Material Adverse Effect” or “Material Adverse Change” means any effect or
change that would be materially adverse to the business, assets, condition
(financial or otherwise), operating results, operations, or business prospects
of each Company and its Subsidiaries, taken as a whole, or on the ability of
either Seller to consummate timely the transactions contemplated hereby
(regardless of whether or not such adverse effect or change can be or has been
cured at any time or whether Buyer has knowledge of such effect or change on the
date hereof), including any adverse change, event, development, or effect
arising from or relating to (a) general business or economic conditions,
including such conditions related to the business of either Company and its
Subsidiaries, (b) national or international political or social conditions,
including the engagement by the United States in hostilities, whether or not
pursuant to the declaration of a national emergency or war, or the occurrence of
any military or terrorist attack upon the United States, or any of its
territories, possessions, or diplomatic or consular offices or upon any military
installation, equipment or personnel of the United States, (c) financial,
banking, or securities markets (including any suspension of trading in, or
limitation on prices for, securities on the New York Stock Exchange, American
Stock Exchange, or Nasdaq National Market for a period in excess of three hours
or any decline of either the Dow Jones Industrial Average or the Standard &
Poor’s Index of 500 Industrial Companies by an amount in excess of fifteen
percent (15%) measured from the close of business on the date hereof),
(d) changes in United States generally accepted accounting principles,
(e) changes in law, rules, regulations, orders, or other binding directives
issued by any governmental entity, and (f) the taking of any action contemplated
by this Agreement and the other agreements contemplated hereby.

“Material Leased Real Property” has the meaning set forth in Section 7(a) below.

 

4

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“Most Recent Balance Sheet” means the balance sheet contained within the Most
Recent Financial Statements.

“Most Recent Financial Statements” has the meaning set forth in Section 4(g)
below.

“Most Recent Fiscal Month End” has the meaning set forth in Section 4(g) below.

“Most Recent Fiscal Year End” has the meaning set forth in Section 4(g) below.

“Multiemployer Plan” has the meaning set forth in ERISA Section 3(37).

“Net Working Capital” means the amount of the consolidated current assets of the
Companies minus the consolidated current liabilities of the Companies.

“Non-Disturbance Agreements” has the meaning set forth in Section 7(a) below.

“Ordinary Course of Business” means the ordinary course of business consistent
with past custom and practice (including with respect to quantity and
frequency).

“Party” or "Parties" has the meaning set forth in the preface above.

“PBGC” means the Pension Benefit Guaranty Corporation.

“Permitted Encumbrances” means with respect to each parcel of Real Property:
(a) real estate taxes, assessments and other governmental levies, fees, or
charges imposed with respect to such Real Property that are (i) not due and
payable as of the Closing Date or (ii) that are being contested in good faith
and for which appropriate reserves have been established in accordance with
GAAP; (b) mechanics’ liens and similar liens for labor, materials, or supplies
provided with respect to such Real Property incurred in the Ordinary Course of
Business for amounts that are (i) not due and payable as of the Closing Date or
(ii) being contested in good faith and for which appropriate reserves have been
established in accordance with GAAP; (c) zoning, building codes and other land
use laws regulating the use or occupancy of such Real Property or the activities
conducted thereon which are imposed by any governmental authority having
jurisdiction over such Real Property and are not violated by the current use or
occupancy of such Real Property or the operation of each Company’s or any of its
Subsidiaries’ business as currently conducted thereon; and (d) easements,
covenants, conditions, restrictions, and other similar matters of record
affecting title to such Real Property which do not or would not impair the use
or occupancy of such Real Property in the operation of each Company’s or its
Subsidiaries’ business as currently conducted thereon.

“Person” means an individual, a partnership, a corporation, a limited liability
company, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, any other business entity, or a governmental entity
(or any department, agency, or political subdivision thereof).

“Prohibited Transaction” has the meaning set forth in ERISA Section 406 and Code
Section 4975.

“Purchase Price” has the meaning set forth in Section 2(b) below.

“Real Property” has the meaning set forth in Section 4(l) below.

“Real Property Laws” has the meaning set forth in Section 4(l) below.

 

5

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“Reportable Event” has the meaning set forth in ERISA Section 4043.

“Securities Act” means the Securities Act of 1933, as amended.

“Securities Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Seller” and “Sellers” have the meanings set forth in the preface above.

“Subsidiary” means, with respect to any Person, any corporation, limited
liability company, partnership, association, or other business entity of which
(i) if a corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers, or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof or (ii) if a limited
liability company, partnership, association, or other business entity (other
than a corporation), a majority of partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
that Person or one or more Subsidiaries of that Person or a combination thereof
and for this purpose, a Person or Persons own a majority ownership interest in
such a business entity (other than a corporation) if such Person or Persons
shall be allocated a majority of such business entity’s gains or losses or shall
be or control any managing director or general partner of such business entity
(other than a corporation). The term “Subsidiary” shall include all Subsidiaries
of such Subsidiary.

“Surveys” has the meaning set forth in Section 7(a) below.

“Tax” means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not and including any obligations to
indemnify or otherwise assume or succeed to the Tax liability of any other
Person.

“Tax Return” means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.

“Third Party Claim” has the meaning set forth in Section 8(d) below.

“Title Company” has the meaning set forth in Section 7(a) below.

“Title Policies” has the meaning set forth in Section 7(a) below.

 

6

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In addition, the following terms are defined elsewhere in this Agreement, as
indicated below:

 

Term

  

Definition Location

Preliminary Closing Balance Sheet

   Section 2(c)(i)

Net Working Capital

   Section 2(c)(i)

Auditor

   Section 2(c)(iii)

Final Closing Balance Sheet

   Section 2(c)(iv)

Closing

   Section 2(d)

Closing Date

   Section 2(d)

Real Property Permits

   Section 4(l)(ix)

Encumbrance Documents

   Section 4(l)(xi)

Real Estate Impositions

   Section 4(l)(xiii)

CERCLA

   Section 4(z)(v)

SWDA

   Section 4(z)(v)

Pre-Closing Tax Period

   Section 9(a)

Straddle Period

   Section 9(b)

2. Purchase and Sale of Interests.

(a) Basic Transaction. On and subject to the terms and conditions of this
Agreement, Buyer agrees to purchase from Sellers, and Sellers agree to sell to
Buyer, the Interests for the consideration specified below in this Section 2.

(b) Purchase Price and Payment.

 

7

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(i) Purchase Price. The purchase price (“Purchase Price”) shall be Fifteen
Million Dollars ($15,000,000) and will consist of (i) cash in the amount of Nine
Million Dollars ($9,000,000) (the “Cash Payment”) and (ii) a promissory note
executed by Buyer in the form attached hereto as Exhibit A, payable to Sellers
in the amount of Six Million Dollars ($6,000,000) (the “Note”). The Purchase
Price will be subject to adjustment in accordance with Section 2(c).

(ii) Payment of Purchase Price.

(A) Buyer agrees to pay to Sellers at the Closing the Cash Payment (less the
Earnest Money) in cash payable by wire transfer or delivery of other immediately
available funds. In addition, at the Closing Buyer shall deliver the Note and
the Security Documents (as defined below) to the Sellers.

(B) Upon the execution of this Agreement Buyer shall deposit with AMRESCO, as
escrow agent (the “Escrow Agent”), the amount of One Hundred Thousand Dollars
($100,000) (the “Earnest Money”). Buyer, Sellers and AMRESCO shall enter into an
escrow agreement relating to the Earnest Money in the form attached hereto as
Exhibit B. The Earnest Money shall be deposited into an interest bearing account
by AMRESCO pursuant to the escrow agreement. The Earnest Money, together with
accrued interest, shall be credited against the Purchase Price, and paid to
Sellers, at the Closing. If this Agreement is terminated (i) mutually by the
parties, (ii) as a result of Sellers’ breach of the representations or
warranties contained in Section 3(a); or (iii) as a result of Seller’s failure
to close the transaction, the Earnest Money shall be returned to Buyer, together
with all accrued interest thereon, as soon as practicable (but not more than
five (5) business days), otherwise the Earnest Money is non-refundable to Buyer
and deemed fully earned by Sellers.

(c) Post-Closing Adjustment.

(i) Preparation of Preliminary Closing Balance Sheet. As soon as reasonably
possible after the Closing Date (but not later than one hundred twenty
(120) days thereafter), Buyer will prepare a consolidated balance sheet (the
“Preliminary Closing Balance Sheet”) of the Companies and their Subsidiaries
dated as of the Closing Date. The Preliminary Closing Balance Sheet shall be
prepared in accordance with GAAP on a basis consistent with the Most Recent
Balance Sheet and shall set forth specifically “Net Working Capital”.

(ii) Review of Preliminary Closing Balance Sheet. The Preliminary Closing
Balance Sheet shall be binding and conclusive upon, and deemed accepted by,
Sellers unless Sellers shall have notified Buyer in writing of any objections
thereto consistent with the provisions of this Section 2(c) within thirty
(30) days after receipt thereof. The written notice under this Section 2(c)
shall specify in reasonable detail each item on the Preliminary Closing Balance
Sheet that Sellers dispute, and a summary of Sellers’ reasons for such dispute.

(iii) Disputes. Disputes between Buyer and Sellers relating to the Preliminary
Closing Balance Sheet that cannot be resolved by them within thirty (30) days
after receipt by Buyer of the notice referred to in Section 2(c)(ii) may be
referred no later than forty-five (45) days after such receipt for decision at
the insistence of either party to an independent nationally recognized
accounting firm selected by Buyer and Sellers to decide the matter or such other
firm being referred to herein as the “Auditor”). Prior to referring the matter
to the Auditor, the parties shall agree on the procedures to be followed by the
Auditor (including procedures with regard to presentation of evidence). Such
procedures shall not alter the accounting practices, principles and policies to
be applied to the Preliminary Closing Balance Sheet, which will be those
required by this Agreement. If the parties are unable to agree upon procedures
before the end of thirty (30) days after referral of the dispute to the Auditor,
the Auditor shall

 

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establish such procedures giving due regard to the intention of the parties to
resolve disputes as quickly, efficiently and inexpensively as possible, which
procedures may be, but need not be, those proposed by either party. The parties
shall then submit evidence in accordance with the procedures established, and
the Auditor shall decide the dispute in accordance therewith. The Auditor’s
decision on any matter referred to it shall be final and binding on Seller and
Buyer. The fee of the Auditor shall be borne by Sellers and Buyer in equal
portions, unless the Auditor decides, based on its determination with respect to
the reasonableness of the respective positions of the parties, that the fee
shall be borne in unequal proportions.

(iv) Final Closing Balance Sheet. The Preliminary Closing Balance Sheet shall
become final and binding upon the parties upon the earlier of (x) the failure by
Sellers to object thereto within the period permitted under Section 2(c)(ii),
(y) the agreement between Buyer and Sellers with respect thereto or (z) the
decision by the Auditor with respect to any disputes under Section 2(c)(iii).
The Preliminary Closing Balance Sheet, as adjusted pursuant to the agreement of
the parties or the decision of the Auditor, when final and binding is referred
to herein as the “Final Closing Balance Sheet.”

(v) Adjustment to the Purchase Price. As soon as practicable (but not more than
five (5) business days) after the determination and delivery of the Final
Closing Balance Sheet in accordance with this Section 2(c), the Purchase Price
shall be decreased by the amount, if any, by which the Net Working Capital is a
negative number (i.e. less than zero). Any decrease in the Purchase Price shall
be applied as a credit against the outstanding principal amount of the Note, or
if and to the extent the Note has been satisfied, shall be payable by Sellers to
Buyer in immediately available funds.

(vi) Rights and Remedies. Notwithstanding anything to the contrary contained in
this Section 2(c), pending resolution of all disputed items with respect to the
Preliminary Closing Balance Sheet, the amount of any adjustment to the Purchase
Price that is not in dispute shall be paid (in accordance with Section 2(c)(v)
above (x) in the case of any amounts to which Sellers have not objected pursuant
to Section 2(c), upon the earlier of (A) thirty (30) days after receipt by
Sellers of the Preliminary Closing Balance Sheet or (B) the date on which
Sellers shall have notified Buyer in writing of any objections thereto and
(y) in the case of any disputed amount or portions thereof, upon resolution of
any dispute with respect to such amounts or portions. Any payment required by
this Section 2(c) shall not limit or affect Buyer’s rights or remedies (or be
Buyer’s sole or exclusive right or remedy) with respect to this Agreement, the
breach of any representation, warranty or obligation herein, the failure of any
condition to Buyer’s obligations hereunder to be satisfied or the
indemnification obligations of Sellers hereunder.

(d) Closing. The closing of the transactions contemplated by this Agreement (the
“Closing”) shall take place at the offices of Morrison & Foerster LLP, 12531
High Bluff Drive, San Diego, California (or at such location as the parties
shall mutually agree), commencing at 9:00 a.m. local time on the second business
day following the satisfaction or waiver of all conditions to the obligations of
the Parties to consummate the transactions contemplated hereby (other than
conditions with respect to actions the respective Parties will take at the
Closing itself) or such other date as Buyer and Sellers may mutually determine,
but in no event later than sixty (60) days from the date of this Agreement (the
“Closing Date”).

(e) Deliveries at Closing. At the Closing, (i) each Seller will deliver to Buyer
the various certificates, instruments, and documents referred to in Section 7(a)
below, (ii) Buyer will deliver to each Seller the various certificates,
instruments, and documents referred to in Section 7(b) below, (iii) each Seller
will deliver to Buyer certificates, if any, representing all of its right, title
and interest in and to the Interests, endorsed in blank or accompanied by duly
executed assignment documents, and (iv) Buyer will deliver to Sellers the
consideration specified in Section 2(b) above.

 

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(f) Security for Note. The Note shall be secured by (i) first priority leasehold
mortgages on Restaurants, and (ii) first priority security interest on all
tangible personal property located at the Restaurants. The Buyer and DWHI, as
applicable, shall execute a pledge and security agreement, mortgages, and other
loan documents required by Sellers in form and substance acceptable to the
parties evidencing such liens and security interests (collectively, the
“Security Documents”).

(g) Liquor Licenses. Sellers shall execute (and shall cause any necessary third
parties to execute) any and all instruments and take any reasonable action
necessary for Buyer to obtain all approvals (i) to continue use of the current
liquor licenses as a result of Buyer’s purchase of the Interests and/or (ii) to
secure, as of the Closing, any and all liquor licenses for the operation of the
Business not held by each Company or the Sellers or, if held, not transferable
by each Company or the Sellers. Seller and Buyer recognize that Buyer may not
obtain the all of the necessary approvals as set forth in subsection (i) and
(ii) above prior to Closing (collectively, the “Approvals”). Therefore, Sellers
and Buyer hereby agree to cooperate in order to prevent a cessation of the sale
of beer and wine (and other alcoholic beverages) governed by the existing liquor
licenses in connection with the operation of the Restaurants for the period of
time from and after the Closing until the time Buyer receives the required
approvals. In connection therewith, Buyer hereby agrees that Buyer will promptly
file all of the necessary documents to obtain the above-referenced approvals for
each of the Restaurants. If Buyer fails to obtain the Approvals prior to
Closing, the parties may mutually agree to have the closing documents which
relate to the transfer of the Interests in DWHI and Pittsfield held in escrow on
the Closing Date and not released to Buyer until Buyer has obtained the
necessary Approvals, in which case, the parties shall execute a management
agreement that is effective until the transfer documents are released to Buyer
from Escrow, in form and substance satisfactory to the parties, whereby Sellers
retain Buyer to operate and manage the Restaurants during such period.
Notwithstanding the failure to obtain the Approvals prior to Closing and the
escrow of certain closing documents, the parties shall still proceed with the
transfer of the Interests in DWHII to Buyer on the Closing Date, and the
Purchase Price shall still be paid by Buyer on the Closing Date.

(h) Proration of Expenses. To the extent not already included in calculating Net
Working Capital and the adjustment of the Purchase Price under Section 2(c)(v)
above, the parties shall prorate as of 12:01 A.M. on the Closing Date (it being
the intent of the parties hereto that Buyer shall be responsible for the payment
of all expenses related to the Business on the Closing Date) all operating
expenses that are capable of proration on a per diem basis, including, without
limitation, the following:

(i) Taxes. All ad valorem and personal property Taxes and all unemployment Taxes
arising in connection with the operation of the Business;

(ii) Utilities. Prior to the Closing Date, Sellers shall notify all utility
companies servicing the Real Property of the anticipated change in ownership of
the Business and request that all billings after the Closing Date be made to
Buyer at the address of the Business. Utility meters will be read, to the extent
that the utility company will do so, during the daylight hours on the calendar
day immediately before the Closing Date;

(iii) Service Contracts, Leases and Insurance. All expenses and other amounts
payable under any and all Leases, contracts and insurance policies related to
the Business; and

(iv) Booking Agreements. Any deposits received by Sellers prior to the Closing
Date with respect to confirmed bookings for dates on or after the Closing Date
will be credited to Buyer. Any deposits received by Sellers on or after the
Closing Date with respect to confirmed reservations for dates on or after the
Closing Date shall be forwarded to Buyer upon receipt by Sellers. Any deposits
received

 

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by Sellers prior to the Closing Date with respect to confirmed bookings for
dates prior to the Closing Date shall be retained by Sellers without credit to
Buyer.

In the event that Buyer pays any fees, charges or Taxes which it is not required
to pay hereunder, Sellers agree to reimburse Buyer immediately in the amount of
such fees, charges or Taxes paid by Buyer in the manner set forth in this
Agreement. Any apportionments and prorations which are not expressly provided
for in this Agreement shall be made in accordance with customary practice in the
county in which the affected portion of the Business is located. Buyer and
Sellers agree to prepare and deliver at least three (3) days prior to the
Closing Date, a tentative operations settlement setting forth a schedule of
adjustments and prorations as agreed upon by Buyer and Sellers (an “Operations
Settlement”). A copy of the final Operations Settlement agreed upon by Buyer and
Sellers shall be delivered by Buyer and Sellers at the Closing. The prorations
to be made hereunder, pursuant to the final Operations Settlement or otherwise,
shall be effected by the parties hereto through an appropriate adjustment in the
Purchase Price.

(i) Gift Cards. The dollar amount of any gift cards, gift certificates, trade
script or any other instruments evidencing the right to acquire food or product
(herein referred to as “gift cards”) sold by Sellers prior to the Closing Date
but redeemed from the Closing Date until the expiration of eighteen (18) months
thereafter will be repaid to Buyer by Sellers. Any gift cards redeemed after
such eighteen (18) month period are not subject to repayment by Sellers. Buyer
shall submit a request for repayment along with proof of redemption at the
expiration of each calendar quarter for each gift card redeemed during such
calendar quarter. The amount of any periodic repayment to Buyer shall be applied
as a credit against the outstanding principal amount of the Note, or if and to
the extent the Note has been satisfied, shall be payable by Sellers to Buyer in
immediately available funds. Any gift cards sold by Sellers prior to the Closing
Date which have been redeemed prior to the Closing Date shall be retained by
Sellers without credit to Buyer.

 

3. Representations and Warranties Concerning Transaction.

(a) Sellers’ Representations and Warranties. Each Seller jointly and severally
represents and warrants to Buyer that the statements contained in this
Section 3(a) are correct and complete as of the date of this Agreement and will
be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 3(a)) with respect to itself, except as set forth in
Section 3(a) of the Disclosure Schedule.

(i) Authorization of Transaction. Seller has full power and authority to execute
and deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of Seller,
enforceable in accordance with its terms and conditions. Seller need not give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement. The execution, delivery, and
performance of this Agreement and all other agreements contemplated hereby have
been duly authorized by Seller.

(ii) Noncontravention. Neither the execution and the delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, will (A) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which Seller is subject, (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Seller is a party or by which it is bound or to which any
of its assets is subject, or (C) result in the imposition or creation of a Lien
upon or with respect to the Interests.

 

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(iii) Brokers’ Fees. Seller has no Liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement, except as Disclosed in Section 3(a)(iii) of the
Disclosure Schedule.

(iv) Interests. Sellers hold of record and own beneficially the Interests, free
and clear of any restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), Taxes, Liens, options, warrants,
purchase rights, contracts, commitments, equities, claims, and demands. Neither
Seller is a party to any option, warrant, purchase right, or other contract or
commitment that could require such Seller to sell, transfer, or otherwise
dispose of any membership or other equity interest in each Company (other than
this Agreement). Seller is not a party to any voting trust, proxy, or other
agreement or understanding with respect to the voting of any membership or other
equity interest in each Company.

(b) Buyer’s Representations and Warranties. Buyer represents and warrants to
Seller that the statements contained in this Section 3(b) are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 3(b)).

(i) Organization of Buyer. Buyer is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation.

(ii) Authorization of Transaction. Buyer has full power and authority (including
full corporate or other entity power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement constitutes
the valid and legally binding obligation of Buyer, enforceable in accordance
with its terms and conditions. Buyer need not give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any government
or governmental agency in order to consummate the transactions contemplated by
this Agreement. The execution, delivery, and performance of this Agreement and
all other agreements contemplated hereby have been duly authorized by Buyer.

(iii) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(A) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Buyer is subject or any provision of its
charter, bylaws, or other governing documents or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Buyer is a party or by which it is bound or to which any of
its assets is subject.

(iv) Brokers’ Fees. Buyer has no Liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which any Seller could become liable or
obligated, except as disclosed in Schedule 3(b)(iv) the Disclosure Schedule.

(v) Investment. Buyer is not acquiring the Interests with a view to or for sale
in connection with any distribution thereof within the meaning of the Securities
Act.

4. Representations and Warranties Concerning Each Company and Its Subsidiaries.
Each Seller jointly and severally represents and warrants to Buyer that the
statements contained in this Section 4 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of

 

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this Agreement throughout this Section 4), except as set forth in the disclosure
schedule delivered by Sellers to Buyer on the date hereof and initialed by the
Parties (the “Disclosure Schedule”). Nothing in the Disclosure Schedule shall be
deemed adequate to disclose an exception to a representation or warranty made
herein, however, unless the Disclosure Schedule identifies the exception with
reasonable particularity and describes the relevant facts in reasonable detail.
Without limiting the generality of the foregoing, the mere listing (or inclusion
of a copy) of a document or other item shall not be deemed adequate to disclose
an exception to a representation or warranty made herein (unless the
representation or warranty has to do with the existence of the document or other
item itself). The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this
Section 4.

(a) Organization, Qualification, and Corporate Power. Each Company and its
Subsidiaries is a corporation or limited liability company, as the case may be,
duly organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation or formation, as the case may be. Each Company
and its Subsidiaries is duly authorized to conduct business and is in good
standing under the laws of each jurisdiction where such qualification is
required. Each Company and its Subsidiaries has full power and authority and all
licenses, permits, and authorizations necessary to carry on the businesses in
which it is engaged and to own and use the properties owned and used by it.
Section 4(a) of the Disclosure Schedule lists the members, stockholders,
managers, directors and officers of each Company and its Subsidiaries. Sellers
have delivered to Buyer correct and complete copies of the organizational
documents (articles of organization or incorporation and operating agreement or
bylaws of each Company and its Subsidiaries (as amended to date)). The minute
books (containing the records of meetings of the members, the stockholders, the
managers, the directors and the membership and shareholder record books of each
Company and its Subsidiaries are correct and complete. Neither Company nor any
of its Subsidiaries is in default under or in violation of any provision of its
organizational documents.

(b) Capitalization. The Interests constitute all of the issued and outstanding
Interests in Pittsfield, DWHI and DWHII and the entire equity and ownership
interests in such entities. All of the issued and outstanding Interests have
been duly authorized, are validly issued, fully paid, and nonassessable, and are
held of record and beneficially by the Sellers. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could require a
Company to issue, sell, or otherwise cause to become outstanding any of its
membership, ownership or other equity interests. There are no outstanding or
authorized interest appreciation, phantom interest, profit participation, or
similar rights with respect to a Company. There are no voting trusts, proxies,
or other agreements or understandings with respect to the voting of the
interests of a Company.

(c) Noncontravention. Neither the execution and the delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, will (i) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which any of the Companies and its Subsidiaries is subject
or any provision of the charter or bylaws of any of the Companies and its
Subsidiaries or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
any of the Companies and its Subsidiaries is a party or by which it is bound or
to which any of its assets is subject (or result in the imposition of any Lien
upon any of its assets). To the Knowledge of the Sellers, except as otherwise
required herein, none of the Companies and its Subsidiaries needs to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.

 

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(d) Brokers’ Fees. None of the Companies and its Subsidiaries has any Liability
or obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement.

(e) Title to Assets. Each Company and its Subsidiaries has good and marketable
title to, or a valid leasehold interest in, the properties and assets used by
them in the Business, located on their premises, or shown on the Most Recent
Balance Sheet or acquired after the date thereof, free and clear of all Liens,
except for properties and assets disposed of in the Ordinary Course of Business
since the date of the Most Recent Balance Sheet and liens that will be released
at Closing.

(f) Subsidiaries. Section 4(f) of the Disclosure Schedule sets forth for each
Subsidiary of each Company (i) its name and jurisdiction of incorporation,
(ii) the number of shares of authorized capital stock of each class of its
capital stock, (iii) the number of issued and outstanding shares of each class
of its capital stock, the names of the holders thereof, and the number of shares
held by each such holder, and (iv) the number of shares of its capital stock
held in treasury. All of the issued and outstanding shares of capital stock of
each Subsidiary of a Company have been duly authorized and are validly issued,
fully paid, and nonassessable. No Company or one or more of its Subsidiaries
holds of record and owns beneficially all of the outstanding shares of each
Subsidiary of such Company, free and clear of any restrictions on transfer
(other than restrictions under the Securities Act and state securities laws),
Taxes, Liens, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require a Company and its
Subsidiaries to sell, transfer, or otherwise dispose of any capital stock of any
of its Subsidiaries or that could require any Subsidiary of a Company to issue,
sell, or otherwise cause to become outstanding any of its own capital stock.
There are no outstanding interest appreciation, phantom stock, profit
participation, or similar rights with respect to any Subsidiary of a Company.
There are no voting trusts, proxies, or other agreements or understandings with
respect to the voting of any interests of any Subsidiary of each Company. No
Company and its Subsidiaries controls directly or indirectly or has any direct
or indirect equity participation in any corporation, partnership, trust, or
other business association which is not a Subsidiary of each Company. Except for
the Subsidiaries set forth in Section 4(f) of the Disclosure Schedule, no
Company nor any of its Subsidiaries owns or has any right to acquire, directly
or indirectly, any outstanding capital stock of, or other equity interests in,
any Person.

(g) Financial Statements. Attached hereto as Exhibit C are the following
financial statements (collectively the “Financial Statements”): (i) Reviewed
balance sheets and statements of income, changes in shareholders’ equity and
cash flow as of and for the fiscal years ended March 31, 2003 and March 31, 2004
for each entity which owned and operated the Restaurants (ii) unaudited
consolidated and consolidating balance sheets and statements of income, changes
in stockholders’ equity, and cash flow as of and for the gap period between
March 29, 2004 to the beginning of the “Most Recent Financial Year End” (as
defined below) for each entity which owned and operated the Restaurants,
expressly including all information and source documents necessary for
independent accountants to bridge the gap for this time frame; (iii) unaudited
consolidated and consolidating balance sheets and statements of income, changes
in shareholders’ equity and cash flow as of and for the fiscal year ended
December 31, 2005 (the “Most Recent Fiscal Year End”) for each Company and its
Subsidiaries; (iv) unaudited consolidated and consolidating balance sheets and
statements of income, changes in stockholders’ equity, and cash flow (the “Most
Recent Financial Statements”) as of and for the month ended July 31, 2006 (the
“Most Recent Fiscal Month End”) for each Company and its Subsidiaries; and
(v) copies of all source documents and financial information from which the
financial statements itemized in sections (i) through (iv) above were derived
and sufficient to enable independent accountants to derive audited financial
numbers. The Financial Statements (including the notes thereto) have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby, present

 

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fairly the financial condition of each Company and its Subsidiaries as of such
dates and the results of operations of each Company and its Subsidiaries for
such periods, are correct and complete, are consistent with the books and
records of each Company and its Subsidiaries (which books and records are
correct and complete).

(h) Events Subsequent to Most Recent Fiscal Year End. Since the Most Recent
Fiscal Year End, there has not been any Material Adverse Change. Without
limiting the generality of the foregoing, since that date:

(i) none of the Companies and its Subsidiaries has sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for a fair
consideration in the Ordinary Course of Business;

(ii) none of the Companies and its Subsidiaries has entered into any agreement,
contract, lease, or license (or series of related agreements, contracts, leases,
and licenses) either involving more than $10,000 or outside the Ordinary Course
of Business;

(iii) no party (including each Company and any of its Subsidiaries) has
accelerated, terminated, modified, or cancelled any agreement, contract, lease,
or license (or series of related agreements, contracts, leases, and licenses)
involving more than $10,000 to which each Company or any of its Subsidiaries is
a party or by which any of them is bound;

(iv) none of the Companies and its Subsidiaries has imposed any Liens upon any
of its assets, tangible or intangible;

(v) none of the Companies and its Subsidiaries has made any capital expenditure
(or series of related capital expenditures) outside the Ordinary Course of
Business;

(vi) none of the Companies and its Subsidiaries has made any capital investment
in, any loan to, or any acquisition of the securities or assets of, any other
Person (or series of related capital investments, loans, and acquisitions)
either involving more than $10,000 or outside the Ordinary Course of Business;

(vii) none of the Companies and its Subsidiaries has issued any note, bond, or
other debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation either involving
more than $10,000 singly or $25,000 in the aggregate;

(viii) none of the Companies and its Subsidiaries has delayed or postponed the
payment of accounts payable and other Liabilities outside the Ordinary Course of
Business;

(ix) none of the Companies and its Subsidiaries has cancelled, compromised,
waived, or released any right or claim (or series of related rights and claims)
either involving more than $10,000 or outside the Ordinary Course of Business;

(x) except as set forth in Section 4(h)(x) of the Disclosure Schedule, none of
the Companies and its Subsidiaries has transferred, assigned, or granted any
license or sublicense of any rights under or with respect to any Intellectual
Property;

(xi) there has been no change made or authorized in the organizational documents
of any Company or its Subsidiaries except as to the change in ownership of
Subsidiary from AMRESCO Commercial Finance, LLC as the original sole shareholder
to DWHI as the current sole shareholder;

 

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(xii) none of the Companies and its Subsidiaries has issued, sold, or otherwise
disposed of any of its membership or equity interests, or granted any options,
warrants, or other rights to purchase or obtain (including upon conversion,
exchange, or exercise) any of its membership or other equity interests;

(xiii) none of the Companies and its Subsidiaries has declared, set aside, or
paid any dividend or made any distribution with respect to its membership or
other equity interests (whether in cash or in kind) or redeemed, purchased, or
otherwise acquired any of its membership or other equity interests except for
periodic payments to the Sellers which are required by the servicing agreement
between Sellers and AMRESCO with respect to the Borrowers;

(xiv) none of the Companies and its Subsidiaries has experienced any damage,
destruction, or loss (whether or not covered by insurance) to its property;

(xv) none of the Companies and its Subsidiaries has made any loan to, or entered
into any other transaction with, any of its directors, officers, and employees
outside the Ordinary Course of Business;

(xvi) none of the Companies and its Subsidiaries has entered into any employment
contract or collective bargaining agreement, written or oral, or modified the
terms of any existing such contract or agreement;

(xvii) none of the Companies and its Subsidiaries has granted any increase in
the base compensation of any of its directors, officers, and employees outside
the Ordinary Course of Business;

(xviii) none of the Companies and its Subsidiaries has adopted, amended,
modified, or terminated any bonus, profit sharing, incentive, severance, or
other plan, contract, or commitment for the benefit of any of its directors,
officers, and employees (or taken any such action with respect to any other
Employee Benefit Plan);

(xix) none of the Companies and its Subsidiaries has made any other change in
employment terms for any of its managers, officers, and employees outside the
Ordinary Course of Business;

(xx) none of the Companies and its Subsidiaries has made or pledged to make any
charitable or other capital contribution outside the Ordinary Course of
Business;

(xxi) there has not been any other material occurrence, event, incident, action,
failure to act, or transaction outside the Ordinary Course of Business involving
any of the Companies or its Subsidiaries except as provided in Section 4(h)(xxi)
of the Disclosure Schedule;

(xxii) none of the Companies and its Subsidiaries has discharged a material
Liability or Lien outside the Ordinary Course of Business;

(xxiii) none of the Companies and its Subsidiaries has made any loans or
advances of money;

(xxiv) none of the Companies and its Subsidiaries has disclosed any Confidential
Information; and

 

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(xxv) none of the Companies and its Subsidiaries has committed to any of the
foregoing.

(i) Undisclosed Liabilities. None of the Companies and its Subsidiaries has any
Liability (and to the Knowledge of the Sellers there is no Basis for any present
or future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any Liability), except for
(i) Liabilities set forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto) and (ii) Liabilities which have arisen after the Most
Recent Fiscal Month End in the Ordinary Course of Business (none of which
results from, arises out of, relates to, is in the nature of, or was caused by
any material breach of contract, breach of warranty, tort, infringement, or
violation of law).

(j) Legal Compliance. To the Knowledge of the Sellers, each Company, its
Subsidiaries, and their respective predecessors and Affiliates has complied with
all applicable material laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder and
including the Foreign Corrupt Practices Act, 15 U.S.C. 78dd-1 et seq.) of
federal, state, local, and foreign governments (and all agencies thereof), and
no action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them alleging any
failure so to comply.

(k) Tax Matters.

(i) Each of the Companies and its Subsidiaries has filed all Tax Returns that it
was required to file under applicable laws and regulations. All such Tax Returns
were correct and complete in all respects and have been prepared in substantial
compliance with all applicable laws and regulations. All Taxes due and owing by
a Company and its Subsidiaries (whether or not shown on any Tax Return) have
been paid. No Company or any of its Subsidiaries currently is the beneficiary of
any extension of time within which to file any Tax Return. No claim has ever
been made by an authority in a jurisdiction where any of the Companies and its
Subsidiaries does not file Tax Returns that it is or may be subject to taxation
by that jurisdiction. There are no Liens for Taxes (other than Taxes not yet due
and payable) upon any of the assets of Company or any of its Subsidiaries.

(ii) Each of the Companies and its Subsidiaries has withheld and paid all Taxes
required to have been withheld and paid in connection with any amounts paid or
owing to any employee, independent contractor, creditor, manager, member or
other third party.

(iii) No Seller or manager, director, shareholder, member or officer (or
employee responsible for Tax matters) of a Company or its Subsidiaries expects
any authority to assess any additional Taxes for any period for which Tax
Returns have been filed. No foreign, federal, state, or local tax audits or
administrative or judicial Tax proceedings are pending or being conducted with
respect to a Company or any of its Subsidiaries. No Company nor any of its
Subsidiaries has received from any foreign, federal, state, or local taxing
authority (including jurisdictions where the Company or its Subsidiaries have
not filed Tax Returns) any (i) written notice indicating an intent to open an
audit or other review, (ii) request for information related to Tax matters, or
(iii) notice of deficiency or proposed adjustment for any amount of Tax
proposed, asserted, or assessed by any taxing authority against a Company or any
of its Subsidiaries.

(iv) Neither Company nor any of its Subsidiaries has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.

 

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(v) No Company nor any of its Subsidiaries is a party to any material agreement,
contract, arrangement or plan that has resulted or would result, separately or
in the aggregate, in the payment of (i) any “excess parachute payment” within
the meaning of Code Section 280G (or any corresponding provision of state, local
or foreign Tax law) and (ii) any amount that will not be fully deductible as a
result of Code 162(m) (or any corresponding provision of state, local or foreign
Tax law). No Company nor any of its Subsidiaries has been a United States real
property holding corporation within the meaning of Code Section 897(c)(2) during
the applicable period specified in Code Section 897(c)(1)(A)(ii). Each Company
and its Subsidiaries has disclosed on its federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Code Section 6662. No Company or any of
its Subsidiaries is a party to or bound by any Tax allocation or sharing
agreement. No Company or any of its Subsidiaries (A) has been a member of an
Affiliated Group filing a consolidated federal income Tax Return (other than a
group the common parent of which was Company) or (B) has any Liability for the
Taxes of any Person (other than the Company and its Subsidiaries) under Treasury
Regulation Section 1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract, or otherwise.

(vi) Section 4(k) of the Disclosure Schedule sets forth the following
information with respect to each of the Companies and its Subsidiaries as of the
most recent practicable date: (A) the basis of the Company or Subsidiary in its
assets; (B) the amount of any unused investment or other credit, unused foreign
tax, or excess charitable contribution allocable to the Company or Subsidiary;
and (C) the amount of any deferred gain or loss allocable to the Company or
Subsidiary arising out of any intercompany transaction.

(vii) The unpaid Taxes of a Company and its Subsidiaries (A) did not, as of the
Most Recent Fiscal Month End, exceed the reserve for Tax Liability (rather than
any reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto) and (B) do not exceed that reserve as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of a Company and its Subsidiaries in filing their Tax
Returns. Since the date of the Most Recent Balance Sheet, neither Company nor
any of its Subsidiaries has incurred any liability for Taxes arising from
extraordinary gains or losses, as that term is used in GAAP, outside the
Ordinary Course of Business consistent with past custom and practice.

(viii) None of the Companies and its Subsidiaries will be required to include
any item of income in, or exclude any item of deduction from, taxable income for
any taxable period (or portion thereof) ending after the Closing Date as a
result of any: (A) change in method of accounting for a taxable period ending on
or prior to the Closing Date; (B) “closing agreement” as described in Code
Section 7121 (or any corresponding or similar provision of state, local or
foreign income Tax law) executed on or prior to the Closing Date;
(C) intercompany transactions or any excess loss account described in Treasury
Regulations under Code Section 1502 (or any corresponding or similar provision
of state, local or foreign income Tax law); (D) installment sale or open
transaction disposition made on or prior to the Closing Date; or (E) prepaid
amount received on or prior to the Closing Date.

(ix) None of the Companies nor any Subsidiary has (nor has any predecessor of
such Company nor any Subsidiary or Person acquired by such Company nor any
Subsidiary) participated in a “reportable transaction” within the meaning of
Treasury Regulation Section 1.6011-4(b), excepting those transactions and
arrangements which may qualify as reportable transactions solely due to
confidentiality provisions. If any Company or any Subsidiary (or any predecessor
of the Company or any Subsidiary or Person acquired by the Company or any
Subsidiary) has entered into any transaction such that, if the treatment claimed
by it were to be disallowed, the transaction would constitute a substantial
understatement of federal income tax within the meaning of Code Section 6662,
then it has either

 

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(x) substantial authority for the tax treatment of such transaction or
(y) disclosed on its Tax Return the relevant facts affecting the tax treatment
of such transaction.

(l) Real Property.

(i) Section 4(l)(i) of the Disclosure Schedule sets forth the address and
description of each parcel of Owned Real Property. With respect to each parcel
of Owned Real Property:

(A) DWHII has good and marketable indefeasible fee simple title, free and clear
of all Liens, except Permitted Encumbrances;

(B) except as set forth in Section 4(l)(i)(B) of the Disclosure Schedule, none
of Company or its Subsidiaries has leased or otherwise granted to any Person the
right to use or occupy such Owned Real Property or any portion thereof; and

(C) there are no outstanding options, rights of first offer or rights of first
refusal to purchase such Owned Real Property or any portion thereof or interest
therein.

(ii) Section 4(l)(ii) of the Disclosure Schedule sets forth the address of each
parcel of Leased Real Property, and a true and complete list of all Leases for
each such Leased Real Property (including the date and name of the parties to
such Lease document). Each Company and its Subsidiaries has delivered to Buyer a
true and complete copy of each such Lease document, and in the case of any oral
Lease, a written summary of the material terms of such Lease. Except as set
forth in Section 4(l)(ii) of the Disclosure Schedule, with respect to each of
the Leases:

(A) such Lease is legal, valid, binding, enforceable and in full force and
effect;

(B) the transaction contemplated by this Agreement does not require the consent
of any other party to such Lease (except for those Leases for which Lease
Consents (as hereinafter defined) are obtained), will not result in a breach of
or default under such Lease, and will not otherwise cause such Lease to cease to
be legal, valid, binding, enforceable and in full force and effect on identical
terms following the Closing;

(C) none of a Company’s or its Subsidiaries’ possession and quiet enjoyment of
the Leased Real Property under such Lease has been disturbed and there are no
disputes with respect to such Lease;

(D) none of the Companies, its Subsidiaries or to the Knowledge of Sellers any
other party to the Lease, is in breach or default under such Lease, and to the
Knowledge of the Sellers no event has occurred or circumstance exists which,
with the delivery of notice, the passage of time or both, would constitute such
a breach or default, or permit the termination, modification or acceleration of
rent under such Lease;

(E) no security deposit or portion thereof deposited with respect to such Lease
has been applied in respect of a breach or default under such Lease which has
not been redeposited in full;

(F) none of the Companies or its Subsidiaries owes, or will owe in the future,
any brokerage commissions or finder’s fees with respect to such Lease;

 

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(G) the other party to such Lease is not an Affiliate of, and otherwise does not
have any economic interest in, any Company or any of its Subsidiaries;

(H) none of the Companies or its Subsidiaries has subleased, licensed or
otherwise granted any Person the right to use or occupy such Leased Real
Property or any portion thereof;

(I) none of the Companies or its Subsidiaries has collaterally assigned or
granted any other Lien in such Lease or any interest therein; and

(J) there are no Liens on the estate or interest created by such Lease.

(iii) The Leased Real Property identified in Section 4(l)(ii) of the Disclosure
Schedule (collectively, the “Real Property”), comprises all of the leased real
property used or intended to be used in, or otherwise related to, the Companies’
and Subsidiaries’ Business; and none of the Companies or Subsidiaries is a party
to any agreement or option to purchase any real property or interest therein.

(iv) To the Knowledge of the Sellers, all buildings, structures, fixtures,
building systems and equipment, and all components thereof, including the roof,
foundation, load-bearing walls and other structural elements thereof, heating,
ventilation, air conditioning, mechanical, electrical, plumbing and other
building systems, environmental control, remediation and abatement systems,
sewer, storm and waste water systems, irrigation and other water distribution
systems, parking facilities, fire protection, security and surveillance systems,
and telecommunications, computer, wiring and cable installations, included in
the Real Property (the “Improvements”) are in good condition and repair and
sufficient for the operation of the Companies’ and Subsidiaries’ business. To
the Knowledge of the Sellers, there are no structural deficiencies or latent
defects affecting any of the Improvements and there are no facts or conditions
affecting any of the Improvements which would, individually or in the aggregate,
interfere in any respect with the use or occupancy of the Improvements or any
portion thereof in the operation of the Companies’ or Subsidiaries’ business as
currently conducted thereon.

(v) There is no condemnation, expropriation or other proceeding in eminent
domain, pending or threatened, affecting any parcel of Real Property or any
portion thereof or interest therein. There is no injunction, decree, order, writ
or judgment outstanding, nor any claims, litigation, administrative actions or
similar proceedings, or to the Knowledge of the Sellers pending or threatened,
relating to the ownership, lease, use or occupancy of the Real Property or any
portion thereof, or the operation of the Companies’ or Subsidiaries’ business as
currently conducted thereon.

(vi) To the Knowledge of the Sellers, the Real Property is in material
compliance with all applicable building, zoning, subdivision, health and safety
and other land use laws, including the Americans with Disabilities Act of 1990,
as amended, and all insurance requirements affecting the Real Property
(collectively, the “Real Property Laws”), and the current use and occupancy of
the Real Property and operation of Companies’ and its Subsidiaries’ business
thereon do not violate any Real Property Laws. Neither Company nor any of its
Subsidiaries has received any notice of violation of any Real Property Law and
there is no basis for the issuance of any such notice or the taking of any
action for such violation. There is no pending or anticipated change in any Real
Property Law that will materially impair the ownership, lease, use or occupancy
of any Real Property or any portion thereof in the continued operation of the
Companies’ or its Subsidiaries’ business as currently conducted thereon.

(vii) To the Knowledge of the Sellers, each parcel of Real Property has direct
vehicular and pedestrian access to a public street adjoining the Real Property,
or has vehicular and pedestrian access to a public street via an insurable,
permanent, irrevocable and appurtenant easement benefiting such parcel of Real
Property, and such access is not dependent on any land or other real

 

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property interest which is not included in the Real Property. To the Knowledge
of the Sellers, none of the Improvements or any portion thereof is dependent for
its access, use or operation on any land, building, improvement or other real
property interest which is not included in the Real Property.

(viii) To the Knowledge of the Sellers, all water, oil, gas, electrical, steam,
compressed air, telecommunications, sewer, storm and waste water systems and
other utility services or systems for the Real Property have been installed and
are operational and sufficient for the operation of the Companies’ or
Subsidiaries’ business as currently conducted thereon. To the Knowledge of the
Sellers, each such utility service enters the Real Property from an adjoining
public street or valid private easement in favor of the supplier of such utility
service or appurtenant to such Real Property, and is not dependent for its
access, use or operation on any land, building, improvement or other real
property interest which is not included in the Real Property.

(ix) All certificates of occupancy, permits, licenses, franchises, approvals and
authorizations (collectively, the “Real Property Permits”) of all governmental
authorities, boards of fire underwriters, associations or any other entity
having jurisdiction over the Real Property which are required or appropriate to
use or occupy the Real Property or operate Companies’ or Subsidiaries’ business
as currently conducted thereon, have been issued and are in full force and
effect. Section 4(l)(ix) of the Disclosure Schedule lists all material Real
Property Permits held by any of the Companies and its Subsidiaries with respect
to each parcel of Real Property. The Companies have delivered to Buyer a true
and complete copy of all Real Property Permits. None of the Companies or its
Subsidiaries has received any notice from any governmental authority or other
entity having jurisdiction over the Real Property threatening a suspension,
revocation, modification or cancellation of any Real Property Permit and to the
Knowledge of the Sellers there is no basis for the issuance of any such notice
or the taking of any such action.

(x) To the Knowledge of the Sellers, the classification of each parcel of Real
Property under applicable zoning laws, ordinances and regulations permits the
use and occupancy of such parcel and the operation of a Company’s and its
Subsidiaries’ business as currently conducted thereon, and permits the
Improvements located thereon as currently constructed, used and occupied. To the
Knowledge of the Sellers, there are sufficient parking spaces, loading docks and
other facilities at such parcel to comply with such zoning laws, ordinances and
regulations. To the Knowledge of the Sellers, the Companies’ and Subsidiaries’
use or occupancy of the Real Property or any portion thereof or the operation of
the Companies’ or Subsidiaries’ business as currently conducted thereon is not
dependent on a “permitted non-conforming use” or “permitted non-conforming
structure” or similar variance, exemption or approval from any governmental
authority.

(xi) To the Knowledge of the Sellers, the current use and occupancy of the Real
Property and the operation of the Companies’ and Subsidiaries’ business as
currently conducted thereon do not violate any easement, covenant, condition,
restriction or similar provision in any instrument of record or other unrecorded
agreement affecting such Real Property (the “Encumbrance Documents”). None of
Sellers, the Companies or their Subsidiaries has received any notice of
violation of any Encumbrance Documents, and to the Knowledge of the Sellers
there is no basis for the issuance of any such notice or the taking of any
action for such violation.

(xii) To the Knowledge of the Sellers, none of the Improvements encroach on any
land which is not included in the Real Property or on any easement affecting
such Real Property, or violate any building lines or set-back lines, and there
are no encroachments onto any of the Real Property, or any portion thereof,
which encroachment would interfere with the use or occupancy of such Real
Property or the continued operation of the Companies’ or Subsidiaries’ business
as currently conducted thereon.

 

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(xiii) To the Knowledge of the Sellers, each parcel of Real Property is a
separate lot for real estate tax and assessment purposes, and no other real
property is included in such tax parcel. There are no Taxes, assessments, fees,
charges or similar costs or expenses imposed by any governmental authority,
association or other entity having jurisdiction over the Real Property
(collectively, the “Real Estate Impositions”) with respect to any Real Property
or portion thereof which are delinquent. There is no pending or to the Knowledge
of the Sellers threatened increase or special assessment or reassessment of any
Real Estate Impositions for such parcel.

(xiv) None of the Real Property or any portion thereof is located in a flood
hazard area (as defined by the Federal Emergency Management Agency).

(m) Intellectual Property.

(i) Each Company and its Subsidiaries owns and possesses or has the right to use
pursuant to a valid and enforceable, written license, sublicense, agreement, or
permission all Intellectual Property necessary for the operation of the
businesses of each such Company and its Subsidiaries as presently conducted.
Each item of Intellectual Property owned or used by a Company or any of its
Subsidiaries immediately prior to the Closing hereunder will be owned or
available for use by such Company or its Subsidiaries on identical terms and
conditions immediately subsequent to the Closing hereunder. Each of the
Companies and its Subsidiaries has taken all necessary action to maintain and
protect each item of Intellectual Property that it owns or uses.

(ii) To the Knowledge of Sellers, none of the Companies and its Subsidiaries has
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of third parties, and none of
Sellers and the members, shareholders, directors and managers (and employees
with responsibility for Intellectual Property matters) of any Company or any
Subsidiaries has ever received any charge, complaint, claim, demand, or notice
alleging any such interference, infringement, misappropriation, or violation
(including any claim that such Company or any of its Subsidiaries must license
or refrain from using any Intellectual Property rights of any third party). To
the Knowledge of any of Sellers and the members, shareholders, directors and
managers (and employees with responsibility for Intellectual Property matters)
of either Company and its Subsidiaries, no third party has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of such Company or any of its Subsidiaries.

(iii) Section 4(m)(iii) of the Disclosure Schedule identifies each patent or
registration that has been issued to either Company or any of its Subsidiaries
with respect to any of its Intellectual Property, identifies each pending patent
application or application for registration which such Company or any of its
Subsidiaries has made with respect to any of its Intellectual Property, and
identifies each license, sublicense, agreement, or other permission which such
Company or any of its Subsidiaries has granted to any third party with respect
to any of its Intellectual Property (together with any exceptions). Sellers have
delivered to Buyer correct and complete copies of all such patents,
registrations, applications, licenses, sublicenses, agreements, and permissions
(as amended to date) and have made available to Buyer correct and complete
copies of all other written documentation evidencing ownership and prosecution
(if applicable) of each such item. Section 4(m)(iii) of the Disclosure Schedule
also identifies each material unregistered trademark, service mark, trade name,
corporate name or Internet domain name, computer software item (other than
commercially available off-the-shelf software purchased or licensed for less
than a total cost of One Thousand Dollars ($1,000) in the aggregate) and each
material unregistered copyright used by either Company or any of its
Subsidiaries in connection with any of its businesses. With respect to each item
of Intellectual Property required to be identified in Section 4(m)(iii) of the
Disclosure Schedule:

 

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(A) one of the Companies and its Subsidiaries owns and possesses all right,
title, and interest in and to the item, free and clear of any Lien, license, or
other restriction or limitation regarding use or disclosure;

(B) the item is not subject to any outstanding injunction, judgment, order,
decree, ruling, or charge;

(C) no action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand is pending or, to the Knowledge of any of Sellers and the
members and managers (and employees with responsibility for Intellectual
Property matters) of such Company and its Subsidiaries, is threatened which
challenges the legality, validity, enforceability, use, or ownership of the
item, and there are no grounds for the same;

(D) neither Company nor any of its Subsidiaries has ever agreed to indemnify any
Person for or against any interference, infringement, misappropriation, or other
conflict with respect to the item; and

(iv) No Company or Subsidiary uses any Intellectual Property of a third party
pursuant to license, sublicense, agreement, or permission (other than
commercially available off-the-shelf software purchased or licensed for less
than a total cost of One Thousand Dollars ($1,000) in the aggregate).

(v) To the Knowledge of any of Sellers and the members, shareholders, directors
and managers (and employees with responsibility for Intellectual Property
matters) of each Company and its Subsidiaries: (A) none of such Company and its
Subsidiaries has in the past nor will interfere with, infringe upon,
misappropriate, or otherwise come into conflict with, any Intellectual Property
rights of third parties as a result of the continued operation of its businesses
as presently conducted; (B) there are no facts that indicate a likelihood of any
of the foregoing; and (C) no notices regarding any of the foregoing (including,
without limitation, any demands or offers to license any Intellectual Property
from any third party) have been received.

(vi) Sellers have taken all necessary and desirable action to maintain and
protect all of the Intellectual Property of each Company and its Subsidiaries
and will continue to maintain and protect all of the Intellectual Property of
each Company and its Subsidiaries so as not to materially adversely affect the
validity or enforceability thereof.

(vii) Each Company and Subsidiaries have complied in all material respects with
and are presently in compliance in all material respects with all foreign,
federal, state, local, governmental (including, but not limited to, the Federal
Trade Commission and State Attorneys General), administrative or regulatory
laws, regulations, guidelines and rules applicable to any Intellectual Property
and each Company and Subsidiaries shall take all steps necessary to ensure such
compliance until Closing.

(n) Tangible Assets. The Companies and the Subsidiaries own or lease all
buildings, machinery, equipment, and other tangible assets necessary for the
conduct of the Business as presently conducted. To the Knowledge of the Sellers,
each such tangible asset is free from defects (patent and latent), has been
maintained in accordance with normal industry practice, is in good operating
condition and repair (subject to normal wear and tear), and is suitable for the
purposes for which it presently is used.

(o) Inventory. The inventory of Companies and its Subsidiaries consists of raw
materials and supplies, all of which is merchantable and fit for the purpose for
which it was procured. The value at which Inventory is carried on the Most
Recent Balance Sheet reflects the normal inventory valuation

 

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policy of Sellers, in accordance with GAAP and on a basis consistent with that
of preceding periods, of stating inventory at the lower of cost or market value.
There has been no change in inventory valuation standards or methods with
respect to the inventory of the Business since May 31, 2005. The quantities of
any kind of inventory are reasonable in the current circumstances of the
Business.

(p) Contracts. Section 4(p) of the Disclosure Schedule lists the following
contracts and other agreements to which either Company or any of its
Subsidiaries is a party:

(i) any agreement (or group of related agreements) for the lease of personal
property to or from any Person providing for lease payments in excess of $25,000
per annum;

(ii) any agreement (or group of related agreements) for the purchase or sale of
raw materials, commodities, supplies, products, or other personal property, or
for the furnishing or receipt of services, the performance of which will extend
over a period of more than one year, result in a material loss to any of the
Companies and its Subsidiaries, or involve consideration in excess of $25,000;

(iii) any agreement concerning a partnership or joint venture;

(iv) any agreement (or group of related agreements) under which it has created,
incurred, assumed, or guaranteed any indebtedness for borrowed money, or any
capitalized lease obligation, in excess of $25,000 or under which it has imposed
a Lien on any of its assets, tangible or intangible;

(v) any agreement concerning confidentiality or noncompetition;

(vi) any agreement with any of Sellers and their Affiliates (other than one of
the Companies and its Subsidiaries);

(vii) any profit sharing, interest option, interest purchase, interest
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former members, managers,
officers, and employees;

(viii) any collective bargaining agreement;

(ix) any agreement for the employment of any individual on a full-time,
part-time, consulting, or other basis providing annual compensation in excess of
$50,000 or providing severance benefits;

(x) any agreement under which it has advanced or loaned any amount to any of its
members, managers, officers, or employees outside the Ordinary Course of
Business;

(xi) any agreement under which the consequences of a default or termination
could have a Material Adverse Effect;

(xii) any agreement under which either Company or any of its Subsidiaries has
advanced or loaned any other Person amounts in the aggregate exceeding $25,000;
or

(xiii) any other agreement (or group of related agreements) the performance of
which involves consideration in excess of $25,000.

 

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Sellers have delivered to Buyer a correct and complete copy of each written
agreement (as amended to date) listed in Section 4(p) of the Disclosure
Schedule. With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (B) the agreement
will continue to be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the transactions
contemplated hereby; (C) no party is in breach or default, and to the Knowledge
of Sellers no event has occurred which with notice or lapse of time would
constitute a breach or default, or permit termination, modification, or
acceleration, under the agreement; and (D) no party has repudiated any provision
of the agreement.

(q) Notes and Accounts Receivable. All notes and accounts receivable of each
Company and its Subsidiaries are reflected properly on their books and records,
are valid receivables subject to no setoffs or counterclaims, are current and
collectible, and will be collected in accordance with their terms at their
recorded amounts, subject only to the reserve for bad debts set forth on the
face of the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of each Company and its Subsidiaries.

(r) Powers of Attorney. There are no outstanding powers of attorney executed on
behalf of a Company or any of its Subsidiaries.

(s) Insurance. Section 4(s) of the Disclosure Schedule sets forth the following
information with respect to each insurance policy (including policies providing
property, casualty, liability, and workers’ compensation coverage and bond and
surety arrangements) to which either Company or any of its Subsidiaries has been
a party, a named insured, or otherwise the beneficiary of coverage:

(i) the name, address, and telephone number of the agent;

(ii) the name of the insurer, the name of the policyholder, and the name of each
covered insured;

(iii) the policy number and the period of coverage;

(iv) the scope (including an indication of whether the coverage was on a claims
made, occurrence, or other basis) and amount (including a description of how
deductibles and ceilings are calculated and operate) of coverage; and

(v) a description of any retroactive premium adjustments or other loss-sharing
arrangements.

With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will continue
to be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (C) no Company, or any of its Subsidiaries, nor any other party to the
policy is in breach or default (including with respect to the payment of
premiums or the giving of notices), and no event has occurred which, with notice
or the lapse of time, would constitute such a breach or default, or permit
termination, modification, or acceleration, under the policy; and (D) no party
to the policy has repudiated any provision thereof. Each Company and its
Subsidiaries has been covered by insurance in scope and amount customary and
reasonable for the businesses in which it has engaged during the aforementioned
period. Section 4(s) of the Disclosure Schedule describes any self-insurance
arrangements affecting Company or any of its Subsidiaries.

 

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(t) Litigation. Section 4(t) of the Disclosure Schedule sets forth each instance
in which a Company or any of its Subsidiaries (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party or, to
the Knowledge of any of Sellers and the members, shareholders, directors and
managers (and employees with responsibility for litigation matters) of each
Company and its Subsidiaries, is threatened to be made a party to any action,
suit, proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator. None of the actions, suits, proceedings,
hearings, and investigations set forth in Section 4(t) of the Disclosure
Schedule could result in any Material Adverse Change. None of Sellers and the
members and managers (and employees with responsibility for litigation matters)
of a Company and its Subsidiaries has any reason to believe that any such
action, suit, proceeding, hearing, or investigation may be brought or threatened
against either Company or any of its Subsidiaries or that there is any Basis for
the foregoing.

(u) Reserved.

(v) Liability. None of the Companies and its Subsidiaries has any Liability (and
to the Knowledge of Sellers there is no Basis for any present or future action,
suit, proceeding, hearing, investigation, charge, complaint, claim, or demand
against any of them giving rise to any Liability) arising out of any injury to
individuals or property as a result of the ownership, possession, or use of any
product sold or delivered by either Company or any of its Subsidiaries.

(w) Employees. Section 4(w) of the Disclosure Schedule sets forth: the name,
current annual compensation rate (including bonus and commissions), title,
current base salary rate, accrued bonus, accrued sick leave, accrued severance
pay and accrued vacation benefits or pay of each present employee of each
Company and Subsidiaries organizational charts of each Company and Subsidiaries;
collective bargaining, union or other employee association agreements;
employment, managerial, advisory and consulting agreements; employee
confidentiality or other agreements protecting proprietary processes, formulae
or information; any employee handbook(s); any reports and/or plans prepared or
adopted pursuant to the Equal Employment Opportunity Act of 1972, as amended,
and the amount of any unfunded retirement liabilities, including medical
coverage, arising under any Employee Benefit Plan. To the Knowledge of the
Sellers and the members, shareholders, directors and managers (and employees
with responsibility for employment matters) of each Company and its
Subsidiaries, no executive, key employee, or group of employees has any plans to
terminate employment with either Company or its Subsidiaries. None of the
Companies and its Subsidiaries is a party to or bound by any collective
bargaining agreement, nor has any of them experienced any strikes, grievances,
claims of unfair labor practices, or other collective bargaining disputes. To
the Knowledge of the Sellers, none of the Companies and its Subsidiaries has
committed any unfair labor practice. None of Sellers and the members and
managers (and employees with responsibility for employment matters) of either
Company and its Subsidiaries has any Knowledge of any organizational effort
presently being made or threatened by or on behalf of any labor union with
respect to employees of either Company or any of its Subsidiaries.

(x) Employee Benefits.

(i) Section 4(x) of the Disclosure Schedule lists each Employee Benefit Plan
that each Company or any of its Subsidiaries maintains, to which each Company or
any of its Subsidiaries contributes or has any obligation to contribute, or with
respect to which each Company or any of its Subsidiaries has any Liability or
potential Liability.

(A) Each such Employee Benefit Plan (and each related trust, insurance contract,
or fund) has been maintained, funded and administered in accordance with the
terms of such

 

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Employee Benefit Plan and the terms of any applicable collective bargaining
agreement and complies in form and in operation in all respects with the
applicable requirements of ERISA, the Code, and other applicable laws.

(B) All required reports and descriptions (including Form 5500 annual reports,
summary annual reports, and summary plan descriptions) have been timely filed
and/or distributed in accordance with the applicable requirements of ERISA and
the Code with respect to each such Employee Benefit Plan. The requirements of
COBRA have been met with respect to each such Employee Benefit Plan and each
Employee Benefit Plan maintained by an ERISA Affiliate which is an Employee
Welfare Benefit Plan subject to COBRA.

(C) All contributions (including all employer contributions and employee salary
reduction contributions) that are due have been made within the time periods
prescribed by ERISA and the Code to each such Employee Benefit Plan that is an
Employee Pension Benefit Plan and all contributions for any period ending on or
before the Closing Date which are not yet due have been made to each such
Employee Pension Benefit Plan or accrued in accordance with the past custom and
practice of each Company and its Subsidiaries. All premiums or other payments
for all periods ending on or before the Closing Date have been paid with respect
to each such Employee Benefit Plan that is an Employee Welfare Benefit Plan.

(D) Each such Employee Benefit Plan which is intended to meet the requirements
of a “qualified plan” under Code Section 401(a) has received a determination
from the Internal Revenue Service that such Employee Benefit Plan is so
qualified, and nothing has occurred since the date of such determination that
could adversely affect the qualified status of any such Employee Benefit Plan.
All such Employee Benefit Plans have been or will be timely amended for the
requirements of the Tax legislation commonly known as “GUST” and “EGTRRA” and
have been or will be submitted to the Internal Revenue Service for a favorable
determination letter on the GUST requirements within the remedial amendment
period prescribed by GUST.

(E) There have been no Prohibited Transactions with respect to any such Employee
Benefit Plan or any Employee Benefit Plan maintained by an ERISA Affiliate. No
Fiduciary has any Liability for breach of fiduciary duty or any other failure to
act or comply in connection with the administration or investment of the assets
of any such Employee Benefit Plan. No action, suit, proceeding, hearing, or
investigation with respect to the administration or the investment of the assets
of any such Employee Benefit Plan (other than routine claims for benefits) is
pending or, to the Knowledge of any of Sellers and the members and managers (and
employees with responsibility for employee benefits matters) of each Company and
its Subsidiaries, threatened. None of Sellers and the members and managers (and
employees with responsibility for employee benefits matters) of either Company
and its Subsidiaries has any Knowledge of any Basis for any such action, suit,
proceeding, hearing, or investigation.

(F) Sellers have delivered to Buyer correct and complete copies of the plan
documents and summary plan descriptions, the most recent determination letter
received from the Internal Revenue Service, the most recent annual report (Form
5500, with all applicable attachments), and all related trust agreements,
insurance contracts, and other funding arrangements which implement each such
Employee Benefit Plan.

(ii) Neither Company, nor any of its Subsidiaries, nor any ERISA Affiliate
contributes to, has any obligation to contribute to, or has any Liability under
or with respect to any Employee Pension Benefit Plan that is a “defined benefit
plan” (as defined in ERISA Section 3(35)). No asset of either Company or any of
its Subsidiaries is subject to any Lien under ERISA or the Code.

 

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(iii) Neither Company, its Subsidiaries, or any ERISA Affiliate contributes to,
has any obligation to contribute to, or has any Liability (including withdrawal
liability as defined in ERISA Section 4201) under or with respect to any
Multiemployer Plan.

(iv) None of the Companies and its Subsidiaries maintains, contributes to or has
an obligation to contribute to, or has any Liability or potential Liability with
respect to, any Employee Welfare Benefit Plan providing health or life insurance
or other welfare-type benefits for current or future retired or terminated
members, managers, officers or employees (or any spouse or other dependent
thereof) of either Company or any of its Subsidiaries other than in accordance
with COBRA.

(y) Guaranties. Neither Company nor any of its Subsidiaries is a guarantor or
otherwise is liable for any Liability or obligation (including indebtedness) of
any other Person.

(z) Environmental, Health, and Safety Matters.

(i) Each Company, its Subsidiaries, and their respective predecessors and
Affiliates has complied and is in compliance with all Environmental, Health, and
Safety Requirements.

(ii) Without limiting the generality of the foregoing, each Company, its
Subsidiaries, and their respective Affiliates has obtained and complied with,
and is in compliance with, all permits, licenses and other authorizations that
are required pursuant to Environmental, Health, and Safety Requirements for the
occupation of its facilities and the operation of its business; a list of all
such permits, licenses and other authorizations is set forth on Section 4(z)(ii)
of the Disclosure Schedule.

(iii) No Company, or its Subsidiaries, or their respective predecessors or
Affiliates has received any written or oral notice, report or other information
regarding any actual or alleged violation of Environmental, Health, and Safety
Requirements, or any Liabilities or potential Liabilities, including any
investigatory, remedial or corrective obligations, relating to any of them or
its facilities arising under Environmental, Health, and Safety Requirements.

(iv) Except as may be disclosed on the Phase I Environmental Assessments
previously provided to Buyer by Sellers, to Sellers’ knowledge, none of the
following exists at any property or facility owned or operated by either Company
or its Subsidiaries: (1) underground storage tanks, (2) asbestos-containing
material in any form or condition, (3) materials or equipment containing
polychlorinated biphenyls, or (4) landfills, surface impoundments, or disposal
areas.

(v) No Company, or its Subsidiaries or Affiliates has treated, stored, disposed
of, arranged for or permitted the disposal of, transported, handled, or released
any substance, including without limitation any hazardous substance, or owned or
operated any property or facility (and no such property or facility is
contaminated by any such substance) in a manner that has given or would give
rise to Liabilities, including any Liability for response costs, corrective
action costs, personal injury, property damage, natural resources damages or
attorney fees, pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (“CERCLA”), the Solid Waste
Disposal Act, as amended (“SWDA”) or any other Environmental, Health, and Safety
Requirements.

(vi) To the Knowledge of the Sellers, neither this Agreement nor the
consummation of the transaction that is the subject of this Agreement will
result in any obligations for site investigation or cleanup, or notification to
or consent of government agencies or third parties, pursuant to any of the
so-called “transaction-triggered” or “responsible property transfer”
Environmental, Health, and Safety Requirements.

 

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(vii) No Company, or its Subsidiaries or Affiliates has, either expressly or by
operation of law, assumed or undertaken any Liability, including without
limitation any obligation for corrective or remedial action, of any other Person
relating to Environmental, Health, and Safety Requirements.

(viii) To the Knowledge of Sellers, no facts, events or conditions relating to
the past or present facilities, properties or operations of either Company, its
Subsidiaries or Affiliates will prevent, hinder or limit continued compliance
with Environmental, Health, and Safety Requirements, give rise to any
investigatory, remedial or corrective obligations pursuant to Environmental,
Health, and Safety Requirements, or give rise to any other Liabilities pursuant
to Environmental, Health, and Safety Requirements, including without limitation
any relating to onsite or offsite releases or threatened releases of hazardous
materials, substances or wastes, personal injury, property damage or natural
resources damage.

(aa) Certain Business Relationships with Company and Its Subsidiaries. None of
the Sellers, their Affiliates, and employees or the Company’s and its
Subsidiaries’ members, managers, officers or employees has been involved in any
business arrangement or relationship with either Company or any of its
Subsidiaries within the past twelve (12) months, and none of the Sellers, their
Affiliates and employees and neither the Company’s and its Subsidiaries’,
members, managers, officers or employees owns any asset, tangible or intangible,
which is used in the business of either the Company or any of its Subsidiaries.

(bb) Suppliers. The attached Section 4(bb) of the Disclosure Schedule lists each
vendor, supplier, service provider and other similar business relation from whom
each Company and Subsidiary purchased greater than $10,000 in goods and/or
services, the amounts owing to each such Person, and whether such amounts are
past due.

(cc) Disclosure. To the best of Sellers’ Knowledge, the representations and
warranties contained in this Section 4 do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements and information contained in this Section 4 not misleading.

5. Pre-Closing Covenants. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.

(a) General. Each of the Parties will use his, her, or its reasonable best
efforts to take all action and to do all things necessary in order to consummate
and make effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the Closing conditions set forth in Section 7
below).

(b) Notices and Consents. To the extent it is the responsibility of Sellers’
hereunder, Sellers will cause each Company and its Subsidiaries to give any
notices to third parties, and will cause each Company and its Subsidiaries to
use its reasonable best efforts to assist Buyer to obtain any third party
consents referred to in Section 4(c) above, the Lease Consents, and the items
set forth on Section 5(b) of the Disclosure Schedule. Each of the Parties will
(and Sellers will cause each Company and its Subsidiaries to) give any notices
to, make any filings with, and use its reasonable best efforts to obtain any
authorizations, consents, and approvals of governments and governmental agencies
in connection with the matters referred to in Section 3(a)(i), Section 3(b)(ii),
and Section 4(c) above.

(c) Operation of Business. Sellers will not cause or permit either Company or
any of its Subsidiaries to engage in any practice, take any action, or enter
into any transaction outside the Ordinary

 

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Course of Business. Without limiting the generality of the foregoing, Sellers
will not cause or permit either Company or any of its Subsidiaries to
(i) declare, set aside, or pay any dividend or make any distribution with
respect to its membership or other equity interests or redeem, purchase, or
otherwise acquire any of its membership or other equity interests,
(ii) materially increase the compensation paid to any employee of any Company or
Subsidiary, (iii) enter any agreement, contract or arrangement that is material
to the business of the Company and/or the Subsidiaries, (iv) incur any
additional material debt, or (v) otherwise engage in any practice, take any
action, or enter into any transaction of the sort described in Section 4(h)
above.

(d) Preservation of Business. Sellers will cause each Company and its
Subsidiaries to keep its business and properties substantially intact, including
its present operations, physical facilities, working conditions, insurance
policies, and relationships with lessors, licensors, suppliers, customers, and
employees.

(e) Full Access. Sellers will permit, and Sellers will cause each Company and
its Subsidiaries to permit, representatives of Buyer (including legal counsel
and accountants) to have full access at all reasonable times, and in a manner so
as not to interfere with the normal business operations of each Company and its
Subsidiaries, to all premises, properties, personnel, books, records (including
Tax records), contracts, and documents of or pertaining to each Company and its
Subsidiaries.

(f) Notice of Developments. Sellers will give prompt written notice to Buyer of
any material adverse development causing a breach of any of the representations
and warranties in Section 4 above. Each Party will give prompt written notice to
the others of any material adverse development causing a breach of any of his or
its own representations and warranties in Section 3 above. No disclosure by any
Party pursuant to this Section 5(f), however, shall be deemed to amend or
supplement the Disclosure Schedule or to prevent or cure any misrepresentation,
breach of warranty, or breach of covenant.

(g) Exclusivity. Until the expiration of thirty (30) days after execution of
this Agreement, Sellers will not (and Sellers will not cause or permit any
Company or any of its Subsidiaries to) (i) solicit, initiate, or encourage the
submission of any proposal or offer from any Person relating to the acquisition
of any capital stock or other voting securities, or any substantial portion of
the assets, of either Company or any of its Subsidiaries (including any
acquisition structured as a merger, consolidation, or share exchange) or
(ii) participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any Person to do or seek any of the
foregoing. Seller will notify Buyer immediately if any Person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.

(h) Maintenance of Real Property. Seller will cause each Company and its
Subsidiaries to maintain the Real Property, including all of the Improvements,
in substantially the same condition as of the date of this Agreement, ordinary
wear and tear excepted, and shall not demolish or remove any of the existing
Improvements, or erect new improvements on the Real Property or any portion
thereof, without the prior written consent of Buyer.

(i) Leases. Sellers will not cause or permit any of the Leases to be amended,
modified, extended, renewed or terminated, nor shall either Company or its
Subsidiaries enter into any new lease, sublease, license or other agreement for
the use or occupancy of any real property, without the prior written consent of
Buyer.

(j) Title Insurance and Surveys. Sellers will cause each Company and its
Subsidiaries to use its best efforts to assist Buyer in obtaining the Title
Commitments, Title Policies and Surveys in form

 

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and substance as set forth in Section 7 of this Agreement, within the time
periods set forth therein, including removing from title any Liens or
encumbrances which are not Permitted Encumbrances.

(k) Tax Matters. Without the prior written consent of Buyer, no Company or its
Subsidiaries shall make or change any election, change an annual accounting
period, adopt or change any accounting method, file any amended Tax Return,
enter into any closing agreement, settle any Tax claim or assessment relating to
such Company or any of its Subsidiaries, surrender any right to claim a refund
of Taxes, consent to any extension or waiver of the limitation period applicable
to any Tax claim or assessment relating to such Company or any of its
Subsidiaries, or take any other similar action relating to the filing of any Tax
Return or the payment of any Tax, if such election, adoption, change, amendment,
agreement, settlement, surrender, consent or other action would have the effect
of increasing the Tax liability of such Company or any of its Subsidiaries for
any period ending after the Closing Date or decreasing any Tax attribute of such
Company or any of its Subsidiaries existing on the Closing Date.

(l) Payroll Expenses. Sellers shall cause each Company and Subsidiary to have
paid as of the Closing Date all liabilities of either Company to its employees
or consultants, including, without limitation, all wages, salaries, bonuses,
vacation pay and other direct and/or indirect compensation earned by or owed to
any current or former employee, temporary employee or consultant of either
Company or Sellers prior to the Closing Date, whether or not otherwise payable
by such date.

(m) Employment Taxes. Sellers covenant and agree that, between the date hereof
and the date upon which any employment tax contributions with respect to the
Business become delinquent Sellers will cause each Company and Subsidiary to pay
when due all contributions, interest and penalties.

6. Post-Closing Covenants. The Parties agree as follows with respect to the
period following the Closing.

(a) General. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section 8 below).
Each Seller acknowledges and agrees that from and after the Closing Buyer will
be entitled to possession of all documents, books, records (including Tax
records), agreements, and financial data of any sort relating to each Company
and its Subsidiaries.

(b) Litigation Support. In the event and for so long as any Party actively is
contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving either Company or any of its Subsidiaries, each of the other Parties
will cooperate with it and its counsel in the contest or defense, make available
their personnel, and provide such testimony and access to their books and
records as shall be necessary in connection with the contest or defense, all at
the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under
Section 8 below).

(c) Transition. Seller will not take any action that is designed or intended to
have the effect of discouraging any lessor, licensor, customer, supplier, or
other business associate of either Company or any of its Subsidiaries from
maintaining the same business relationships with such Company and its
Subsidiaries after the Closing as it maintained with such Company and its
Subsidiaries prior to the

 

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Closing. Sellers will refer all customer inquiries relating to the businesses of
each Company and its Subsidiaries to Buyer from and after the Closing.

(d) Confidentiality. Each Seller will treat and hold as such all of the
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement, and deliver promptly to Buyer or
destroy, at the request and option of Buyer, all tangible embodiments (and all
copies) of the Confidential Information which are in its possession. In the
event that Seller is requested or required pursuant to written or oral question
or request for information or documents in any legal proceeding, interrogatory,
subpoena, civil investigative demand, or similar process to disclose any
Confidential Information, such Seller will notify Buyer promptly of the request
or requirement so that Buyer may seek an appropriate protective order or waive
compliance with the provisions of this Section 6(d). If, in the absence of a
protective order or the receipt of a waiver hereunder, a Seller is, on the
advice of counsel, compelled to disclose any Confidential Information to any
tribunal or else stand liable for contempt, such Seller may disclose the
Confidential Information to the tribunal; provided, however, that such Seller
shall use its reasonable best efforts to obtain, at the request of Buyer, an
order or other assurance that confidential treatment will be accorded to such
portion of the Confidential Information required to be disclosed as Buyer shall
designate. The foregoing provisions shall not apply to any Confidential
Information which is generally available to the public immediately prior to the
time of disclosure unless such Confidential Information is so available due to
the actions of either Seller (with respect to Confidential Information about
either Company or either Seller) or Buyer (with respect to Confidential
Information about Buyer).

(e) Reserved.

(f) Reserved.

(g) Employee Benefits. Sellers hereby acknowledge and agree that the employee
benefit obligations by which Buyer and the Company and its Subsidiaries shall be
bound, and which Buyer shall cause the Company and its Subsidiaries to honor,
after the Closing Date shall consist of the obligations set forth in Exhibit D
hereto.

(h) Sales and Use Taxes. Sellers covenant and agree that they will timely pay
any and all state and local sales and use taxes and transactions and use taxes
(including any penalties and interest that are due or may accrue) which become
due after the Closing Date but which derive from activities prior thereto.

(i) Handling of Prior Claims. Sellers covenant and agree to handle and resolve
all claims, actions and suits brought by any Person which relate to or arise out
of the operation of the Business prior to the Closing Date (each, a “Prior
Claim”), and shall cause its insurers to handle and resolve all Prior Claims, in
each case in a manner consistent with the historical policies and practices of
Sellers. Section 6(i) of the Disclosure Schedule sets forth a list of all such
Prior Claims of which Sellers have Knowledge as of the Closing Date. Sellers
shall deliver monthly reports describing the status of each Prior Claim to Buyer
until all Prior Claims have been finally resolved.

7. Conditions to Obligation to Close.

(a) Conditions to Buyer’s Obligation. Buyer’s obligation to consummate the
transactions to be performed by it in connection with the Closing is subject to
satisfaction of the following conditions:

(i) the representations and warranties set forth in Section 3(a) and Section 4
above shall be true and correct in all material respects at and as of the
Closing Date, except to the extent that

 

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such representations and warranties are qualified by terms such as “material”
and “Material Adverse Effect,” in which case such representations and warranties
shall be true and correct in all respects at and as of the Closing Date;

(ii) Sellers shall have performed and complied with all of their covenants
hereunder in all material respects through the Closing, except to the extent
that such covenants are qualified by terms such as “material” and “Material
Adverse Effect,” in which case Sellers shall have performed and complied with
all of such covenants in all respects through the Closing;

(iii) each Company and its Subsidiaries shall have procured all of the third
party consents required to be obtained by them as specified in Section 5(b)
above;

(iv) no action, suit, or proceeding shall be pending or threatened before any
court or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement,
(B) cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, (C) affect adversely the right of Buyer to own the
Interests and to control each Company and its Subsidiaries, or (D) affect
adversely the right of either Company or any of its Subsidiaries to own its
assets and to operate its businesses (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);

(v) Sellers shall have delivered to Buyer a certificate to the effect that each
of the conditions specified above in Section 7(a)(i)-(iv) is satisfied in all
respects;

(vi) the Parties and each Company and its Subsidiaries shall have received all
authorizations, consents, and approvals of governments and governmental agencies
referred to in Section 3(a)(i), Section 3(b)(ii), and Section 4(c) above;

(vii) Buyer shall have obtained on terms and conditions reasonably satisfactory
to it all of the financing it needs in order to consummate the transactions
contemplated hereby and fund the working capital requirements of each Company
and its Subsidiaries after the Closing;

(viii) all actions to be taken by the Sellers in connection with consummation of
the transactions contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated hereby shall be reasonably satisfactory in form and substance to
Buyer;

(ix) On the Closing, a title insurance company(s) satisfactory to Buyer (the
“Title Company”) shall be unconditionally and irrevocably committed to issue
(i) an ALTA Extended Coverage Policy of Title Insurance for each Owned Real
Property, containing such endorsements as Buyer may reasonably require, insuring
DWHII that fee simple absolute title to the Owned Real Property is vested in
DWHII, with liability limits as required by Buyer, subject only to the Permitted
Encumbrances; and (ii) an ALTA Extended Coverage Policy of Title Insurance for
each Leased Real Property identified by Buyer (the "Material Leased Real
Property"), containing endorsements as Buyer may reasonably require, insuring
DWHI’s legal, valid, binding and enforceable leasehold interest in each Leased
Real Property, with liability limits as required by Buyer, subject only to the
Permitted Encumbrances. It is acknowledged by the Parties that Buyer may
accomplish the issuance of the ALTA Extended Coverage Policy of Title Insurance
for each Owned Real Property through appropriate endorsements to DWHII’s
existing standard coverage owner’s policies of title insurance. Such policies of
title insurance are referred to collectively herein as the “Title Policies”;

 

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(x) Buyer shall have obtained, no later than ten days prior to the Closing, a
survey for each Material Leased Real Property, dated no earlier than the date of
this Agreement, prepared by a licensed surveyor in the jurisdiction where the
Real Property is located, satisfactory to Buyer, and conforming to such
standards as the Title Company and Buyer require as a condition to the removal
of any survey exceptions from the Title Policies, and certified to Buyer,
Buyer’s lender, and the Title Company, in a form and with a certification
satisfactory to each of such parties (the “Surveys”); the Surveys shall not
disclose any encroachment from or onto any of the Real Property or any portion
thereof or any other survey defect which has not been cured or insured over to
Buyer’s reasonable satisfaction prior to the Closing; and Sellers shall have
paid or committed to pay all fees, costs and expenses with respect to the
Surveys;

(xi) The Parties shall have obtained a written consent for the assignment of
each of the Leases (the “Lease Consents”), and, if requested by Buyer’s lender,
Buyer shall have obtained a waiver of landlord liens, collateral assignment of
lease or leasehold mortgage from the landlord or other party whose consent
thereto is required under such Lease, in form and substance satisfactory to
Buyer and Buyer’s lender;

(xii) Buyer shall have obtained an estoppel certificate with respect to each of
the Leases, dated no more than 30 days prior to the Closing Date, from the other
party to such Lease, in form and substance satisfactory to Buyer (the “Estoppel
Certificates”);

(xiii) Buyer shall have obtained a non-disturbance agreement with respect to
each of the Leases for the Material Leased Real Property, in form and substance
satisfactory to Buyer, from each lender encumbering any real property underlying
the Leased Real Property for such Lease (the “Non-Disturbance Agreements”);

(xiv) Each Seller shall deliver to Buyer a non-foreign affidavit dated as of the
Closing Date, sworn under penalty of perjury and in form and substance required
under the Treasury Regulations issued pursuant to Code Section 1445 stating that
such Seller is not a “Foreign Person” as defined in Code Section 1445 (the
“FIRPTA Affidavit”);

(xv) No damage or destruction or other change shall have occurred with respect
to any of the Real Property or any portion thereof that, individually or in the
aggregate, would materially impair the use or occupancy of the Real Property or
the operation of either Company’s or its Subsidiaries’ business as currently
conducted thereon;

(xvi) Sellers shall have delivered to Buyer copies of the articles of
organization or incorporation of each Company and each Subsidiary certified on
or soon before the Closing Date by the Secretary of State (or comparable
officer) of the jurisdiction of each such Person’s formation;

(xvii) Sellers shall have delivered to Buyer copies of the certificate of good
standing of each Company and each Subsidiary issued on or soon before the
Closing Date by the Secretary of State (or comparable officer) of the
jurisdiction of each such Person’s organization and of each jurisdiction in
which each such Person is qualified to do business;

(xviii) Sellers shall have delivered to Buyer a certificate dated the Closing
Date, in form and substance reasonably satisfactory to Buyer, as to (A) no
amendments to the articles of organization of either Company since the date
specified in clause (xx) above; and (B) the operating agreement of each Company;

 

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(xix) Buyer shall have satisfactorily completed its investigation of the
Business, assets and financial condition of each Company and its Subsidiaries in
connection with the transactions contemplated hereby and shall have been
satisfied with such results. Buyer shall have satisfactorily completed its
investigation of any event or condition arising or discovered after the date of
this Agreement that could reasonably be expected to result in a failure of any
of Buyer’s conditions hereunder to be fulfilled;

(xx) Buyer and its Lender shall have completed, to its satisfaction, an
environmental inspection of the facilities of each Company and each Subsidiary,
and Buyer shall not have discovered, either in the course of the environmental
inspection or at any time prior to the Closing Date, any actual or potential
liabilities, contingent or otherwise, relating to environmental matters which
might be asserted against either Company or any Subsidiary;

(xxi) Seller shall have delivered lien releases to clear all liens and security
interests currently recorded in favor of Sellers with respect to the Owned Real
Property and Leased Real Property.

(xxii) On or prior to the Closing there shall not have been filed by or against
Sellers a petition in bankruptcy or a petition or answer seeking an assignment
for the benefit of creditors, the appointment of a receiver, trustee,
liquidation or dissolution or similar relief under the U.S. Bankruptcy Code or
any state law, and there shall have been no material change in the financial
condition of Sellers.

(xxiii) Buyer shall have received copies of all temporary or permanent
certificates of approval or occupancy for the Improvements on each Parcel issued
by the relevant governmental authorities and all other certifications, permits,
and licenses issued by the relevant governmental authorities and all other
approvals as are necessary to occupy and use the Property for its intended use.

(xxiv) Buyer shall have obtained an as-built survey which shall not show any
defects, gaps, gores, encumbrances, easements, encroachments, rights of third
parties or other defects or matters with respect to the Property which render
title unmarketable or which differ from that shown on the Survey, other than the
Permitted Exceptions, and which shall not indicate any violations of any
applicable building or zoning code.

(xxv) Buyer shall have received evidence reasonably satisfactory to Buyer that
water, sewer, electric and telephone utilities have been installed, enter each
Property through streets dedicated to the public or public or private easements
benefiting a Property and are fully operational and are actually operating.

(xxvi) Buyer shall have received Phase-I reports verifying that there have been
no violations of environmental laws.

(xxvii) Buyer shall have received true and correct copies of all current
property tax bills and assessment notices pertaining to the Property.

(xxxiii) Buyer shall have received evidence that Sellers have complied with any
applicable bulk sales or similar laws in the state where each Property is
located and that Sellers has given any notices (and/or paid any tax) required by
local law to be given or paid.

(xxviii) There shall have been no Material Adverse Change in either Company’s
financial condition, assets, liabilities (contingent or otherwise), results of
operations, business or business prospects of the Company since the Most Recent
Balance Sheet Date;

 

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(xxix) Buyer’s shall have received evidence that all of the insurance policies
required to be maintained by Tenant pursuant to each Lease are in full force and
effect, and that Buyer and Buyer’s lender have been named as an additional
insureds as required under the Leases. ; and

(xxx) Buyer shall have received executed supply agreements from the suppliers
listed on Section 4(b)(b) of the Disclosure Schedule, in form and substance
reasonably satisfactory to Buyer.

Buyer may waive any condition specified in this Section 7(a) if it executes a
writing so stating at or prior to the Closing.

(b) Conditions to Sellers’ Obligation. The obligation of Sellers to consummate
the transactions to be performed by them in connection with the Closing is
subject to satisfaction of the following conditions:

(i) the representations and warranties set forth in Section 3(b) above shall be
true and correct in all material respects at and as of the Closing Date, except
to the extent that such representations and warranties are qualified by terms
such as “material” and “Material Adverse Effect,” in which case such
representations and warranties shall be true and correct in all respects at and
as of the Closing Date;

(ii) Buyer shall have performed and complied with all of its covenants hereunder
in all material respects through the Closing, except to the extent that such
covenants are qualified by terms such as “material” and “Material Adverse
Effect,” in which case Buyer shall have performed and complied with all of such
covenants in all respects through the Closing;

(iii) no action, suit, or proceeding shall be pending or threatened before any
court or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement or
(B) cause any of the transactions contemplated by this Agreement to be rescinded
following consummation (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect);

(iv) Buyer shall have delivered to Seller a certificate to the effect that each
of the conditions specified above in Section 7(b)(i)-(iii) is satisfied in all
respects;

(v) the Parties and each Company, and its Subsidiaries shall have received all
authorizations, consents, and approvals of governments and governmental agencies
referred to in Section 3(a)(i), Section 3(b)(ii), and Section 4(c) above;

(vi) Buyer shall have delivered the Note and Security Documents to Sellers; and

(vii) all actions to be taken by Buyer in connection with consummation of the
transactions contemplated hereby, including the payment of the Purchase Price,
and all certificates, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to the Sellers.

The Sellers may waive any condition specified in this Section 7(b) if it
executes a writing so stating at or prior to the Closing.

(c) Fees and Costs. At Closing, Buyer shall be responsible for paying the cost
of satisfying its due diligence and obtaining any required consents (including
governmental approvals related to liquor

 

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licenses and Real Property Permit, and the Lease Consents), and all mortgage,
documentary, sales, use, stamp, registration and other such Taxes, and all
recording charges, charges for title work, and fees for the Title Policies
(provided Buyer shall not be required to reimburse Sellers for their previously
obtained standard coverage owner’s policies of title insurance previously
obtained and Phase I Environmental Assessments). Sellers shall be responsible
for any transfer taxes or conveyance fees.

8. Remedies for Breaches of This Agreement.

(a) Survival of Representations and Warranties.

All of the representations and warranties of Sellers contained in Sections
4(g)-(j), Sections 4(l)-(y), and Sections 4(aa)-(cc) above shall survive the
Closing hereunder (even if Buyer knew or had reason to know of any
misrepresentation or breach of warranty at the time of Closing) and continue in
full force and effect for a period of two (2) years thereafter. All of the other
representations and warranties of the Parties contained in this Agreement
(including the representations and warranties of Sellers contained in
Section 4(k) and Section 4(z) above) shall survive the Closing (even if the
damaged Party knew or had reason to know of any misrepresentation or breach of
warranty at the time of Closing) and continue in full force and effect until the
expiration of any applicable statutes of limitations (after giving effect to any
extensions or waivers) plus sixty (60) days.

(b) Indemnification Provisions for Buyer’s Benefit.

(i) In the event a Seller breaches (or in the event any third party alleges
facts that, if true, would mean a Seller has breached) any of its
representations, warranties, and covenants contained herein (other than the
representations and warranties in Section 3(a), and, provided that Buyer makes a
written claim for indemnification against Sellers pursuant to Section 12(g)
below within the survival period (if there is an applicable survival period
pursuant to Section 8(a) above), then Sellers, jointly and severably, shall be
obligated to indemnify Buyer from and against the entirety of any Adverse
Consequences Buyer may suffer (including any Adverse Consequences Buyer may
suffer after the end of any applicable survival period) resulting from, arising
out of, relating to, in the nature of, or caused by the breach (or the alleged
breach); provided, however, that Sellers shall not have any obligation to
indemnify Buyer from and against any Adverse Consequences resulting from,
arising out of, relating to, in the nature of, or caused by the breach (or
alleged breach) of any representation or warranty of Sellers contained in
Section 4(g)-(j), and Section 4(l)-(cc) above until Buyer has suffered Adverse
Consequences by reason of all such breaches (or alleged breaches) in excess of a
$100,000 aggregate threshold (at which point Sellers will be obligated to
indemnify Buyer from and against all such Adverse Consequences relating back to
the first dollar); provided, however, further, that Sellers’ obligation to
indemnify Buyer from and against any Adverse Consequences resulting from,
arising out of, relating to, in the nature of, or caused by the breach (or
alleged breach) of any representation and warranty of Sellers contained in
Section 4(g)-(j), and Section 4(l)-(cc) shall in no event exceed the amount of
One Million Dollars ($1,000,000). Provided, further that the amount of Sellers’
indemnification obligation for a breach of its representations and warranties
contained in Section 4(k) is governed by Section 9 below.

(ii) In the event a Seller breaches (or in the event any third party alleges
facts that, if true, would mean a Seller breached) any of its representations
and warranties in Section 3(a) above, and provided that Buyer makes a written
claim for indemnification against Sellers pursuant to Section 12(g) below within
the survival period (if there is an applicable survival period pursuant to
Section 8(a) above), then Sellers, jointly and severally, shall indemnify Buyer
from and against the entirety of any Adverse Consequences Buyer may suffer
(including any Adverse Consequences Buyer may suffer after the end of any
applicable survival period) resulting from arising out of, relating to, in the
nature of, or caused by the breach (or the alleged breach).

 

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(c) Indemnification Provisions for Sellers’ Benefit. In the event Buyer breaches
(or in the event any third party alleges facts that, if true, would mean Buyer
has breached) any of its representations, warranties, and covenants contained
herein and, provided that Sellers make a written claim for indemnification
against Buyer pursuant to Section 12(g) below within such survival period (if
there is an applicable survival period pursuant to Section 8(a) above), then
Buyer shall indemnify Sellers from and against the entirety of any Adverse
Consequences suffered (including any Adverse Consequences suffered after the end
of any applicable survival period) resulting from, arising out of, relating to,
in the nature of, or caused by the breach (or the alleged breach).

(d) Matters Involving Third Parties.

(i) If any third party shall notify any Party (the “Indemnified Party”) with
respect to any matter (a “Third Party Claim”) which may give rise to a claim for
indemnification against any other Party (the “Indemnifying Party”) under this
Section 8, then the Indemnified Party shall promptly notify each Indemnifying
Party thereof in writing; provided, however, that no delay on the part of the
Indemnified Party in notifying any Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder unless (and then solely to the
extent) the Indemnifying Party thereby is prejudiced.

(ii) Any Indemnifying Party will have the right to defend the Indemnified Party
against the Third Party Claim with counsel of its choice reasonably satisfactory
to the Indemnified Party so long as (A) the Indemnifying Party notifies the
Indemnified Party in writing within fifteen (15) days after the Indemnified
Party has given notice of the Third Party Claim that the Indemnifying Party will
indemnify the Indemnified Party from and against the entirety of any Adverse
Consequences the Indemnified Party may suffer resulting from, arising out of,
relating to, in the nature of, or caused by the Third Party Claim, (B) the
Indemnifying Party provides the Indemnified Party with evidence reasonably
acceptable to the Indemnified Party that the Indemnifying Party will have the
financial resources to defend against the Third Party Claim and fulfill its
indemnification obligations hereunder, (C) the Third Party Claim involves only
money damages and does not seek an injunction or other equitable relief,
(D) settlement of, or an adverse judgment with respect to, the Third Party Claim
is not, in the good faith judgment of the Indemnified Party, likely to establish
a precedential custom or practice materially adverse to the continuing business
interests or the reputation of the Indemnified Party, and (E) the Indemnifying
Party conducts the defense of the Third Party Claim actively and diligently.

(iii) So long as the Indemnifying Party is conducting the defense of the Third
Party Claim in accordance with Section 8(d)(ii) above, (A) the Indemnified Party
may retain separate co-counsel at its sole cost and expense and participate in
the defense of the Third Party Claim, (B) the Indemnified Party will not consent
to the entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the Indemnifying Party
(not to be withheld unreasonably), and (C) the Indemnifying Party will not
consent to the entry of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent of the Indemnified
Party (not to be withheld unreasonably).

(iv) In the event any of the conditions in Section 8(d)(ii) above is or becomes
unsatisfied, however, (A) the Indemnified Party may defend against, and consent
to the entry of any judgment or enter into any settlement with respect to, the
Third Party Claim in any manner it reasonably may deem appropriate (and the
Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith), (B) the Indemnifying Parties will
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys’ fees
and expenses), and (C) the Indemnifying Parties will remain responsible for any
Adverse Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party Claim to the
fullest extent provided in this Section 8.

 

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(e) Determination of Adverse Consequences. All indemnification payments under
this Section 8 and Section 9(a) shall be deemed adjustments to the Purchase
Price, and if payment is required to be made by Sellers to Buyer, the amount of
such payments shall be an adjustment in the form of a credit against the
outstanding principal balance of the Note or if and to the extent the Note has
been satisfied, Sellers shall remit a cash payment to Buyer within fifteen
(15) days after determination of the amount.

9. Tax Matters. The following provisions shall govern the allocation of
responsibility as between Buyer and Sellers for tax matters following the
Closing Date:

(a) Tax Indemnification. Sellers shall indemnify each Company, its Subsidiaries,
Buyer, and each Buyer Affiliate and hold them harmless from and against without
duplication, any loss, claim, liability, expense, or other damage attributable
to (i) a breach of Sellers’ representations and warranties contained in
Section 4(k) above; (ii) all Taxes (or the non-payment thereof) of each Company
and its Subsidiaries for all Taxable periods ending on or before the Closing
Date and the portion through the end of the Closing Date for any Taxable period
that includes (but does not end on) the Closing Date (“Pre-Closing Tax Period”),
(iii) all Taxes of any member of an affiliated, consolidated, combined or
unitary group of which either Company or any of its Subsidiaries (or any
predecessor of any of the foregoing) is or was a member on or prior to the
Closing Date, including pursuant to Treasury Regulation Section 1.1502-6 or any
analogous or similar state, local, or foreign law or regulation, and (iv) any
and all Taxes of any person (other than a Company and its Subsidiaries) imposed
on either Company or any of its Subsidiaries as a transferee or successor, by
contract or pursuant to any law, rule, or regulation, which Taxes relate to an
event or transaction occurring before the Closing; provided, however, that in
the case of clauses (i), (ii), (iii) and (iv) above, Sellers shall be liable
only to the extent that Buyers are required to pay any Taxes that are the
responsibility of Sellers and only in the amount such Taxes exceed the amount,
if any, reserved for such Taxes (excluding any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) on the
face of the Final Closing Balance Sheet (rather than in any notes thereto) and
taken into account in determining the Purchase Price Adjustment. Sellers shall
reimburse Buyer for any Taxes of either Company or its Subsidiaries which are
the responsibility of Sellers pursuant to this Section 9(a) in the manner set
forth in Section 8(e).

(b) Straddle Period. In the case of any Taxable period that includes (but does
not end on) the Closing Date (a “Straddle Period”), the amount of any Taxes
based on or measured by income or receipts of either Company and its
Subsidiaries for the Pre-Closing Tax Period shall be determined based on an
interim closing of the books as of the close of business on the Closing Date
(and for such purpose, the Taxable period of any partnership or other
pass-through entity in which either Company or any of its Subsidiaries holds a
beneficial interest shall be deemed to terminate at such time).

(c) Responsibility for Filing Tax Returns. Buyer shall prepare or cause to be
prepared and file or cause to be filed all Tax Returns for each Company and its
Subsidiaries which are to be filed after the Closing Date other than income Tax
Returns with respect to periods for which a consolidated, unitary or combined
income Tax Return of Sellers will include the operations of each Company and its
Subsidiaries. Buyer shall permit Seller to review and comment on each such Tax
Return described in the preceding sentence prior to filing.

(d) Cooperation on Tax Matters.

(i) Buyer, each Company and its Subsidiaries, and each Seller shall cooperate
fully, as and to the extent reasonably requested by the other Party, in
connection with the filing of Tax Returns pursuant to Section 9(c) and any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other Party’s request) the provision
of records and

 

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information which are reasonably relevant to any such audit, litigation or other
proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. Each Company and its Subsidiaries and each Seller agree (A) to retain
all books and records with respect to Tax matters pertinent to each Company and
its Subsidiaries relating to any taxable period beginning before the Closing
Date until the expiration of the statute of limitations (and, to the extent
notified by Buyer or either Seller, any extensions thereof) of the respective
taxable periods, and to abide by all record retention agreements entered into
with any taxing authority, and (B) to give the other Party reasonable written
notice prior to transferring, destroying or discarding any such books and
records and, if the other Party so requests, each Company and its Subsidiaries
or each Seller, as the case may be, shall allow the other Party to take
possession of such books and records.

(ii) Buyer and each Seller further agree, upon request, to use their best
efforts to obtain any certificate or other document from any governmental
authority or any other Person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed (including, but not limited to, with
respect to the transactions contemplated hereby).

(iii) Buyer and each Seller further agree, upon request, to provide the other
party with all information that either party may be required to report pursuant
to Code Section 6043 and all Treasury Regulations promulgated thereunder.

(e) Tax Sharing Agreements. All Tax sharing agreements or similar agreements
with respect to or involving each Company and its Subsidiaries shall be
terminated as of the Closing Date and, after the Closing Date, neither Company
nor its Subsidiaries shall be bound thereby or have any liability thereunder.

 

10. Reserved.

 

11. Termination.

(a) Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:

(i) Buyer and Sellers may terminate this Agreement by mutual written consent at
any time prior to the Closing;

(ii) Buyer may terminate this Agreement by giving written notice to Sellers at
any time prior to the Closing if Buyer is not reasonably satisfied with the
results of its continuing business, legal, environmental, and accounting due
diligence regarding each Company and its Subsidiaries;

(iii) Buyer may terminate this Agreement by giving written notice to Sellers at
any time prior to the Closing (A) in the event any of Sellers has breached any
material representation, warranty, or covenant contained in this Agreement in
any material respect, Buyer has notified Sellers of the breach, and the breach
has continued without cure for a period of thirty (30) days after the notice of
breach or (B) if the Closing shall not have occurred on or before that date that
is sixty (60) days from the date of this Agreement, by reason of the failure of
any condition precedent under Section 7(a) hereof (unless the failure results
primarily from Buyer itself breaching any representation, warranty, or covenant
contained in this Agreement); and

(iv) Sellers may terminate this Agreement by giving written notice to Buyer at
any time prior to the Closing (A) in the event Buyer has breached any material
representation, warranty, or covenant contained in this Agreement in any
material respect, any Seller has notified Buyer of the breach,

 

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and the breach has continued without cure for a period of ten (10) days after
the notice of breach or (B) if the Closing shall not have occurred on or before
that date that is sixty (60) days from the date of this Agreement, by reason of
the failure of any condition precedent under Section 7(b) hereof (unless the
failure results primarily from any Seller breaching any representation,
warranty, or covenant contained in this Agreement).

(b) Effect of Termination. If any Party terminates this Agreement pursuant to
Section 11(a) above, all rights and obligations of the Parties hereunder shall
terminate without any Liability of any Party to any other Party (except for any
Liability of any Party then in breach).

 

12. Miscellaneous.

(a) Press Releases and Public Announcements. No Party shall issue any press
release or make any public announcement relating to the subject matter of this
Agreement prior to the Closing without the prior written approval of Buyer and
Sellers; provided, however, that any Party may make any public disclosure it
believes in good faith is required by applicable law or any listing or trading
agreement concerning its publicly-traded securities (in which case the
disclosing Party will use its reasonable best efforts to advise the other
Parties prior to making the disclosure).

(b) No Third-Party Beneficiaries. This Agreement shall not confer any rights or
remedies upon any Person other than the Parties and their respective successors
and permitted assigns.

(c) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they relate in any way to the subject matter
hereof.

(d) Succession and Assignment. This Agreement shall be binding upon and inure to
the benefit of the Parties named herein and their respective successors and
permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of Buyer and Sellers; provided, however, that Buyer may (i) assign any or all of
its rights and interests hereunder to one or more of its Affiliates and
(ii) designate one or more of its Affiliates to perform its obligations
hereunder (in any or all of which cases Buyer nonetheless shall remain
responsible for the performance of all of its obligations hereunder).

(e) Counterparts. This Agreement may be executed in one or more counterparts
(including by means of facsimile), each of which shall be deemed an original but
all of which together shall constitute one and the same instrument.

(f) Headings. The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.

(g) Notices. All notices, requests, demands, claims, and other communications
hereunder will be in writing. Any notice, request, demand, claim, or other
communication hereunder shall be deemed duly given (i) when delivered personally
to the recipient, (ii) one business day after being sent to the recipient by
reputable overnight courier service (charges prepaid), (iii) upon electronic
confirmation of good receipt by the recipient if sent by facsimile transmission
or electronic mail, or (iv) four business days after being mailed to the
recipient by certified or registered mail, return receipt requested and postage
prepaid, and addressed to the intended recipient as set forth below:

 

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If to the Sellers:

   c/o AMRESCO Commercial Finance, LLC    412 E. Parkcenter Blvd., Suite 300   
Boise, Idaho 83706    Attention: D. Craig Christensen    Fax: (208) 333-2050

If to the Buyer:

   Paragon Steakhouse Restaurants, Inc.    c/o Steakhouse Partners, Inc.   
10200 Willow Creek Road    San Diego, CA 92131    Attention: President/General
Counsel    Fax: (858) 586-1791

Copy to:

   Morrison & Foerster LLP    12531 High Bluff Drive    San Diego, CA 92130   
Attention: Christopher M. Forrester, Esq.    Fax: (858) 720-5125

Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Parties notice in the manner herein set forth.

(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Delaware without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Delaware.

(i) Amendments and Waivers. No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by Buyer and each
Seller. No waiver by any Party of any provision of this Agreement or any
default, misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be valid unless the same shall be in writing and
signed by the Party making such waiver nor shall such waiver be deemed to extend
to any prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such default, misrepresentation, or breach of warranty or
covenant.

(j) Severability. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.

(k) Expenses. Buyer, Seller, and each Company and its Subsidiaries will bear its
own costs and expenses (including legal fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby;
provided, however, that Seller shall also bear the costs and expenses of each
Company and its Subsidiaries (including all of their legal fees and expenses) in
connection with this Agreement and the transactions contemplated hereby in the
event that the transactions contemplated by this Agreement are consummated.

(l) Construction. The Parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the Parties and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any of the provisions of
this Agreement. Any

 

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reference to any federal, state, local, or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise. The word “including” shall mean including
without limitation. The Parties intend that each representation, warranty, and
covenant contained herein shall have independent significance. If any Party has
breached any representation, warranty, or covenant contained herein in any
respect, the fact that there exists another representation, warranty, or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) which the Party has not breached shall not detract from or
mitigate the fact that the Party is in breach of the first representation,
warranty, or covenant.

(m) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.

(n) Specific Performance. Each Party acknowledges and agrees that the other
Parties would be damaged irreparably in the event any provision of this
Agreement is not performed in accordance with its specific terms or otherwise is
breached, so that a Party shall be entitled to injunctive relief to prevent
breaches of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof in addition to any other remedy to which such Party
may be entitled, at law or in equity. In particular, the Parties acknowledge
that the business of each Company and its Subsidiaries is unique and recognize
and affirm that in the event Sellers breach this Agreement, money damages would
be inadequate and Buyer would have no adequate remedy at law, so that Buyer
shall have the right, in addition to any other rights and remedies existing in
its favor, to enforce its rights and the other Parties’ obligations hereunder
not only by action for damages but also by action for specific performance,
injunctive, and/or other equitable relief.

(o) Submission to Jurisdiction. Each of the Parties submits to the jurisdiction
of any state or federal court sitting in the State of Delaware, in any action or
proceeding arising out of or relating to this Agreement and agrees that all
claims in respect of the action or proceeding may be heard and determined in any
such court. Each Party also agrees not to bring any action or proceeding arising
out of or relating to this Agreement in any other court. Each of the Parties
waives any defense of inconvenient forum to the maintenance of any action or
proceeding so brought and waives any bond, surety, or other security that might
be required of any other Party with respect thereto.

(p) Governing Language. This Agreement has been negotiated and executed by the
Parties in English. In the even any translation of this Agreement is prepared
for convenience or any other purpose, the provisions of the English version
shall prevail.

 

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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the date
first above written.

BUYER:

Paragon Steakhouse Restaurants, Inc.,

a Delaware corporation

By: /s/    Susan Schulz-Claasen                                

Name: Susan Schulz-Claasen                                    

Title: President and General Counsel                      

SELLERS:

Delaware Trust Company, N.A. as Owner Trustee and Wells Fargo Bank, N.A. as
Indenture Trustee of the ACLC Business Loan Receivables Trust 1999-2; and
Delaware Trust Company, N.A. as Owner Trustee and Wells Fargo Bank, N.A. as
Indenture Trustee of the ACLC Business Loan Receivables Trust 2000-1, acting
through AMRESCO Commercial Finance, LLC, as servicing agent

By: /s/    D. Craig Christensen                            

D. Craig Christensen, Vice President

 

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