Document:

Exhibit 10.4

 

	
  

  	
  InSight
  Health Corp.

  
	
  26250 Enterprise
  Court

  
	
  Suite 100

  
	
  Lake Forest, CA
  92630-8405

  
	
   

  
	
  Telephone - 949.282.6000

  
	
  Facsimile - 949.452.0253

  
	
   

  

 

June 27, 2008

 

PERSONAL AND CONFIDENTIAL

 

Mitch C. Hill

2 Slate Springs

Coto de Caza , CA 92679

 

Re:  Separation
Agreement

 

Dear Mitch:

 

This Letter Agreement (“Agreement”) sets forth the
terms and conditions of your separation from InSight Health Services Holdings
Corp. (“InSight” or “Company”) and InSight Health Services Corp. (“IHSC”), in
each case effective October 31, 2008 (“Effective Date”). InSight will pay
your earned wages and any unused accrued vacation through October 31,
2008, regardless of whether you sign this Agreement, and the other amounts and
benefits set forth below upon the terms and under the conditions set forth in
this Agreement.

 

In consideration of the mutual covenants and promises
made in this Agreement, you and InSight agree as follows:

 

Services. You shall continue to
provide services to the Company in your capacity as Executive Vice President
and Chief Financial Officer, and in connection therewith, to perform such
duties as are reasonably consistent with the position in which you have been
employed over the past three years and as the Board of Directors of the Company
(the “Board”) may reasonably assign. In the event you believe that any duties
assigned to you by the Board are not so consistent, you agree to notify the
Company and meet with the Chief Executive Officer and other members of
management or their advisors in order to agree, acting in good faith, on any
changes to such request. In the event anything comes to your attention that
would lead you to believe that you will not be able to provide such services to
the Company as you have previously been providing them and as are typical for a
Chief Financial Officer of a public company with Securities and Exchange
Commission reporting obligations, you agree to immediately notify the Chief
Executive Officer so that any reasonable changes can be made or issues addressed
to allow you to perform those duties. You and the Company agree that an
essential element of this Agreement is your provision of these services through
the Effective Date, and the inability of you to provide these services, for any
reason other than an intentional act by the Company which is designed to
prevent you from performing these services, shall provide the Company with the
ability to terminate this Agreement without any additional compensation or
obligation to you. In the event that the Company determines your services are
no longer needed, you shall be entitled

 

 

to your base salary through the Effective Date, and
the other compensation and benefits set forth herein, notwithstanding that you
have not provided services through the Effective Date, it being understood that
in the event the Company hires a replacement Chief Financial Officer prior to
the Effective Date, you shall, at the request of the Company, provide
reasonable transition services to the Company until the Effective Date.

 

Termination. On the Effective Date
your employment, and any and all positions you held with InSight and any of its
subsidiary or affiliated entities (collectively “InSight Companies”) is
terminated, and as of that date you relinquish any and all of your authorities
with each of those companies. You and the Company agree that the Executive
Employment Agreement dated as of January 10, 2005 between you and IHSC (“Employment
Agreement”) is hereby terminated in its entirety  and you shall not be entitled to any monetary
compensation, including any salary in lieu of notice, or any fringe benefits,
perquisites or other employment benefits from the InSight Companies, except as
provided in this Agreement, which supercedes the Employment Agreement in all
respects.

 

Separation Payments. In addition to
your final paycheck and payment for any unused accrued vacation through and
including the Effective Date, in accordance with the “Consideration Period” and
“Revocation Period” (defined below), and in consideration for your signing this
Agreement and your agreement to continue to provide services to InSight as set
forth herein, InSight agrees to pay you an amount equal to your current regular
monthly base salary, less applicable taxes and withholdings required by law, on
a regular payroll basis, for a period of 
ten (10) months (the “Separation Payments). Separation Payments
will be made on the subsequent pay periods following the Effective Date. The
Separation Payments will be sent to your home address as set forth above. Notwithstanding
the foregoing, in the event that you breach any of the terms and conditions of
this Agreement, including your refusal or inability to continue to provide the
services set forth above to InSight, you shall no longer be entitled to receive
any salary, benefits or Separation Payments following the date of such breach
until such time as you have cured such breach, if it is capable of being cured.
The amounts payable pursuant to this paragraph shall not be reduced by the
amount of any other compensation or income you may receive from other full-time
employment or any other sources during the period you receive Separation
Payments.

 

FY 2008 Incentive Compensation. Also,
in accordance with the “Consideration Period” and Revocation Period,” the
Company agrees to pay you, if and when it is determined and approved by the
Company’s Compensation Committee, any FY 2008 incentive compensation for which
you may be eligible pursuant to the InSight Executive Management Incentive
Compensation Plan.

 

Discretionary Bonus. At the
completion of your services hereunder, and promptly following the Effective
Date, upon your request, the Board shall consider a request by you for a
discretionary bonus in the amount of two (2) months of your regular
current monthly base salary. You understand and agree that the payment of any
such amount is entirely within the absolute, sole and non-reviewable discretion
of the Board.

 

2

 

Outplacement Counseling Services. As
further consideration for signing this Agreement, the Company agrees to provide
you with outplacement counseling services through a firm mutually agreed by you
and the Company for the six (6) month-period immediately following the
Effective Date. Your outplacement counseling benefits and limitations will be
explained in a separate agreement.

 

Benefits. As additional
consideration for this Agreement, the Company agrees to continue the employee
benefits specified in this paragraph until the first of the following occurs: (a) expiration
of the  ten (10) month period
following the Effective Date; or (b) until you are eligible for employment
benefits as the result of full-time employment with another employer. The
benefits you will receive during the applicable period are life insurance, medical,
health and accident, and disability plans or programs (including Exec-U-Care)
covering you and any dependents under the same terms and conditions as if you
had not been terminated, including the payment by you of required premiums and
co-payments that are to be made by you. In the event that the Company is not
able to keep you on the existing Company plans for health insurance, during the
period specified in (a) above, the Company will pay both the Company and
employee portion of all health insurance premiums for continuation coverage
under COBRA (as defined below) for you and any currently insured dependents and
you shall be responsible for the payment of the 
amount of any required deductibles and co-payments as you were
responsible for under the plans immediately prior to the Effective Date. The
Company’s agreement to provide these benefits during the applicable period is
contingent upon your participation being permissible under the general terms
and provisions of such plans and programs and contingent upon the Company’s
right to amend or terminate any employee benefit plans which are applicable
generally to the Company’s employees. In the event of either of these
contingencies, you will cease to receive these benefits effective the date of
the occurrence of the contingency. However, in such an event, the Company
agrees to arrange to provide you with benefits and costs substantially similar
to those you were receiving at the time of your termination for the applicable
period or its remainder as the Company may obtain for the same costs it was
paying for your benefits immediately prior to the Effective Date.

 

Release. In consideration of this
Agreement, you hereby irrevocably and unconditionally release, waive and
forever discharge the Company, its direct and indirect subsidiaries and
affiliates, affiliated persons, partnerships and corporations, successors and
assigns, and all of their past and present directors, members, partners,
contractors, distributors, officers, stockholders, consultants, agents,
representatives, attorneys, employees, employee benefit plans and plan
fiduciaries (collectively, the “Company Releasees”), individually and
collectively, from any and all actions, causes of action, claims, demands,
damages, rights, remedies and liabilities of whatsoever kind or character, in
law or equity, suspected or unsuspected, known or unknown, past or present,
that you have ever had, may now have, or may later assert against any of the
Company Releasees, concerning, arising out of or related to your employment by
or the performance of any services to or on behalf of any of the InSight
Companies or the termination of that employment, those services and your
positions with the InSight Companies, from the beginning of time to the
Effective Date (hereinafter referred to as “Executive’s Claims”), including
without limitation:  (i) any claims
arising out of or related to

 

3

 

any federal, state and/or local labor or civil rights
laws, as amended, including, without limitation, the federal Civil Rights Acts
of 1866, 1871, 1964 and 1991 (including but not limited to Title VII), the
Age Discrimination in Employment Act of 1967, the National Labor Relations Act,
the Worker Adjustment and Retraining Notification Act, the Employee Retirement
Income Security Act of 1974, the Family and Medical Leave Act of 1993, the
Americans with Disabilities Act of 1990, the Fair Labor Standards Act of 1938,
the Older Workers’ Benefit Protection Act, the California Fair Employment and
Housing Act, the California Industrial Welfare Commission Wage Orders, and the
California Labor Code and/or any similar state anti-discrimination and
employment statutes; and (ii) any and all other of Executive’s Claims
arising out of or related to any contract or employment agreement, any and all
other federal, state or local constitutions, statutes, rules or
regulations, or under the laws of any country or political subdivision, or
under any common law right of any kind whatsoever. You also agree to waive all
rights to sue or obtain equitable, remedial or punitive relief, arising out of
or related to Executive’s Claims, from any or all Company Releasees of any kind
whatsoever including, without limitation, reinstatement, back pay, front pay,
attorney’s fees and any form of injunctive relief. Notwithstanding the
foregoing, this Agreement shall not affect any of your rights or obligations
under (a) the InSight Health Services Corp. 401(k) Savings Plan (“InSight
401(k) Plan”), (b) the Amended and Restated Indemnification Agreement
executed by you and the Company effective January 10, 2005 (“Indemnification
Agreement”), (c) the Consolidated Omnibus Budget Reconciliation Act (“COBRA”),
(d) workers’ compensation or unemployment insurance benefits claims, or (e) the
terms of this Agreement.

 

You and the Company hereby waive and relinquish all
rights and benefits afforded by California Civil Code Section 1542. You
and the Company understand and acknowledge the significance and consequences of
this specific waiver of Section 1542. California Civil Code Section 1542
states as follows:

 

A
general release does not extend to claims which the creditor does not know or
suspect to exist in his or her favor at the time of executing the release,
which if known by him or her must have materially affected his or her
settlement with the debtor.

 

To the fullest extent
permitted by law, you represent, warrant and agree not to lodge or assist
anyone else in lodging any formal or informal complaint in court, with any
federal, state or local agency or any other forum, in any jurisdiction, arising
out of or related to Executive’s Claims. You hereby represent and warrant that
you have not brought any complaint, claim, charge, action or proceeding against
any of the Company Releasees in any jurisdiction or forum, nor assisted or
encouraged any other person or persons in doing so. You further represent and
warrant that you have not in the past and will not in the future assign any of
Executive’s Claims to any person, corporation or other entity.

 

Your
execution of this Agreement operates as a complete bar and defense against any
and all of Executive’s Claims against the Company and each of the other Company
Releasees to the maximum extent permitted by law. If you should hereafter make
any of Executive’s Claims in any charge, complaint, action, claim or proceeding
against the Company

 

4

 

or any of the other Company
Releasees, this Agreement may be raised as, and shall constitute a complete bar
to, any such charge, complaint, action, claim or proceeding. You agree to
disclaim and waive any right to share or participate in any monetary award
resulting from the prosecution of any administrative investigation or
proceeding against any of the Company Releasees.

 

Release
by the Company. In
consideration of this Agreement, the Company on behalf of itself, its parent
and subsidiary corporations (“Company Releasors”) hereby irrevocably and
unconditionally releases, waives and forever discharges you, your spouse,
family members, heirs, and attorneys(collectively, the “Executive Releasees”),
individually and collectively, from any and all actions, causes of action,
claims, demands, damages, rights, remedies and liabilities of whatsoever kind
or character, in law or equity, suspected or unsuspected, known or unknown,
past or present, that they have ever had, may now have, or may later assert
against the Executive Releasees, whether or not arising out of or related to
your employment by or the performance of any services to or on behalf of the
Company or the termination of that employment and those services, from the
beginning of time to the Effective Date (hereinafter referred to as “Company’s
Claims”), including without limitation, any and all other of Company’s Claims
arising out of or related to any contract, any and all federal, state or local
constitutions, statutes, rules or regulations, or under the laws of any
country or political subdivision, or under any common law right of any kind
whatsoever, including, without limitation, any of Company’s Claims for any kind
of tortious conduct, promissory or equitable estoppel, breach of the Company’s
policies, rules, regulations, handbooks or manuals, breach of express or
implied contract or covenants of good faith, breach of duty of loyalty or
fiduciary duty. Notwithstanding the foregoing, this Agreement shall not
affect any of the Company’s rights or obligations under (a) the InSight
401(k) Plan, (b) the Indemnification Agreement, (c) COBRA, (d) workers’
compensation or unemployment insurance benefits claims, or (e) the terms
of this Agreement.

 

Further,
notwithstanding the foregoing, the Company’s Claims which are being released
herein shall not include any claims or causes of action that the Company
Releasors may have against you as of the Effective Date, which may arise from
or be related to (i) any acts or omissions undertaken by you, or
undertaken at your express direction, which constitute fraud, theft or
embezzlement against the Company or any act that constitutes a felony under the
laws of the United States or any state and such felony results in a damage,
loss, liability of claim to or against a Company Releasor ; or (ii) any
voluntary act undertaken by you in knowing and willful violation of a specific
written Company directive or policy, which causes the Company material harm or
subjects it to material liability, unless such directive or policy would cause
you to take an illegal act. The Company is not currently aware of any claim
that it may have for any matter covered under this subparagraph.

 

To the fullest extent
permitted by law, the Company agrees not to lodge or assist anyone else in
lodging any formal or informal complaint in court, with any federal, state or
local agency or any other forum, in any jurisdiction, against you or any of the other Executive Releasees
arising out of or related to Company’s Claims. The Company hereby represents
and warrants that it has not brought any complaint, claim, charge, action or
proceeding against any of the Executive Releasees in any jurisdiction or forum,
nor assisted or encouraged any other

 

5

 

person or persons in doing
so. The Company further represents and warrants that it has not in the past and
will not in the future assign any of Company’s Claims to any person,
corporation or other entity.

 

Execution
of this Agreement by the Company operates as a complete bar and defense against
any and all of Company’s Claims against you or any of the other Executive
Releasees. If the Company should hereafter make any of Company’s Claims in any
charge, complaint, action, claim or proceeding against you or any of the other
Executive Releasees, this Agreement may be raised as and shall constitute a
complete bar to any such charge, complaint, action, claim or proceeding and you
and/or the other Executive Releasees shall be entitled to and shall recover
from the Company all costs incurred, including reasonable attorneys’ fees, in
defending against any such charge, complaint, action, claim or proceeding.

 

Continuing Obligations to Company. You
understand and agree that you have continuing obligations to the Company as set
for in Exhibit A attached hereto from the date hereof and continuing as
set forth therein. Should you have a legitimate question as to whether a
particular prospective employment would be in breach of your obligations under Exhibit A,
you may make an inquiry to the Company prior to accepting such a position and
if the Company determines that such potential employment will not be a breach
of Exhibit A, it will so advise you and/or your prospective employer in
writing.

 

Cooperation. Between the date hereof
and the Effective Date, you agree to ensure an orderly transition to such
person or persons that the Company may designate. During the period in which
you are receiving Separation Payments, but not to exceed five (5) hours
per month, you may be asked questions by the Company, its accountants,
financial advisors or attorneys relating to your former duties, to which you
agree to  respond in a reasonably timely
and responsible manner by providing such information as may be within your
knowledge. You and the Company acknowledge and agree that you may have future
employment and other obligations that may limit the amount of your time
available to cooperate with the Company under this paragraph and thus your
reasonable cooperation will take into account any such limitations. The Company
agrees to reimburse you for all your reasonably incurred out-of-pocket expenses
incurred in satisfying your obligations under this paragraph.

 

Return of InSight Property; Expenses.
As set forth in Exhibit A, you agree to immediately return, not later than
the earlier to occur of your ceasing to provide services hereunder and  the Effective Date, all Company property and
equipment in your possession or under your control, including, but not limited
to, credit cards, keys, building access cards, manuals, notebooks, financial
statements, TREO, Blackberry, cell phone, reports and any other Company property.
Notwithstanding the above, the Company will allow you to purchase the Sprint
Blackberry currently in your possession for $79. You should in a timely manner
submit to InSight all outstanding business expenses incurred by you through the
Effective Date, for reconciliation and payment in accordance with the Company’s
policies.

 

6

 

Legal Representation. You and
InSight each acknowledge that you have had the opportunity to receive the
advice of independent legal counsel prior to the execution of this Agreement
and the opportunity to receive an explanation from legal counsel of the legal
nature and effect of this Agreement, and you have fully exercised that
opportunity to the extent desired and you understand the terms and provisions
of this Agreement and its nature and effect. You further represent that you are
entering into this Agreement freely and voluntarily.

 

No Admission of Liability. Nothing
contained in this Agreement or the fact that InSight has signed this Agreement
shall be considered as admission of any liability whatsoever by InSight. This
Agreement may not be introduced in any action or proceeding by anyone for any
purpose except to evidence or to enforce its terms.

 

Confidentiality. As a material inducement
to InSight to enter into this Agreement and as an indivisible part of the
consideration to be received for entering into this Agreement and for the
performance of obligations under this Agreement by each party to this
Agreement, you agree that you will not disclose, disseminate, and/or publicize
or cause or permit to be disclosed, disseminated, and/or publicized, any of the
specific terms of this Agreement, any claims or allegations or the basis for
any claims or allegations, which were or could have been made against InSight
and its divisions, affiliates, subsidiaries, predecessor and successor
corporations, and the past and present directors, officers, management
committees, stockholders, agents, servants, employees, representatives,
administrators, partners, general partners, managing partners, limited
partners, benefit plan fiduciaries and administrators, assigns, heirs,
successors or predecessors in interest, adjustors, insurers, and attorneys,
which concern and are within the scope of this Agreement, directly or
indirectly, specifically or generally, to any person, corporation, association,
governmental agency, or other entity except: (a) to the extent necessary
to report income to appropriate taxing authorities; (b) in response to an
order of a court of competent jurisdiction or a subpoena issued under authority
thereof; (c) in response to any subpoena issued by a state or federal
governmental agency; or (d) as otherwise required by law. Notwithstanding
the foregoing, InSight may file this Agreement with the Securities and Exchange
Commission in accordance with the Securities Exchange Act of 1934.

 

Assistance/Cooperation Regarding Current or Future
Litigation or Investigation. In connection with InSight’s
participation in current or future litigation or investigation relating to
events which occurred during your employment with the Company and/or about
which you have personal knowledge or information, you agree to cooperate in the
preparation, prosecution, or defense of the Company’s case or investigation,
including, but not limited to, meeting with the Company’s counsel, the
execution of truthful declarations, being a deponent and/or witness, or
providing information and/or documents requested by the Company or any
governmental agency. You further agree not to voluntarily assist any party, any
current or former employee of the Company, and/or attorney in any claim,
dispute, charge, or litigation adverse to the Company. This paragraph does not
prohibit you from testifying truthfully pursuant to a subpoena or lawful court
order. In consideration of your agreement to cooperate in the event that the
Company requests your cooperation about any matter that does not specifically
relate to you or to an action taken by you during your employment with the Company,
the Company agrees to reimburse you for all your reasonably incurred
out-of-pocket expenses incurred in assisting the Company. You and the Company
acknowledge and agree that you may have future employment

 

7

 

or other obligations that may limit the amount of your
time available to cooperate with the Company under this paragraph, and thus
your reasonable cooperation will take into account any such limitations. To the
extent your time required to assist the Company exceeds five (5) hours in
any calendar month, the Company will compensate you at the rate of $225 per
hour.

 

Non Disparagement. As a material
inducement to InSight to enter into this Agreement, you agree that you will not
make any negative or disparaging comments about InSight or IHSC. InSight,
agrees that it  will not make any
negative or disparaging comments about you.

 

Other Agreements. Except for (i) Exhibit A,
(ii) the InSight 401(k) Plan, and (iii) the Indemnification
Agreement, the terms of this Agreement supercede any and all other agreements,
understandings, negotiations, or discussions, either oral or in writing,
express or implied, among you, the Company and IHSC and this Agreement shall
operate to terminate all such other agreements between you and the InSight
Companies.

 

Successors. This Agreement is
binding upon the Company and you and upon the Company’s and your respective
successors, assigns, heirs, executors, administrators and legal
representatives.

 

No Strict Construction. The language
in this Agreement shall be deemed to be the language mutually chosen by the
parties to reflect their mutual intent and no doctrine of strict construction
shall apply against any party.

 

Entire Agreement. This Agreement
constitutes the full, complete, and exclusive agreement among you, InSight and
IHSC with respect to the subject matter herein. This Agreement cannot be
changed unless in writing, signed by you, InSight, and IHSC.

 

Waiver. No waiver of any of the
provisions of this Agreement shall be deemed, or shall constitute, a waiver of
any other provision, whether or not similar. No waiver shall constitute a
continuing waiver. No waiver shall be binding unless executed in writing by the
party charged with the waiver.

 

Severability. In the event any provision
of this Agreement shall be determined to be unlawful, such provision shall be
deemed to be severed from this Agreement and every other provision of this
Agreement shall remain in full force and effect.

 

Headings. The headings of the
paragraphs of this Agreement are for the purposes of convenience only, and
shall not be deemed to amend, modify, expand, limit or in any way affect the
meanings of any of the provisions hereof.

 

Governing Law. This Agreement is
made and entered into in the State of California, without regard to any
conflicts of law principles thereof that would call for the application of the
laws of any other jurisdiction.

 

8

 

Resolution of Disputes. Any
controversy or claim arising out of or relating to this Agreement, or any
breach thereof, will be submitted to final and binding arbitration in Orange
County, California, before a mutually agreed upon arbitrator from Judicial
Arbitration and Mediation Services (JAMS), as the exclusive remedy for such
controversy or dispute. Judgment upon any award rendered by the arbitrator may
be entered in the Superior Court of the County of Orange, State of California,
which will have exclusive jurisdiction thereof. The prevailing party in any
proceeding brought to enforce the terms of this Agreement will be entitled to
recover from the other party all damages, costs and expenses, including without
limitation, reasonable attorneys’  and
arbitrators’ fees , incurred as a result of such action. In agreeing to this
arbitration, you understand and agree that you are waiving  the  right
to  a  jury  trial as to any issue(s) subject to
this Agreement. The decision of the arbitrator will be bound by generally
accepted legal principles, including but not limited to all rules of law
and legal principles concerning potential liability, burdens of proof, and
measure of damages found in all applicable California statutes and
administrative rules and codes, and all California case law. The parties
agree that this provision does not limit his/its/their right to seek injunctive
relief in the threat of imminent and irreparable harm as a result of breach of
this Agreement.

 

Consideration Period. You have until
5:00 p.m. on July 18, 2008, or twenty-one (21)  days from receipt of this Agreement to
consider it. InSight hereby advises you to consult with an attorney before
signing this Agreement.

 

Revocation Period. For a period of
seven (7) days following the signing of this Agreement, you may revoke
this Agreement. This Agreement does not become effective or enforceable until
the revocation period has expired without you exercising your option to revoke.

 

Please acknowledge your understanding and acceptance
of this Agreement by signing this Agreement below and returning it to me no later
than 5:00 p.m. on July 18, 2008, or on the twenty-first (21st)
day from the day you receive this Agreement. An extra copy of this Agreement
has been signed by me and is enclosed for your records.

 

	
   

  	
  Sincerely,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Louis E.
  Hallman, III

  
	
   

  	
  Louis E.
  Hallman, III

  
	
   

  	
  President and Chief
  Executive Officer

  
	
   

  	
  InSight Health Services
  Corp. and

  
	
   

  	
  InSight Health Services
  Holdings Corp.

  
	
  Enclosures

  	
   

  
	
   

  	
   

  
	
  ACKNOWLEDGED AND
  AGREED:

  	
   

  
	
   

  	
   

  
	
  Dated: June 27, 2008.

  	
   

  	
  /s/ Mitch C. Hill

  
	
   

  	
   

  	
  Mitch C. Hill

  

 

9

 

EXHIBIT A

 

V.                                    CERTAIN
COVENANTS OF EXECUTIVE

 

SECTION 5.01  Covenants Against Unfair
Competition.

 

(a)                                  Acknowledgments. Executive
acknowledges that, as of the date hereof (i) the principal business of
Company and its affiliates is the provision of diagnostic imaging, treatment
and related management services through a network of mobile magnetic resonance
imaging (“MRI”) and positron emission tomography (“PET”) facilities, fixed-site
MRI and PET facilities and multi-modality centers, at times, together with
other healthcare providers, utilizing the related equipment and computer
programs and “software” and various corporate investment structures (“Company
Business”); (ii) Company Business is primarily national in scope; (iii) the
industry is highly competitive; and (iv) Executive’s duties hereunder will
cause Executive to have access to and be entrusted with various trade secrets
not readily available to the public or competitors, consisting of business
accounts, lists of customers and other business contacts, information
concerning Company’s relationships with actual or potential clients or
customers and the needs or requirements of such clients or customers, budgets,
business and financial plans, employee lists, financial information, artwork,
designs, graphics, marketing plans and techniques, business strategy and
development, know-how or other matters connected with Company Business,
computer software programs and specifications (some of which may be developed
in part by Executive under this Agreement), which items are owned exclusively
by Company and used in the operation of Company Business (“Trade Secrets”). Notwithstanding
the foregoing, the parties agree that the term “Trade Secrets” shall not
include information which (i) is or becomes generally available to the
public, without violation of any obligation of confidentiality by Executive, (ii) is
or becomes available from a third party on a nonconfidential basis, provided
that such third party is not bound by a confidentiality agreement concerning
the Trade Secrets and (iii) is or has been independently acquired or
developed by Executive without violating the provisions of this Section.

 

Executive further acknowledges that the Trade Secrets
will be disclosed to Executive or obtained by Executive and received in
confidence and trust for the sole purpose of using the same for the sole
benefit of Company Business. Executive also acknowledges that such Trade
Secrets are valuable to Company, of a unique and special nature, and important
to Company in competing in the marketplace.

 

During and after the term of this Agreement (otherwise
than in the performance of this Agreement), without Company’s prior written
consent, Executive shall not divulge or use all or any of the Trade Secrets to
or for any person or entity except (i) for the benefit of Company and as
necessary to perform Executive’s services under this Agreement; and (ii) when
required by law, and then only after consultation with Company or unless such
information is in the public domain. In the event that Executive, becomes or is
legally compelled (whether by deposition, interrogatories, request for
documents, subpoena, civil investigative demand or similar process) to disclose
any Trade Secrets, Executive shall provide Company with prompt, prior written
notice of such requirement so that Company may seek a protective order or other
appropriate remedy and/or waive compliance with the provisions of this Section.
Executive agrees that his obligations under this Section 5.01 shall be
absolute and unconditional.

 

 

(b)                                 Breach. Executive understands and
agrees that Executive’s employment with Company may be terminated if Executive
breaches this Agreement or in any way divulges such Trade Secrets. Executive
further understands and agrees that Company may be irreparably harmed by any
violation or threatened violation of this Agreement and, therefore, Company may
be entitled to injunctive relief to enforce any of the provisions contained
herein.

 

(c)                                  Non-Compete. During the period of
Executive’s employment, Executive will not directly or indirectly either as an
employee, employer, consultant, agent, principal, partner, stockholder,
corporate officer, director, or in any other individual or representative
capacity, engage or participate in any activity or business which Company shall
determine in good faith to be in competition in any substantial way with
Company Business within any metropolitan area in the United States or elsewhere
in which Company is then engaged in Company Business. The parties acknowledge
that in California and some states post-employment non-compete clauses may be
generally unenforceable, but that other states and jurisdictions permit such
agreements. Executive hereby agrees that Executive will not directly or
indirectly, either as an employee, employer, consultant, agent, principal,
partner, stockholder, corporate officer, director, or in any other individual
or representative capacity, engage or participate in any activity or business
which Company shall determine in good faith to be in competition in any
substantial way with Company Business as conducted at the effective date of
termination of Executive’s employment by Company for or a period of twelve (12)
months after the termination of Executive’s employment and that this Section will
be enforceable to the greatest extent of the law.

 

(d)                                 No Solicitation of Employees. During
Executive’s employment and for a period of twelve (12) months after the
termination of Executive’s employment, Executive will not, either directly or
indirectly, either alone or in concert with others, solicit or entice or
participate in the solicitation or attempt to solicit or in any manner
encourage employees of Company to leave Company or work for anyone that is in
competition in any substantial way with Company Business (which in the case of
the period following Executive’s termination, shall mean Company Business as
conducted as of the effective date of termination of Executive’s employment
with Company); provided, however, that the public listing, advertising or posting
of an available position shall not constitute solicitation or an attempt to
solicit hereunder and this subsection (d) shall not preclude
Executive from hiring an individual pursuant thereto.

 

(e)                                  No Solicitation of Customers. Executive
will not during the course of Executive’s employment, or for twelve (12) months
thereafter, either directly or indirectly call on, solicit, or take away, or
attempt to call on, solicit or take away any of Company’s customers on behalf
of any business that is in competition in any substantial way with Company. Executive
promises and agrees not to engage in any unfair competition with Company. During
Executive’s employment, Executive agrees not to plan or otherwise take any
preliminary steps, either alone or in concert with others, to set up or engage
in any business enterprise that would be in competition with Company Business. In
the event of the termination of Executive’s employment and for a period of
twelve (12) months thereafter, Executive will not accept any employment or
engage in any activities which Company shall determine in good faith to be
competitive with

 

 

Company, if the fulfillment of the duties of the competitive employment
or activities would inherently require Executive to reveal Trade Secrets to
which Executive has access or learned during Executive’s employment on behalf
of any business that is in competition in any substantial way with Company.

 

(f)                                    Return of Company Property. In the
event of the termination of Executive’s employment, Executive will deliver to
Company all devices, records, sketches, reports, proposals, files, customer
lists, mailing or contact lists, correspondence, computer tapes, discs and
design and other document and data storage and retrieval materials (and all
copies, compilations and summaries thereof), equipment, documents, duplicates,
notes, drawings, specifications, research tape or other electronic recordings,
programs, data and other materials or property of any nature belonging to
Company or relating to Company Business, and Executive will not take with
Executive or allow a third party to take, any of the foregoing or any
reproduction of any of the foregoing. Company property includes personal
property, made or compiled by Executive, in whole or in part and alone or with
others, or in any way coming into Executive’s possession concerning Company
Business or other affairs of Company or any of its affiliates.

 

(g)                                 Disclosure and Assignment of Rights. (i)  Executive
shall promptly disclose and assign to Company and its affiliates or its
nominee(s), to the maximum extent permitted by Section 2870 of the
California Labor Code, as it may be hereafter amended from time to time, all
right, title and interest of Executive in and to any and all ideas, inventions,
discoveries, secret processes and methods and improvements, together with any
and all patents that may be issued thereon in the United States and in all
foreign countries, which Executive may invent, develop or improve, or cause to
be invented, developed or improved, during the term of this Agreement or which
are (1) conceived and developed during normal working hours, and (2) related
to the scope of Company Business. As used in this Agreement, the term “invent”
includes “make”, “discover”, “develop”, “manufacture” or “produce”, or any of
them; “invention” includes the phrase “any new or useful original art, machine,
methods of manufacture, process, composition of matter, design, or
configuration of any kind”; “improvement” includes “discovery” or “production”;
and “patent” includes “Letters Patent” and “all the extensions, renewals,
modifications, improvements and reissues of such patents”.

 

(ii)                                  Executive
shall disclose immediately to duly authorized representatives of Company any
ideas, inventions, discoveries, secret processes and methods and improvements
covered by the provisions of paragraph (i) above, and execute all
documents reasonably required in connection with the application for an
issuance of Letters Patent in the United States and in any foreign country and
the assignment thereof to Company and its affiliates or its nominee(s).

 

SECTION 5.02  Rights and Remedies Upon
Breach. If Executive breaches, or threatens to breach, in any
material respect any of the provisions of Section 5.01 hereof (“Restrictive
Covenants”), Company shall, in addition to all its other rights hereunder and
under applicable law and in equity, have the right to seek specific enforcement
of the Restrictive Covenants by any court having jurisdiction, including,
without limitation, the granting of a preliminary injunction which may be
granted without the necessity of proving damages or the posting of a bond or
other security, it being acknowledged that any such breach or threatened breach
may

 

 

cause irreparable injury to Company and that money damages may not
provide an adequate remedy to Company. In
addition to and not in lieu of any other remedy that Company may have pursuant
to this Agreement or otherwise, in the event of any breach of any provision of Section 5.01
during the period which Executive is entitled to receive payments and benefits
pursuant to Section 4.07, such period shall terminate as of the date of
such breach and Executive shall not thereafter be entitled to receive any
salary or other payments or benefits under this Agreement, including, but not
limited to, any stock options granted to Executive.

 

SECTION 5.03  Severability and
Modification of Covenants. Company
and Executive agree and acknowledge that the duration, scope and geographic
area of the Restrictive Covenants described in this Section 5.01 are fair,
reasonable and necessary in order to protect the good will and other legitimate
interests of Company, that adequate consideration has been received by
Executive for such obligations, and that these obligations do not prevent Executive
from earning a livelihood. If any court of competent jurisdiction
determines that any of the Restrictive Covenants, or any part thereof, is
invalid or unenforceable, the remainder of the Restrictive Covenants shall not
thereby be affected and shall be given full effect, without regard to the
invalid portions. If any court of competent jurisdiction construes any of the
Restrictive Covenants, or any part thereof, to be unenforceable because of the
duration or geographic scope of such provision or otherwise, such provision
shall be deemed amended to the minimum extent required to make it enforceable
and, in its reduced form, such provision shall then be enforceable and
enforced.

 

SECTION 6.01     (a)   Customers, Suppliers. Executive
does not have, and at any time during the term of this Agreement shall not
have, any employment with or any direct or indirect interest in (as owner,
partner, shareholder, employee, director, officer, agent, consultant or
otherwise) any customer of or supplier to Company.

 

(b)                                 Certain Activities. Executive
during the term of this Agreement shall not (i) give or agree to give, any
gift or similar benefit of more than nominal value to any customer, supplier,
or governmental employee or official or any other person who is or may be in a
position to assist or hinder Company in connection with any proposed
transaction, which gift or similar benefit, if not given or continued in the
future, might adversely affect the business or prospects of Company, (ii) use
any corporate or other funds for unlawful contributions, payments, gifts or
entertainment, (iii) make any unlawful expenditures relating to political
activity to government officials or others, (iv) establish or maintain any
unlawful or unrecorded funds in violation of Section 30A of the Securities
Exchange Act of 1934, as amended, and (v) accept or receive any unlawful
contributions, payments, gifts, or expenditures.Exhibit 10.1

 

ASSET PURCHASE AGREEMENT

 

Dated as of

 

February 5, 2008,

 

By and among

 

Barnhill’s
Buffet, Inc.

as
Seller

 

And

 

Starlite Holdings, Inc.,

as

Buyer

 

 

ASSET
PURCHASE AGREEMENT (this “Agreement”), dated as of February 5,
2008, is by and among BARNHILL’S BUFFET, INC., a Tennessee corporation (the “Seller or the Company”)
and STARLITE HOLDINGS, INC., a wholly owned subsidiary of Star Buffet, Inc.,
a Delaware corporation, (together with any successor and assigns, the “Buyer”).

 

RECITALS

 

A.                                   The Seller is
engaged in the business of operating a chain of restaurants known as Barnhill’s
Buffet that specialize in Southern-style buffet dining and catering.

 

B.                                     On the terms
and subject to the conditions set forth in this Agreement, the Seller desires
to sell, and the Buyer desires to acquire certain assets and assume certain
liabilities of Seller’s restaurants listed on Exhibit A attached
hereto (collectively, the “Restaurants”), and to assume certain real
property and personal property leases as well as certain contracts related
thereto necessary for the operation of the Restaurants.

 

C.                                     On or about December 3,
2007, the Seller commenced a proceeding (the “Bankruptcy Case”) in the
United States Bankruptcy Court for the Middle  District
of Tennessee  (the “Bankruptcy Court”)
by filing a voluntary petition for relief under Chapter 11 of Title 11 of the
United States Code (the “Bankruptcy Code”) (the date of such filing
being the “Petition Date”).

 

D.                                    The Seller and
the Buyer have agreed that the transactions contemplated hereby shall be
accomplished through a sale and assignment of assets to the Buyer pursuant to
Sections 363 and 365 of the Bankruptcy Code.

 

E.                                      The Seller and
the Buyer contemplate a closing of the transactions on the Target Date (as
defined in Section 2.3 herein) following the entry of the Sale
Order (as defined in Section 7.2), which Sale Order shall not be
subject to any stay, as of the Closing Date (as defined in Section 2.3).

 

F.                                      All disclosure
schedules and exhibits referred to herein are hereby incorporated by reference
and, taken together with this Agreement (including the foregoing Recitals)
shall constitute but a single agreement.

 

ARTICLE 1

 

PURCHASE AND SALE

 

1.1                                 Assets.  Subject to the terms of this Agreement and
pursuant to Sections 363 and 365 of the Bankruptcy Code, Seller agrees to sell,
transfer, convey and/or assign to Buyer, and Buyer agrees to purchase and
acquire from Seller at the Closing (as defined in Section 2.3), all
of Seller’s right, title and interest, whatsoever, in and to the assets
described below and in the following manner (collectively, the “Assets”)
free and clear of all Encumbrances (as defined in Article 10):

 

 

(a)                            Store Inventory.  At the Closing but effective as of the
Effective Time (as defined in Section 2.6), Seller shall sell,
transfer and assign to Buyer all of Seller’s right, title and interest in and
to all of the inventory on hand (including raw materials, work in process and
finished goods) at the Restaurant Sites.

 

(b)                           Real Property Lease Assignments.  Described in Exhibit A
are locations of certain restaurant sites leased by Seller (the “Restaurant
Sites”) that constitute all of the sites on which the Restaurants are
located.  Subject to Section 1.6,
at the Closing but effective as of the Effective Time, Seller shall transfer,
sell and assign to Buyer all of Seller’s right, title and interest in and to
the leases for the Restaurant Sites (the “Assumed Leases”) free and
clear of all Encumbrances.

 

(c)                            Tangible Personal Property.  At the Closing but effective
as of the Effective Time, Seller shall sell, transfer and assign to Buyer, free
and clear of all Encumbrances, all of Seller’s right, title and interest in and
to all tangible personal property owned or leased by Seller and located at the
Restaurant Sites, including, without limitation, certain leasehold improvements
and fixtures located at the Restaurant Sites and further including, without
limitation, the items described on Exhibit B (the “Tangible
Personal Property”).

 

(d)                           Personal Property Leases and Executory Contract
Assignments.  Described in Exhibit C are
certain personal property leases (“Personal Property Leases”) as well as
certain licenses (including, without limitation, licenses relating to computer
hardware and software), contracts, third-party warranties, arrangements and
other agreements that may constitute executory contracts under Section 365
of the Bankruptcy Code (“Executory Contracts” and together with the
Assumed Leases and the Personal Property Leases, the “Assigned Agreements”)
to which the Seller is a party, relating to the business conducted at the
Restaurant Sites.

 

(e)                            Books and Records.  At the Closing, Seller shall sell, convey,
transfer and assign to Buyer all of Seller’s right, title and interest in and
to all “Books and Records” (including the right of possession) located at the
Restaurants and/or Seller’s corporate headquarters that relate to the business
conducted at the Restaurant Sites and/or the ownership of the Assets.  Following the Closing, Seller shall have the
right to retain copies of any Books and Records transferred to Buyer.    “Books and Records” means all sales
records, purchase records, customer lists, supplier lists, advertising and
promotional materials, health inspection records including all records regarding
the Occupational Safety and Health Act and similar government examinations and
clearances, correspondence and other records, real estate and
developmental data, blueprints.

 

(f)                              Perpetual License of Trade names.  At the Closing but effective
as of the Effective Time, Seller shall grant to Buyer a perpetual license to
use any trade names, trademarked names, or graphics owned by Seller for
purposes of operating the Restaurants (the “License”).

 

1.2                                 Excluded Assets.  Except for the Assets set forth in Section 1.1,
all other assets of Seller are excluded from the purchase and sale contemplated
by this Agreement.  For the 

 

2

 

avoidance of doubt, subject to Section 9.3,
all security deposits, refunds, deposits and prepaid expenses of Seller,
whether or not they relate to a property subject to an Assignment Agreement,
are not Assets to be transferred to Buyer (the “Prepaid Charges”).

 

1.3                                 Assumed Liabilities.  On the Closing Date, but effective as of the
Effective Time, Buyer shall assume and agree to discharge only the following
specifically enumerated obligations and liabilities of Seller (the “Assumed
Liabilities”):

 

(a)                            All liabilities and obligations arising after the Closing Date with
respect to or arising under the Assets;

 

(b)                           All liabilities, obligations and commitments under the Assigned
Agreements accruing with respect to any periods after the Effective Time or
requiring payment of an obligation which becomes due and payable after the
Effective Time and which, in any event, is attributable to the period after the
Effective Time; and

 

(c)                            All liabilities, obligations and commitments accruing with respect to
any periods after the Effective Time requiring payment of an obligation which,
in any event, becomes due and payable after the Effective Time resulting from,
caused by or arising out of, directly or indirectly, the conduct by Buyer in
operating the business at the Restaurant Sites.

 

1.4                                 Retained Liabilities.  Notwithstanding anything
contained in this Agreement to the contrary, Buyer does not assume or agree to
pay, satisfy, discharge or perform, and shall not be deemed by virtue of the
execution and delivery of this Agreement or any document delivered at the
Closing pursuant to this Agreement, to have assumed, or to have agreed to pay,
satisfy, discharge or perform, any liability, obligation or indebtedness of
Seller, whether primary or secondary, direct or indirect, other than the
Assumed Liabilities.  Seller shall retain
all liabilities and obligations of Seller other than the Assumed Liabilities to
the extent specifically provided in Section 1.3  subject to the prorations set forth in Section 9.3
(all such liabilities and obligations retained by Seller being referred to
herein as the “Retained Liabilities”). 
By way of illustration, and not of limitation, Retained Liabilities
include:

 

(a)                            All liabilities, obligations and commitments of Seller or any
predecessor(s) or Affiliate(s) of Seller relating to Taxes (as
defined in Article 10) with respect to the Assets or otherwise, for
all periods, or portions thereof, on or prior to the Closing Date, subject to
the prorations set forth in Section 9.3;

 

(b)                           All liabilities, obligations and commitments for any legal, accounting,
investment banking, brokerage or similar fees or expenses incurred by Seller in
connection with, resulting from or attributable to the transactions
contemplated by this Agreement;

 

(c)                            Liabilities, obligations and commitments for which Buyer does not
expressly assume an obligation or liability as described in Section 1.3;

 

(d)                           Liabilities, obligations and commitments for any borrowed money
incurred by Seller or any predecessor(s) or Affiliate(s) of Seller;
and

 

3

 

(e)                            All liabilities, obligations and commitments of Seller, whether known
or unknown, disclosed or undisclosed, resulting from, caused by or accruing out
of, at any time, directly or indirectly, the conduct of its business or
ownership or lease of any of its properties or assets or any properties or
assets previously used by Seller at any time prior to or on the Closing Date.

 

1.5                                 Sale and Assignment Pursuant to Bankruptcy Code.  All the sales, assumptions and assignments
contemplated by this Article 1 shall be subject to Bankruptcy Court
approval pursuant to, among other things, Sections 363 and 365 of the
Bankruptcy Code.

 

1.6                                 Assigned
Agreements.  Seller shall
assume and assign to the Buyer all of the Assigned Agreements.  Set
forth on Exhibits A and C is certain information describing the
monetary obligations associated with the Assigned Agreements and any monetary
defaults there under as of the Petition Date (the “Cure Amounts”). To the extent
required by the Bankruptcy Court under the Bankruptcy Code in order to permit
the assumption and assignment of the Assigned Agreements to the Buyer pursuant
to this Agreement, (i) the Buyer hereby agrees to pay the Cure Amounts
listed in Exhibits A and C, (ii) the Buyer shall provide
adequate assurances of future performance as required by the Bankruptcy Code
with respect to each Assigned Agreement and (iii) at the Closing, any
obligations that have accrued but are not yet due for payment under the
Assigned Agreements shall be pro-rated between the Seller and Buyer as of the
Closing in accordance with Section 9.3.

 

ARTICLE 2

 

CONSIDERATION;
ALLOCATION; PAYMENT

 

2.1                                 Assumption; Purchase; Consideration.  In consideration of the sale, conveyance,
transfer and/or assignment of the Assets as provided in Article 1, and
subject to the provisions of this Agreement, at the Closing Buyer shall:

 

(a)                            assume the Assumed Liabilities; and

 

(b)                           purchase the Assets for the Purchase Price (as defined below).

 

2.2                                 Purchase Price.  The purchase price for the sale of the Assets
shall be $1,000,000.00 in cash (the “Purchase Price”).

 

2.3                                 Closing.  The “Closing” of the transactions
contemplated herein, including payment of the Purchase Price, shall take place
at the offices of the Company or such other location in Nashville, TN as may be
agreed upon, no later than five (5) days following the entry of the Sale
Order (the “Target Date”) (or such earlier date as Buyer and Seller may
mutually agree, the “Closing Date”); provided, that no stay of the Sale
Order shall be in effect and provided, further, that the Sale Order shall
contain a waiver of the automatic ten (10) day stay under Rule 6004(h) of
the Federal Rules of Bankruptcy Procedure; provided, further,
however, that in no event unless otherwise agreed in writing shall the
Closing take place on a date which is after February 14, 2008 (the “Termination
Date”). 
At the Closing, Buyer shall pay the Purchase Price to Seller by wire
transfer of immediately available funds to one or more bank accounts of Seller,
or as 

 

4

 

directed by Seller in accordance with the terms
of the Sale Order approved by the Bankruptcy Court.

 

2.4                                 Allocation.  On or before the date that
is five (5) days before the Closing Date, the Seller and the Buyer will
agree upon an allocation of the Purchase Price covering the Assets for federal,
state and local Tax purposes.  The Seller
and the Buyer will implement, report and accept such allocation for federal,
state and local Tax purposes.  The
parties agree that such allocations will not in any way limit their respective
rights and obligations under the Sale Documents (as defined in Section 3.2)
in respect of representations, warranties, covenants and agreements and the
breach thereof or damages therefore.

 

2.5                                 Transfer Taxes.  Buyer shall pay all sales, transfer and use taxes,
if any, that arise from the Transaction.  
The parties will reasonably cooperate to
minimize any such taxes.

 

2.6                                 Effective Time.  The effective time of the transactions
contemplated hereby shall be 12:01 a.m. (Nashville, Tennessee time) on the
first day following the Closing (the “Effective Time”), notwithstanding
the fact that the actual physical exchange of documents shall take place at the
Closing.

 

2.7                                 Deposit.  Upon the execution of this Agreement, Buyer
shall place in escrow with Seller’s counsel a refundable purchase price deposit
of $1,000 in cash.  One day prior to the
Sale Hearing, an additional refundable purchase price deposit in the amount of
$99,000 in cash shall be placed in escrow with Seller’s counsel (all such cash placed in escrow hereinafter referred to as the “Deposit”),
all of which shall be placed in an interest-bearing account.  Upon Closing, the Deposit will be applied
against the Purchase Price.  Otherwise,
the deposit will either be returned to Buyer or paid to Seller as specified in Section 8.2.

 

ARTICLE 3

 

REPRESENTATIONS AND
WARRANTIES OF SELLER

 

Except (i) as set forth in the schedules
referenced herein, to the extent (ii) it would not reasonably be expected
to result in a Material Adverse Effect, (iii) the Bankruptcy Court
determines otherwise, and (iv) the Bankruptcy Code provides otherwise, as
an inducement to Buyer to enter into and perform its obligations under this
Agreement, Seller hereby represents and warrants to Buyer as follows:

 

3.1                                 Organization and Good Standing.  Seller is a corporation duly organized,
validly existing and in good standing under the laws of the state of Tennessee
and has full organizational power and organizational authority to conduct its
business as it is now being conducted and to own, operate or lease the
properties and assets it currently owns, operates or holds under lease.

 

3.2                                 Power and Authorization.  Subject to approval by the Bankruptcy Court, Seller has full power and
authority to execute and deliver this Agreement and any agreement, document,
certificate or instrument being delivered pursuant to or in connection with the
transactions contemplated by this Agreement (collectively, the “Sale
Documents”) to perform its obligations hereunder and there under and to
consummate the transactions contemplated hereby and thereby.  The execution and delivery of this Agreement
and the other Sale Documents, and the performance 

 

5

 

by Seller of its obligations hereunder and
there under, and the consummation of the transactions contemplated hereunder
and there under, have been duly authorized by Seller.  This Agreement and the other Sale Documents
upon execution and delivery by Seller and upon approval of the Bankruptcy Court
will constitute the legal, valid and binding obligations of Seller, enforceable
against Seller in accordance with their respective terms.

 

3.3                                 No Violation.  Except as set forth on Schedule 3.3
hereto, the execution, delivery and performance by Seller of this Agreement and
the other Sale Documents and the consummation or performance of the
transactions contemplated herein and therein do not and will not:

 

(a)                            conflict with, result in the breach, modification, termination or
violation of, or loss of any benefit under, constitute a default under,
accelerate the performance required by, result in or give rise to a right to
amend or modify the terms of, result in the creation of any lien upon any
assets or properties, or in any manner release any party thereto from any obligation
under, any material mortgage, note, bond, indenture, contract, agreement,
lease, license or other instrument or obligation of any kind or nature by which
Seller, or any of its properties or assets, may be bound or affected;

 

(b)                           contravene or conflict with, or result in a violation of, result in any
loss of benefit under, or give any Person the right to challenge any of the
transactions contemplated by this Agreement and the other Sale Documents or to
exercise any remedy or obtain any relief under, any permit, concession,
franchise, order, judgment, writ, injunction, law, rule, ordinance, regulation,
statute or decree applicable to Seller; or

 

(c)                            conflict with or violate any provision of the certificate of
incorporation, bylaws or resolutions adopted by the board of directors or
stockholders, each as heretofore amended, of Seller.

 

3.4                                 No Consent Required.  Except for Bankruptcy Court approval or as
otherwise contemplated by this Agreement [or as set forth on Schedule 3.4
hereto], no consent, approval, order or authorization of, or declaration,
filing or registration with, any Person, entity or governmental authority is
required to be made or obtained by Seller in connection with the authorization,
execution, delivery or performance of this Agreement, the other Sale Documents
or the transactions contemplated hereby and thereby.

 

3.5                                 Compliance with Laws; Permits.  To the Knowledge of the Seller, Seller is in
material compliance with all laws, regulations, rules, ordinances, orders and
other requirements applicable to the operation, conduct or ownership of the
business conducted at the Restaurant Sites. 
Seller holds all of the required permits, licenses, approvals and
authorizations of any Governmental Unit (as defined in Article 10)
or third parties (collectively, “Permits”) necessary or appropriate for
the conduct of its business at the Restaurant Sites.  To the Knowledge of the
Seller, all such Permits are in full force and
effect, and will remain with Seller upon, and will not be affected by, the Closing;
there is no condition, nor has any event occurred, which constitutes or with
the giving of notice or passage of time or both would constitute a violation of
the terms of any Permit and no cancellation, modification or revocation of any
of the Permits is pending or threatened.

 

6

 

3.6                                 Property.

 

(a)                            Seller has good and marketable title or rights as lessee to all real,
personal, mixed, tangible and intangible property of any kind or nature owned
or used by Seller at the Restaurant Sites, constituting the Assets, in each
case free and clear of all Encumbrances, except for Encumbrances identified on Schedule
3.6(a) hereto on the date hereof. 
The Assets located at the Restaurant Sites (a) constitute all the
assets, of any nature whatsoever, necessary at the Restaurant Sites in order
for Seller to operate its business at the Restaurant Sites in the manner such
business is presently operated by Seller, and (b) include all of the
operating assets of Seller at the Restaurant Sites.  Upon the execution of this Agreement, Buyer
shall have the right to communicate with landlords (and other parties in the
leasehold chain) regarding the leaseholds related to the Restaurant Sites.

 

(b)                           Seller has a
valid leasehold interest to all of the Assumed Leases.  Each of the Assumed Leases is the subject of
a written lease agreement and there are no oral terms inconsistent with the
written terms thereof.  Except as set
forth on Schedule 3.6(b), to the Knowledge of the Seller, no work has
been performed on, or materials supplied to, any of the Assumed Leases within
the applicable statutory period which would give rise to any mechanic’s or
materialmen’s liens for any amount in excess of $1,000.

 

3.7                                 Condition of Property and Related Matters.

 

(a)                            All buildings, machinery, equipment and other tangible assets
constituting the Assets and used by Seller in the conduct of its business at
the Restaurant Sites, including but not limited to the Tangible Personal
Property, are in fair or good operating condition and repair, reasonable wear
and tear excepted, are usable in the ordinary course of business and are
adequate and suitable for the uses to which they are being put.  All such assets and property are located at
real property locations constituting the Restaurant Sites.

 

3.8                                 Material Contracts.  With respect to the business conducted at the
Restaurant Sites, Seller has not entered into nor is it bound by any contract,
agreement or commitment of an amount or value in excess of $50,000 in the
aggregate, written or oral, including without limitation any obligations for
money borrowed (the “Material Contracts”); true, correct and complete
copies of all written Material Contracts previously have been furnished to
Buyer.  Except as set forth on Schedule
3.8, to the Knowledge of the Seller, Seller is not in default, and no event
has occurred or circumstances exists that, with or without which, the giving of
notice or the passage of time or both, may contravene, conflict with, result in
a breach of or constitute a default by Seller, or any other party under any
Material Contract or any other obligation owed by Seller, and no event has
occurred which, with the giving of notice or the passage of time or both, would
constitute a default by any other party to any such Material Contract or
obligation.  The consummation of the
transactions contemplated by the Sale Documents will not result in a breach of
or constitute a default under, any Material Contract or the right of any other
party to the Material Contract to terminate the same and there are no
negotiations pending to revise the terms of any such Material Contracts.

 

3.9                                 Employee Matters.

 

(a)                            Seller is not a party to or bound by any collective bargaining
agreement and there are no labor unions or other organizations representing,
purporting to represent or, to the 

 

7

 

Knowledge of Seller, attempting to represent
any employees employed in the operation of the business conducted at the
Restaurant Sites.  Since February 11,
2005, there has not occurred or, to the Knowledge of Seller, been threatened
any material strike, slowdown, picketing, work stoppage, concerted refusal to
work overtime or other similar labor activity with respect to any employees
employed in the operation of the business conducted at the Restaurant
Sites.  There are no labor disputes
currently subject to any grievance procedure, arbitration or litigation and
there is no representation petition pending or, to the Knowledge of Seller, threatened
with respect to any employee employed in the operation of the business
conducted at the Restaurant Sites.  The
Seller has complied with all provisions of all Legal Requirements (as defined
in Article 10) pertaining to the employment of employees, including,
without limitation, all such Legal Requirements relating to labor relations,
equal employment, fair employment practices, entitlements, prohibited
discrimination or other similar employment practices, entitlements, prohibited
discrimination or other similar employment practices or acts, except for any
failure so to comply that, individually or together with all such other
failures, has not and will not result in a material Liability or obligation on
the part of the Buyer, and has not had or resulted in, and is not expected to
have or result in, a Material Adverse Effect (as defined in Article 10).

 

(b)                           Buyer shall have no Liability on account or with respect to any
benefits due Seller’s employees (including without limitation any Liability
arising in connection with or with respect to any of the following:
compensation, unemployment insurance contributions, termination payments,
severance payments, retirement, pension, profit-sharing, retirement plans,
bonus, vacation, disability, health, accrued sick leave or other employee
benefit plans, agreements or understandings). 
The terms and conditions (including the scope and amount of all
benefits) under which any employment will be offered to employees of Seller by
Buyer shall be determined by Buyer in its sole discretion.

 

3.10                           Books and Records.  All the books, records and accounts of Seller
relating to the Restaurant Sites, all of which have been made available to
Buyer, are in all material respects accurate and complete, accurately reflect
all matters normally recorded in the books, records or accounts of Seller in
accordance with Seller’s historical practices, are in all material respects in
compliance with all laws and regulations applicable to Seller as they relate to
the business conducted at the Restaurant Sites and accurately present and
reflect in all material respects the transactions described therein.

 

3.11                           Taxes.  Except as set forth on Schedule 3.11,
all Tax returns, reports and declarations required by any governmental
authority to be filed in connection with Seller’s ownership or lease of the
Assets or the operation of the business conducted at the Restaurant Sites have
been timely filed and, to the Knowledge of Seller, are complete and correct in
all material respects and all Taxes related thereto have been paid.

 

3.12                           Litigation.  Except as set forth in Schedule 3.12,
there is no claim, counter-claim, action, suit, order, proceeding or
investigation pending, in law or in equity, or, to the Knowledge of Seller,
threatened against or involving Seller, with respect to the business conducted
at the Restaurant Sites (or pending or, to the Knowledge of Seller, threatened
against any of the officers, directors or key employees of Seller with respect
to business activities (including any products sold) at the Restaurant Sites
conducted on behalf of Seller) with respect to or affecting Seller, its
accounts, business, properties, assets or rights, or relating to the
transactions contemplated hereby, 

 

8

 

before any court, agency, regulatory,
administrative or other governmental body or officer or before any arbitrator;
nor to the Knowledge of Seller, is there any reasonable basis for any such
claim, action, suit, proceeding or governmental, administrative or regulatory
investigation that would result in a Material Adverse Effect.  Seller is not directly subject to or affected
by any order, judgment, decree or ruling of any court or governmental agency
relating to affecting the Restaurant Sites. 
Seller has not received any written opinion or memorandum of legal
advice from legal counsel to the effect that it is exposed to any liability
which may be material to the business, prospects, results of operations,
financial condition or assets of Seller at the Restaurant Sites.

 

3.13                           Environmental and Safety Requirements.

 

(a)                            To the Knowledge of Seller, Seller is in material compliance with all
applicable Environmental and Safety Requirements (as defined below) at the
Restaurant Sites and Seller possesses all required permits, licenses and
certificates for the Restaurants, and has filed all notices or applications,
required thereby.   To the Knowledge of
Seller, Seller has not received any notice or other communication from any
party with respect to Seller’s failure to comply with Environmental and Safety
Requirements.  For purposes of this
Agreement, “Environmental and Safety Requirements” means all federal,
state, provincial, foreign and local laws, bylaws, rules, regulations,
ordinances, decrees, orders, statutes, actions, guidelines, standards,
arrangements, injunctions, policies and requirements relating to public health
and safety, worker health and safety, disabilities,
pollution and protection of the environment (including without
limitation the handling of any polluted, toxic or hazardous materials), all as
amended;

 

(b)                           To the Knowledge of the Seller, the properties at the Restaurant Sites
are not subject to any, nor are there any facts or circumstances which Seller
reasonably believes could form the basis for any, Liability, contingent or
otherwise arising out of any Environmental and Safety Requirements.  There are no pending or, to the Knowledge of
Seller, threatened claims or Encumbrances for Seller’s failure to comply with
any Environmental and Safety requirements. 
Seller does not have in its possession or under its control at the
Restaurant Sites any hazardous substances, except those hazardous substances as
are used in the ordinary course of the business of Seller and are used or
maintained in compliance with the Environmental and Safety Requirements;

 

(c)                            To the Knowledge of the Seller, during the period Seller has occupied
the Restaurant Sites, there has been no Release (as defined in Article 10)
or threat of Release, of any hazardous materials at or from the Restaurant
Sites or at any other locations where any hazardous materials were generated,
manufactured, refined, transferred, produced, imported, used, or processed from
or by the Restaurant Sites, or from any other properties and assets (whether real,
personal, or mixed) in which Seller has or had an interest or, to the Knowledge
of Seller, any geologically or hydrologically adjoining property, whether by
Seller or any other Person; and

 

(d)                           Seller has delivered to Buyer true and complete copies and results of
any reports, studies, analyses, tests, or monitoring possessed or initiated by
Seller pertaining to hazardous materials or hazardous activities in, or, or
under the Restaurant Sites, or concerning compliance by Seller or any other
Person for whose conduct it is or may be held responsible, with Environmental
and Safety Requirements.

 

9

 

3.14                           Store Inventory.  All of the Store Inventory is located at one
or more of the Restaurant Sites.

 

3.15                           No Undisclosed Liabilities.  Seller has not incurred any liabilities or
obligations of any nature, whether known or unknown, absolute, accrued,
contingent or otherwise and whether due or to become due, arising out of or
related to the business conducted at the Restaurant Sites, except (a) as
set forth in Schedule 3.15, (b) as and to the extent disclosed or
reserved against in the most recent balance sheet of Seller provided to Buyer,
and (c) for liabilities and obligations that were (i) incurred in the
ordinary course of business consistent with past practice and (ii) individually
or in the aggregate are not material to the business conducted at the
Restaurant Sites and have not had or resulted in, and would not reasonably be
expected to result in, a Material Adverse Effect.

 

3.16                           Disclosure.  No representation or warranty or other
statement made by Seller in this Agreement or in connection with the
transactions contemplated hereby omits to state a material fact necessary to
make any of them, in light of the circumstances in which it was made, not
misleading.

 

3.17                           Brokers, Finders, etc.  Other than Brookwood
Associates, retained by the Seller as its investment banker in connection with
the transactions set forth in this Agreement, all negotiations relating to this
Agreement and the transactions contemplated hereby, have been carried on
without the participation of any Person acting on behalf of Seller in such
manner as to give rise to any valid claim against the Buyer or any of its
subsidiaries for any brokerage or finder’s commission, fee or similar
compensation, or for any bonus payable to any officer, director, employee,
agent or sale representative of or consultant to Seller upon consummation of
the transactions contemplated hereby or thereby.  Buyer shall have no obligation to pay the
fees and expenses of Brookwood Associates.

 

3.18                           Notice of Sale.  Notice of this Agreement and Notice of the
Sale Order and the hearings therefore will be duly and properly given to all
known creditors and parties in interest in the Bankruptcy Case, including but
not limited to, any parties holding consensual or nonconsensual liens on the
Assets, the non-Seller parties to the Assigned Agreements being assumed
pursuant to this Agreement, the employees at the Restaurant Sites, and applicable
taxing and governmental authorities.

 

ARTICLE 4

 

REPRESENTATIONS AND
WARRANTIES OF BUYER

 

As an inducement to Seller to enter into and
perform its respective obligations under this Agreement, Buyer hereby
represents and warrants to Seller as follows:

 

4.1                                 Organization and Good Standing; Power.  Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of [Delaware]
and has full power and authority to conduct its business as it is now being
conducted and to own, operate or lease the properties and assets it currently
owns, operates or holds under lease.

 

10

 

4.2                                 Authorization.  Buyer has full power and authority to execute
and deliver this Agreement and any agreement, document, certificate or
instrument being delivered pursuant to or in connection with the transactions
contemplated by this Agreement, to perform its obligations hereunder and there
under and to consummate the transactions contemplated hereby and thereby.  The execution and delivery of this Agreement
and the other Sale Documents, and the performance by Buyer of its obligations
hereunder and there under, and the consummation of the transactions
contemplated hereunder and there under, have been duly authorized by
Buyer.  This Agreement and the other Sale
Documents upon execution and delivery by Buyer shall constitute the legal,
valid and binding obligations of Buyer, enforceable against Buyer in accordance
with their respective terms.

 

4.3                                 No Violation.  The execution, delivery and performance by Buyer of this Agreement and
the other Sale Documents and the consummation of the transactions contemplated
herein and therein do not and will not:

 

(a)                            conflict with, result in the breach, modification, termination or
violation of, or loss of any benefit under, constitute a default under,
accelerate the performance required by, result in or give rise to a right to
amend or modify the terms of, result in the creation of any Encumbrance upon
any assets or properties, or in any manner release any party thereto from any
obligation under, any mortgage, note, bond, indenture, contract, agreement,
lease, license or other instrument or obligation of any kind or nature by which
Buyer or any of its properties or assets may be bound or affected;

 

(b)                           conflict with, violate or result in any loss of benefit under, any
permit, concession, franchise, order, judgment, writ, injunction, regulation,
statute or decree; or

 

(c)                            conflict with or violate any provision of the articles of organization  or operating agreement, each as heretofore
amended, of Buyer.

 

4.4                                 No Consent Required.  Except as otherwise contemplated by this
Agreement, no consent, approval, order or authorization of, or declaration,
filing or registration with, any person, entity or governmental authority is
required to be made or obtained by Buyer in connection with the authorization,
execution, delivery or performance of this Agreement, the other Sale Documents
or the transactions contemplated hereby.

 

4.5                                 Financing Commitment.  Buyer has sufficient funds to pay the
Purchase Price or, alternatively, has secured a financing commitment from a
third party in an amount sufficient to pay the Purchase Price.

 

4.6                                 “AS IS”
Transaction.  BUYER
HEREBY ACKNOWLEDGES AND AGREES THAT, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ARTICLE 3
ABOVE, THE SELLER MAKES NO REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR
IMPLIED, WITH RESPECT TO ANY MATTER RELATING TO THE ASSETS.  BUYER FURTHER ACKNOWLEDGES THAT BUYER HAS
CONDUCTED AN INDEPENDENT INSPECTION AND INVESTIGATION OF THE PHYSICAL CONDITION
OF THE ASSETS AND ALL SUCH OTHER MATTERS RELATING TO OR AFFECTING THE ASSETS AS
BUYER DEEMED NECESSARY OR APPROPRIATE AND THAT, EXCEPT FOR ANY 

 

11

 

REPRESENTATIONS
AND WARRANTIES EXPRESSLY SET FORTH IN ARTICLE 3 AND THE CONDITION OF
TITLE TO THE ASSETS CONFERRED BY THE SALE ORDER, BUYER IS PROCEEDING WITH ITS
ACQUISITION OF THE ASSETS BASED SOLELY UPON SUCH INDEPENDENT INSPECTIONS AND
INVESTIGATIONS.  ACCORDINGLY, BUYER WILL
ACCEPT THE ASSETS AT THE CLOSING “AS IS,” “WHERE IS,” AND “WITH ALL FAULTS.”

 

ARTICLE 5

 

COVENANTS AND OTHER
TERMS

 

Except (i) to the extent it would not
reasonably be expected to result in a Material Adverse Effect, (ii) to the
extent the Bankruptcy Court determines otherwise, and (iii) to the extent
the Bankruptcy Code provides otherwise, Seller and Buyer covenant and agree as
follows:

 

5.1                                 Conduct of Business.  Seller agrees that from the
date of this Agreement through the earlier to occur of (x) the Closing
Date, and (y) the date on which this Agreement is terminated in accordance
with the provisions of Section 8.1 hereof, the Seller will:

 

(a)                            Conduct of
Business.  Use
commercially reasonable efforts to conduct the business at the Restaurant Sites
in the ordinary course and in substantially the same manner as such business
has previously been carried out, without limiting the foregoing, the Seller
will use commercially reasonable efforts to maintain adequate inventory levels
and adequate staffing levels, and the Seller will not engage in any
transactions not in the ordinary course.

 

(b)                           Representations
and Warranties; Conditions.  Use commercially reasonable efforts not to
engage in any practice, take any action, fail to take any action or enter into
any transaction that could reasonably be expected to (i) cause any of the
representations and warranties herein to be untrue, inaccurate or incorrect at
any time, or (ii) result in any of the conditions set forth in Section 6.1
not being satisfied on or prior to the Termination Date.

 

(c)                            Sale of Assets;
Liens.  Not (i) transfer, convey,
sell or encumber any of the Assets, except inventory sold in the ordinary
course of its business, or Encumbrances granted under the Seller’s post-petition
financing facility or otherwise authorized by the Bankruptcy Court, or (ii) dispose
of, or trade in, any of the Tangible Personal Property.

 

(d)                           Maintenance of
Relationships.  Subject to
Seller’s responsibilities as a debtor-in-possession under the Bankruptcy Code,
use commercially reasonable efforts to preserve its current relationships with
its customers, suppliers, vendors and other Persons with which it has
significant business relationships. 
Subject to Bankruptcy Court approval, continue to honor gift
certificates / coupons tendered by customers and take all commercially
reasonable steps to ensure that the Seller’s suppliers and vendors continue to
provide product and services to the Seller during the pendency of the
Bankruptcy Case and to the Buyer after Closing on ordinary trade and credit
terms.  The Seller shall notify Buyer in
writing within five (5) Business Days of the receipt of any written notice
or Knowledge of the Seller (without due inquiry) to the effect that any current
material vendor or supplier of the Seller or other party to any Assigned
Agreement could 

 

12

 

reasonably
be expected to terminate or materially alter its business relations with the
Seller, either as a result of the Bankruptcy Case, the transactions
contemplated herein or otherwise.

 

5.2                                 Non-Interference.  Seller shall not take any actions that impair
or interfere with the rights of Buyer hereunder.

 

5.3                                 Notices and Consents.  Seller shall be responsible
for obtaining  prior to the Closing all waivers,
permits, consents, approvals or other authorizations from third Persons and
Governmental Units, if any, and to effect all such registrations, filings with
and notices to third Persons and Governmental Units, including all local,
county, state and federal taxing authorities, as may be necessary in order to
permit the consummation of the transactions contemplated by this Agreement free
and clear of all Encumbrances.  Buyer
shall use reasonable efforts to assist Seller in obtaining such waivers,
permits, consents, approvals and authorizations and in making such
registrations and filings.

 

5.4                                 Solicitation of Employees.  Upon execution of this
Agreement by both Buyer and Seller, Buyer may discuss with any of Seller’s
employees at the Restaurants their employment by Buyer after the Closing.  Buyer may discuss employment with other
Seller employees only upon written request and approval.  Upon the Closing, Seller shall terminate all
of the employees employed by Seller at the Restaurants.   Buyer will have the right, but not the
obligation, to interview and hire any such employee of Seller, and Seller and
Buyer shall cooperate to effect an orderly transition of any present or former
employees of Seller to be hired by Buyer, in its sole discretion, upon or after
the Closing.

 

5.5                                 Reasonable Efforts.  Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use reasonable efforts to take,
or cause to be taken, all action, and to do, or cause to be done as promptly as
practicable, all things necessary to consummate the transactions contemplated
by this Agreement, including, without limitations, the prompt preparation and
filing by Seller of all necessary pleadings, motions and notices in connection
with the approval by the Bankruptcy Court of this Agreement.

 

ARTICLE 6

 

CONDITIONS PRECEDENT
TO THE CLOSING

 

6.1                                 Conditions Precedent to Obligations of Buyer.  The obligations of Buyer under this Agreement
to consummate the transactions contemplated hereby shall be subject to the
satisfaction, at or prior to the Closing, of all of the following conditions,
any one or more of which may be waived at the option of Buyer (provided,
however, that (1) the
parties acknowledge and agree that any representations and warranties of the
Seller contained in Article 3 of this Agreement and referenced in this Section 6.1
are qualified in their entirety by those qualifications set forth in clauses (i) through
(iv) of the introductory paragraph to such Article 3, and (2) any covenants of the Seller
contained in this Agreement and referenced in this Section 6.1 are
qualified in their entirety by those qualifications set forth in clauses
(i) through (iii) of the introductory paragraph to Article 5):

 

13

 

(a)         Representations and Warranties; Performance
of Agreements.  Subject to the
acknowledgments set forth in Section 4.6, (i) all of the
representations and warranties of the Seller set forth herein and any related
Sale Documents shall be true and correct in all material respects on and as of
the Closing Date with the same force and effect as though made on and as of the
Closing Date (or, if made as of a specified date, as of such date); (ii) the
Seller shall have performed and complied in all material respects with all of
their covenants and other obligations contained in this Agreement required to
be performed or complied with by Seller at or before the Closing; and (iii) the
Buyer shall have received a certificate on behalf of the Seller as to the
fulfillment of the conditions set forth in clauses (i) and (ii) above,
which certificate shall have the effect of a representation and warranty of the
Seller as to the matters set forth therein.

 

Required Consents.  The Buyer shall have received copies of all
of the consents, permits, and regulatory approvals necessary to consummate the
transactions contemplated by this Agreement.

 

(b)         Ancillary Agreements.  The Buyer shall have received the following
Sale Documents, each dated as of the Closing Date and in full force and effect
as of the Closing Date:

 

(i)            one or more Bills of Sale, duly executed by
the Seller, the forms of which shall be submitted by Buyer on or before such
date that is two (2) Business Days prior to the Sale Hearing (each, a “Bill
of Sale”);

 

(ii)           the License, duly executed by the Seller,
the form of which shall be identical to the license granted by Seller to Star
Buffet Management, Inc., pursuant to that certain Asset Purchase Agreement
dated as of December 2, 2007; and

 

(iii)          all other instruments of transfer, duly
executed by the Seller as shall be reasonably necessary or appropriate to vest
in the Buyer good and indefeasible title to the Assets and to permit the Buyer
to conduct the business at the Restaurant Sites without interruption.

 

(c)         No Legal Obstruction.
 Except as is otherwise contemplated
by the Bankruptcy Case, no suit, action or proceeding not disclosed in the
schedules to this Agreement by any Person, entity or governmental agency shall
be pending or threatened in writing, which if determined adverse to Seller, or
Buyer’s interests, could reasonably be expected to have a Material Adverse
Effect.  No injunction, restraining order
or order of any nature shall have been issued by or be pending before any court
of competent jurisdiction or any governmental agency challenging the validity
or legality of the transactions contemplated hereby or restraining or
prohibiting the consummation of such transactions or compelling Buyer to
dispose of or discontinue or materially restrict the operations of a
significant portion of Seller’s business conducted at the Restaurants. The
obligations of the buyer under this Agreement to consummate the transaction
contemplated hereby shall be subject to Buyers confirmation that the
restaurants identified in the Agreement have been continuously operated since January 22,
2008 and continue to be in operation at the time of closing.

 

(d)         Damage or Destruction.  From the date hereof until the Closing,
there shall have been no loss or destruction of any portion of the properties
or assets of Seller at the Restaurants, nor any institution or threat of any
condemnation or other proceedings to acquire or 

 

14

 

limit the use of any of the
properties or assets of Seller at the Restaurants, which (in any such case)
could reasonably be expected to result in a Material Adverse Effect.

 

(e)         Bankruptcy Court
Approval.  The Sale Order  shall have been entered and shall be in
form and substance reasonably satisfactory to Seller and Buyer, and shall have
become a Final Order (as defined in Article 10); provided, however,
that Buyer will use its reasonable efforts to consummate the transactions
contemplated hereby under circumstances where an appeal of the Sale Order  is pending, no stay has been obtained, and
Buyer reasonably believes that closing the transaction will moot any such appeal(s).  Any other orders of the Bankruptcy Court with
respect to this Agreement shall be in form and substance reasonably
satisfactory to Buyer.

 

6.2           Conditions Precedent
to Obligations of Seller. 
The obligations of Seller under this Agreement to consummate the
transactions contemplated hereby will be subject to the satisfaction, at or
prior to the Closing, of all the following conditions, any one or more of which
may be waived at the option of Seller:

 

(a)         No Breach of Covenants;
True and Correct Representations and Warranties.  There shall have been no material breach by
Buyer in the performance of any of the covenants herein to be performed by it in
whole or in part prior to the Closing, and the representations and warranties
of Buyer contained in this Agreement, if specifically qualified by materiality,
shall be true and correct in all respects as of the date hereof and as of the
Closing Date and, if not so qualified, shall be true and correct in all
material respects as of the date hereof and as of the Closing Date, except for
representations or warranties that are made by their terms as of a date
specified by month, day and year, which shall be true and correct or true and
correct in all material respects, as applicable, as of such specified
date.  Seller shall receive at the
Closing a certificate dated as of the Closing and executed on behalf of Buyer,
certifying in such detail as Seller may reasonably require, the fulfillment of
the foregoing conditions, and restating and reconfirming as of the Closing all
of the covenants, representations and warranties of Buyer contained in this
Agreement, specifying in detail the extent of any breaches thereof.

 

(b)         No Legal Obstruction.  Except as is otherwise contemplated by the
Bankruptcy Case, no suit, action or proceeding not disclosed in this Agreement
by any person, entity or governmental agency shall be pending or threatened in
writing, which could reasonably be expected to have a material adverse effect
upon (i) Buyer or (ii) the benefits to Seller of the transactions
contemplated hereby.  No injunction,
restraining order or order of any nature shall have been issued by or be
pending before any court of competent jurisdiction or any governmental agency
challenging the validity or legality of the transactions contemplated hereby or
restraining or prohibiting the consummation of such transactions or compelling
the disposition of or discontinue or materially restrict the operations of a
significant portion of Buyer.

 

(c)         Cure of Defaults.  Buyer shall have satisfied its obligations,
if any, under Section 1.6.

 

(d)         Sale Order.  The Sale Order  shall have been entered, shall be in form and substance
reasonably satisfactory to Buyer, and shall have each become a Final Order; provided,

 

15

 

however, that Buyer will use its reasonable
efforts to consummate the transactions contemplated hereby under circumstances
where an appeal of the Sale Order is pending, no stay has been obtained, and
Buyer reasonably believes that closing the transaction will moot any such
appeal(s).  Any other orders of the
Bankruptcy Court with respect to this Agreement shall be in form and substance
reasonably satisfactory to Buyer.

 

6.3           Waiver of Conditions.  Buyer may unilaterally waive any of the
conditions to closing set forth in Section 6.1 of this
Agreement.  Seller may unilaterally waive
any of the condition to closing set forth in Section 6.2 of this
Agreement.

 

ARTICLE 7

 

BANKRUPTCY
ACTIONS

 

7.1           Commencement of the Case.  Seller has filed a voluntary petition under
chapter 11 of the Bankruptcy Code.

 

7.2           Bankruptcy Court
Approvals.

 

The Seller has sought and obtained an order setting a hearing to
approve the sale of the Assets and the assumption of the Assumed Liabilities
(the “Sale Hearing”) for February 12, 2008 at 9 a.m.  At the Sale Hearing the Debtor shall seek an
order (the “Sale Order”) authorizing (A) Seller to sell the Assets to Buyer
pursuant to this Agreement and Sections 363 and 365 of the Bankruptcy Code,
free and clear of all interests in or to the Assets within the meaning of the
Bankruptcy Code Section 363(f), and otherwise free and clear of all other
liens, encumbrances, claims and liabilities, except for the Assumed
Liabilities, and (B) Buyer to assume the Assumed Liabilities and Seller to
be relieved of liability therefrom.   The
Seller shall use all reasonable efforts to cause the Bankruptcy Court to enter
the Sale Order as promptly as practicable, but in no event later than one (1) Business
Day after the commencement of the Sale Hearing.

 

(i)            The Sale Order shall provide, among other things, that:

 

(A)          The Sale Motion is granted and the sale of
the Assets (including the assumption and assignment of the Assigned
Agreements), in accordance with the terms and conditions of this Agreement, is
approved.  The sale of the Assets is
necessary, essential and appropriate under the circumstances of the Seller’s
bankruptcy estate, which (together with the Seller’s creditors) would suffer
immediate and irreparable harm if the Seller were not permitted to sell the
Assets (including assumption and assignment of the Assigned Agreements) at this
time.  The transactions contemplated by
this Agreement are permissible under Sections 363 and 365 of the Bankruptcy
Code, and do not amount to a sub rosa plan of reorganization.  The Seller has engaged in fair and reasonable
marketing, advertising and other sale efforts and procedures in connection with
the transactions, both before and after the Petition Date, and has complied
with the Bid Procedures Order.

 

(B)           The Sellers have obtained a fair and
reasonable price for the Assets.

 

16

 

(C)           Notice of the Sale Motion was appropriate
and adequate in the circumstances and complied in all respects with the
requirements of the Bankruptcy Code, the Federal Rules of Bankruptcy
Procedure, the Local Bankruptcy Rules for the Bankruptcy Court and the Bid
Procedures Order, and is approved.  No
further notice of, or hearing on the Sale Motion is required.  Adequate notice of and an opportunity to be
heard with respect to the Sale Motion has been given to all parties in
interest, including all Persons claiming any interest in or Lien on the Assets,
including landlords under any Assumed Leases, non-Seller parties to any
Assigned Agreements and governmental taxing authorities that may, as a result
of the transactions authorized hereby have claims, whether contingent, unliquidated,
unknown or otherwise.

 

(D)          The Assets (including the Assigned
Agreements) will be sold to the Purchaser free and clear of all Encumbrances,
and of any other interests in the Assets because, in each case as appropriate,
the requirements of Section 363(f) of the Bankruptcy Code have been
satisfied.  The sale free and clear and
the assumptions and assignments shall be self-executing and neither the Seller
nor the Buyer shall be required to execute or file releases, termination
statements, assignments, consents or other instruments in order to effectuate
the sale of the Assets free and clear, or to bind the non-Seller parties to the
assumption and assignment of the Assigned Agreements.  Any Encumbrances and other interests in the
Seller’s interest in the Assets shall attach to the proceeds from the sale in
the order of their priority, with the same validity, force and effect which
they now have against the Assets.

 

(E)           The Assigned Agreements to be assumed and
assigned under this Agreement and the Sale Order shall be in full force and
effect, with no oral or other modifications or waivers thereof, and all
payments due there under are current.  If
the Closing occurs, the Buyer shall pay the portion of the Cure Amounts, if
any, due under Section 1.6 of this Agreement.  If the Closing occurs, the Seller, not the
Buyer, shall be solely responsible for satisfying any other obligations that
accrue before the Effective Time under the Assigned Agreements, and the Buyer,
not the Sellers, shall be solely responsible for satisfying any obligations
accruing there under after the Effective Time.  
Subject to Section 7.5 herein, no consents are necessary for
the assumption and assignment of any of the Assigned Agreements, and the
assumption and assignment of each of the Assigned Agreements shall be effective
at the Closing notwithstanding any provisions therein or in applicable law that
restrict the assignability thereof.

 

(F)           This Agreement was proposed, negotiated and
entered into by the Sellers and the Purchaser without collusion, in good faith
and from arms’-length bargaining positions.

 

(G)           The terms and conditions of the transactions
set forth in this Agreement are approved, this Agreement and the other Sale
Documents (when executed) will constitute valid and binding agreements of the
Seller, enforceable against them in accordance with their terms, and the Seller
is authorized, empowered and directed to take all such action as may be
necessary or appropriate to consummate the transactions, all without further
order of the Bankruptcy Court.

 

(H)          The Bankruptcy Court shall retain
jurisdiction to implement and enforce the terms of this Agreement and the Sale
Order, including the terms on which the 

 

17

 

Assigned Agreements are assumed and assigned.  The Buyer has furnished adequate assurance of
future performance.

 

(I)            No bulk sales law or any similar law of any
state or other jurisdiction shall apply in any way to the transactions
authorized herein.

 

(J)            The Sale Order is a final, appealable
order, which shall be effective immediately upon entry, except to the extent
stayed by its terms.  The ten (10) day
stay of the Sale Order, as provided in Rule 6004(h) and 6006(d) or
any other Rule of the Federal Rules of Bankruptcy Procedure, shall
not apply.  Absent judicial imposition of
a stay of the Sale Order pending appeal, the Seller and the Buyer may
immediately consummate the Transactions approved hereby, notwithstanding
whether an appeal of the Sale Order is pending at any time.

 

7.3           [Intentionally Omitted].

 

7.4           [Intentionally
Omitted].

 

7.5           Adequate Assurance of
Future Performance; Cooperation. 
The Buyer shall be responsible for providing evidence and argument in
support of the Sale Motion in order to establish its ability to provide “adequate
assurance of future performance” (within the meaning of Section 365(f)(2)(B) of
the Bankruptcy Code) of each Assigned Agreement.  The Seller agrees to use commercially
reasonable efforts to cooperate with the Buyer in the presentation of such
evidence and argument. The Bankruptcy Court’s refusal to approve the assumption
by the Buyer of any Assigned Agreement on the grounds that “adequate assurance
of future performance” by the Buyer of such Assigned Agreement has not been
provided shall not constitute grounds for termination pursuant to Section 8.1
hereof.  In addition, the Buyer shall
reasonably cooperate with the Seller in the Seller’s efforts to obtain the
approval of the Sale Motion.

 

ARTICLE 8

TERMINATION
RIGHTS; CLOSING DELIVERIES

 

8.1           Termination of
Agreement.  The parties
may terminate this Agreement and the transactions contemplated hereby may be
abandoned at any time prior to the Closing:

 

(a)           by mutual written consent of each of
Seller and Buyer at any time prior to the Closing;

 

(b)           [Intentionally
Omitted];

 

(c)           by Seller, if (i) the Closing
shall not have occurred on or prior to the Termination Date (as defined in Section 2.3),
unless such failure to consummate the transactions herein is the result of a
material breach of any representation, warranty, covenant or other agreement
contained in the Sale Documents by the Seller, or (ii) upon written notice to Buyer at any time prior to the Closing, and
following written notice thereof and a cure period of five (5) business
days thereafter, if Buyer shall have breached any representation, warranty or
covenant contained in this Agreement in any material respect;

 

18

 

(d)           by Buyer, if (i) the Closing
shall not have occurred on or prior to the Termination Date, unless such failure to
consummate the transactions herein is the result of a material breach of any
representation, warranty, covenant or other agreement contained in the Sale
Documents by the Buyer, or (ii) upon
written notice to Seller at any time prior to the Closing, and following
written notice thereof and a cure period of five (5) business days
thereafter, if Seller shall have breached any representation, warranty or
covenant contained in this Agreement in any material respect (provided,
however, that (1) for purposes of this Section 8.1(d), any
representations and warranties of the Seller contained in Article 3
of this Agreement are qualified in their entirety by those qualifications set
forth in clauses (i) through (iv) of the introductory paragraph to
such Article 3, and (2) any covenants of the Seller
contained in this Agreement are qualified in their entirety by those
qualifications set forth in clauses (i) through (iii) of the
introductory paragraph to Article 5);

 

(e)           by either party, upon written notice
to the other and following a cure period of three (3) business days, if
the Closing has not occurred by 5:00 p.m. Central Time on the day that is
two (2) business days following the entry of the Sale Order; provided,
that (i) no stay of the Sale Order shall be in effect, (ii) the Sale
Order shall contain a waiver of the automatic ten (10) day stay under Rule 6004(h) of
the Federal Rules of Bankruptcy Procedure, and (iii) the terminating
party is not then in material breach of this Agreement; and

 

(f)            by either party, upon written notice
to the other, if the Sale Order shall not have been entered by the Bankruptcy
Court on or prior to 5 p.m. Central Time on February 13, 2008.

 

8.2           Procedure and Effect
of Termination.  In the event
that either Buyer or Seller terminates this Agreement pursuant to Section 8.1,
written notice thereof shall forthwith be given to the other parties to this
Agreement, specifying the particular provision of Section 8.1 upon
which such termination is based, and this Agreement shall terminate (subject to
the retention of the Deposit by Seller in the event of termination under Section 8.1(c))
and the transactions contemplated hereby shall be cancelled, without further
action by any of the parties hereto.  If
this Agreement is terminated as provided herein:

 

(a)         upon request therefor, each party shall redeliver (or, at
the option of the party holding such documents, destroy the same) all
documents, work papers and other material of any other party relating to the
transactions contemplated hereby, whether obtained before or after the
execution hereof, to the party furnishing the same; and

 

(b)         no party hereto shall have any liability or further
obligation to any other party to this Agreement resulting from such termination
except that the provisions of this Section 8.2 shall remain in full
force and effect.

 

ARTICLE 9

OTHER
AGREEMENTS

 

9.1           Cooperation.  Buyer and Seller will, at any time, and from
time to time, after the execution of this Agreement, execute and deliver such
further instruments of conveyance and transfer and take such additional action
as may be reasonably necessary to effect, consummate, 

 

19

 

confirm or evidence the
transactions contemplated by this Agreement and the other Sale Documents
(including the exercise of good faith in the Bankruptcy Case and related
proceedings).

 

9.2           Risk of Loss.  Seller assumes all risk of loss due to
fire or other casualty up to the Effective Time and Buyer shall assumes all
risk of loss subsequent to the Effective Time.

 

9.3           Apportionment.  Any unpaid rents, taxes, assessments, common
area maintenance charges, expenses and other charges (“Unpaid  Charges”)
for which Seller is directly or indirectly responsible and which relate to the
Restaurant Sites for periods both before and after the Effective Time shall be
prorated between Seller and Buyer on a daily basis, with Seller responsible for
payment of all such Unpaid Charges allocable to the time period up to and including
the Effective Time and with Buyer responsible for payment of all such Unpaid
Charges allocable to the time period thereafter.  Seller and Buyer agree that all such Unpaid
Charges (except to the extent reasonably disputed) shall be paid in full by
either Seller or Buyer, as the case may be, within sufficient time to prevent
any taxing agency or other creditor from making any claim.  If Seller or Buyer pays any Unpaid Charges in
full in accordance with the preceding sentence, the other shall promptly reimburse
its pro rata portion to the paying party upon receipt of written notice of the
fact and amount of such payment (subject, in Seller’s case, to the approval of
the Bankruptcy Court).  Buyer agrees to
reimburse Seller for any Prepaid Charges, including prepayments of rents,
security deposits (but only to the extent of the aggregate amount of security
deposits with respect to which the estoppel certificates for the lease to which
the security deposit relates states that no claim then exists against such deposits),
taxes, expenses and other charges made by Seller to the extent and in the
proportion that such Prepaid Charges are retained for the benefit of Buyer or
relate to periods after the Effective Time.

 

ARTICLE 10

 

DEFINITIONS

 

For purposes of this Agreement,
the following terms have the meaning set forth below:

 

“Affiliate” has the
meaning ascribed to that term in Rule 405 of the Securities Act of 1933,
as amended.

 

“Encumbrance” means,
with regard to any asset, a mortgage, deed of trust, pledge, lien, collateral
agreement, security interest, claim (including, without limitation, as that
term is defined in Section 101(5) of the Bankruptcy Code), security
arrangement, liability, encumbrance, accrued but unpaid taxes, tax liens or any
other interest of any nature whatsoever in respect of such asset to the fullest
extent any such interest can be eliminated under Section 363(f) of
the Bankruptcy Code; provided, however, that the term Encumbrance shall not
include the rights pursuant to Section 365(n) of the Bankruptcy Code
of any licensee under a license of “intellectual property” (as such term is
defined in Section 101(35A) of the Bankruptcy Code) or fee interests in
real property such as easements or rights of way.

 

“Final Order” means an
order or judgment of the Bankruptcy Court which has not been reversed, stayed,
modified or amended and is no longer subject to appeal, certiorari proceeding
or other proceeding for review or rehearing (giving effect to any reduction or 

 

20

 

elimination of the appeal period pursuant to
an order of the Bankruptcy Court), and as to which no appeal, certiorari
proceeding, other proceeding for review or rehearing shall then be pending.

 

“Governmental Unit”
means the United States of America; any state; commonwealth; district;
territory; municipality or foreign state; and any department, agency or
instrumentality (including but not limited to any regulatory or administrative
authority or agency, court or arbitrational tribunal thereof) of the United
States of America (but not a United States Trustee while serving as a trustee
in a case under the Bankruptcy Code), or any state, commonwealth, district,
territory, municipality or foreign state; or other foreign or domestic
government.

 

“Knowledge”
means the actual knowledge by Craig Barber or Bob Langford in their capacity as
officers and directors of Seller.

 

“Legal Requirement” means any federal, state, local, municipal,
foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute, or
treaty.

 

“Liability” means, with respect to any Person, any Liability or
obligation of such Person of any kind, character or description, whether known
or unknown, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, secured or unsecured, joint or several, due or to become due,
vested or unvested, executory, determined, determinable or otherwise and
whether or not the same is required to be accrued on the financial statements
of such Person.

 

“Material Adverse Effect”
means an event, change or occurrence which, individually or together with any
other event, change, or occurrence, has a material adverse impact on (i) the
business conducted by Seller at the Restaurant Sites (taken as a whole), (ii) the
ability of Seller to perform its obligations under this Agreement or to
consummate the transactions contemplated by this Agreement, or (iii) the
Assets taken as a whole.

 

“Person” means any
shareholder, individual, corporation, partnership, firm, joint venture,
association, joint-stock seller, trust, unincorporated organization, regulatory
body or other entity.

 

 “Release” means any release, spill,
emission, leaking, plumbing, pouring, dumping, emptying, injection, deposit,
disposal, discharge, dispersal, leaching, or migration on or into the
environment or into or out of any property.

 

 “Taxes”  means 
(whether or not disputed) taxes of any kind, levies or other like
assessments, customs, duties, imposts, charges or fees, including, without
limitation, income taxes, gross receipts, ad valorem, value added, excise, real
property, personal property, occupancy, asset, sales, use, license, payroll,
transaction, capital, capital stock, net worth, estimated, withholding,
employment, social security, unemployment, unemployment compensation, workers’
compensation, disability, utility, severance, production, environmental,
energy, business, occupation, mercantile, franchise, premium, profits, windfall
profits, documentary, stamp, registration, transfer and gains taxes, toll
charges (for example, toll charges under Sections 367 and 1492 of the
Bankruptcy Code), or other taxes of any kind whatsoever, imposed by or payable 

 

21

 

to the United States, or any state, country, local or foreign
government or subdivision, instrumentality, authority or agency thereof or
under any treaty, convention or compact between or among any of them, and in
each instance such term shall include any interest (including interest on
deferred tax liability under Section 453A(c) of the Bankruptcy Code
and “look-back” interest under Section 460 of the Bankruptcy Code and
similar amounts of interest imposed by the Bankruptcy Code), penalties,
additions to tax or similar charges imposed in lieu of a Tax or attributable to
any Tax, other than taxes imposed on or payable by Seller that are, or that are
in the nature of taxes that are, based upon, measured by or imposed with
respect to capital, net worth, net receipts or net income (including
without limitation minimum taxes, tax preference items, alternative minimum
taxes, capital gains taxes, excise taxes, personal holding company taxes and
excess profits taxes).

 

ARTICLE 11

MISCELLANEOUS

 

11.1         Notices,
Consents, etc.  Any notices, consents or other
communication required to be sent or given hereunder by any of the parties
shall in every case be in writing and shall be deemed properly served if (a) delivered
personally, (b) delivered by registered or certified mail, in all such
cases with first class postage prepaid, return receipt requested, (c) delivered
by courier, at the addresses as set forth below or at such other addresses as
may be furnished in writing, or (d) delivered by facsimile transmission
with confirmation of successful transmission, at the numbers as set forth below
or at such other numbers as may be furnished in writing.   Any
notice required herein shall be in writing (to the individuals listed in Section 11.1,
unless specified otherwise pursuant to Section 11.1) unless
specifically permitted to be given orally. 
All such notices and communications shall be deemed received upon
the actual delivery thereof in accordance with the foregoing.

 

(a)         If to Seller:

 

Barnhill’s Buffet, Inc.

1210 Briarville Road

Madison, TN 
37115

Attn: 
W. Craig Barber, President

Facsimile: 
(615) 277-1220

 

With a copy to Seller’s
counsel:

 

The Hancock Law Firm

102 Woodmont Boulevard, Suite 200

Nashville, TN 37205

Attn:  Caldwell Hancock, Esq.

Facsimile: (615) 345-0203

 

(b)         If to Buyer:

 

22

 

Starlite
Holdings, Inc.

1312 N. Scottsdale Road

Scottsdale, AZ 85257

Attn:  Robert E. Wheaton, Chief Executive Officer

Facsimile: 
(480) 425-0494

 

With a copy
to:

 

Kirkpatrick Stockton LLP

Suite 400

3737 Glenwood Avenue

Raleigh, NC  27612

Attn:  B. Ford Robertson, Esq.

Facsimile: 
(919) 510-6110

 

11.2         Severability.
 The unenforceability or invalidity
of any provision of this Agreement shall not affect the enforceability or
validity of any other provision that shall remain in full force and effect and
be enforceable to the fullest extent permitted by law.

 

11.3         Amendment and Waiver.  This Agreement may not be
amended, modified or waived except by an instrument in writing signed on behalf
of each of the parties hereto.

 

11.4         Actions Necessary to
Complete Transaction.  Each party will execute all documents and take
such other actions as any other party may reasonably request in order to
consummate the transactions provided for herein and to accomplish the purposes
of this Agreement, provided that Seller’s obligations hereunder shall be
subject to any limitations imposed by the Bankruptcy Court or in connection
with the Bankruptcy Case.

 

11.5         Counterparts.  For the convenience of the parties, any number
of counterparts of this Agreement may be executed by the parties hereto.  Each such counterpart shall be, and shall be
deemed to be, an original instrument, but all such counterparts taken together
shall constitute one and the same agreement. 
Delivery of an executed counterpart of this Agreement by facsimile shall
be equally as effective as delivery of the original executed counterpart of
this Agreement.

 

11.6         Expenses.  Except as otherwise provided herein, each
party to this Agreement agrees to pay its own reasonable costs and expenses
incurred or to be incurred in negotiating and preparing this Agreement and in
closing and carrying out the transactions contemplated by this Agreement and
the other Sale Documents.  Each party will
be responsible for their respective Taxes, directly or indirectly attributable
to the transactions contemplated by the Agreement.

 

11.7         Governing Law.  This Agreement shall be construed and
enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Agreement shall be governed
by, the laws of the State of Tennessee, without giving effect to provisions
thereof regarding conflicts of law.  Each
party and each Person claiming hereunder hereby designates the Bankruptcy Court
as the only court of proper jurisdiction and venue for any actions or
proceedings relating to this Agreement, hereby irrevocably consents to such 

 

23

 

designation, jurisdiction and
venue; and hereby waives any objections or defenses relating to jurisdiction or
venue with respect to any action or proceeding initiated in the Bankruptcy
Court; and hereby consents to service of process under the statutes and rules applicable
to the Bankruptcy Court.

 

11.8         Headings. 
The subject headings of Articles and Sections of this Agreement are
included for purposes of convenience only and shall not affect the construction
or interpretation of any of its provisions.

 

11.9         Incorporation
of Schedules and Exhibits. 
The Schedules and Exhibits hereto are incorporated into this Agreement
and will be deemed a part hereof as if set forth herein in full.  References to “this Agreement” and the words “herein”,
“hereof” and words of similar import refer to this Agreement (including the
Schedules and Exhibits) as an entirety. 
In the event of any conflict between the provisions of this Agreement
and any Schedule or Exhibit, the provisions of this Agreement will control.  Capitalized terms used in the Schedules have
the meanings assigned to them in this Agreement.  The Section references referred to in
the Schedules are to Sections of this Agreement, unless otherwise expressly
indicated.

 

11.10       Assignment.
 This Agreement will be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns. Neither this Agreement nor any of the rights, interests or
obligations hereunder may be assigned or delegated by Buyer or Seller in any
manner whatsoever, whether directly or by operation of law or otherwise,
without the prior written consent of the other party.  Any assignment or attempted assignment of all
or any portion of this Agreement which is not expressly permitted hereby shall
be null and void and of no force or effect.

 

11.11       Entire
Agreement.  This
Agreement, the other Sale Documents, and the documents, schedules and exhibits
described herein or attached or delivered pursuant hereto collectively
constitute the sole and only agreement among the parties with respect to the
subject matter hereof.  Any agreements,
representations or documentation respecting the transactions contemplated by
this Agreement, and any correspondence, discussions or course of dealing which
are not expressly set forth in this Agreement, the other Sale Documents, or the
documents, schedules and exhibits described herein or attached or delivered
pursuant hereto or are null and void, it being understood that no party has
relied on any representation not set forth in this Agreement, the other Sale
Documents or the documents, schedules and exhibits described herein or attached
or delivered pursuant hereto.

 

11.12       Third
Parties.  Nothing herein
express or implied is intended or shall be construed to confer upon or give to
any Person or entity, other than the parties to this Agreement and their
respective permitted successors and assigns, any rights or remedies under or by
reason of this Agreement.

 

11.13       Interpretative
Matters.  Unless the
context otherwise requires, (a) all references to Articles, Sections,
schedules or exhibits are to Articles, Sections, schedules or exhibits in this
Agreement, and (b) words in the singular or plural include the singular
and plural, pronouns stated in either the masculine, the feminine or neuter
gender shall include the masculine, feminine and neuter, and (c) the term “including”
shall mean by way of example and not by way of limitation.

 

24

 

11.14       No
Strict Construction.  The
language used in this Agreement will be deemed to be the language chosen by the
parties hereto to express their mutual intent, and no rule of strict
construction will be applied against any party hereto.

 

11.15       Time
of Essence.  Time is of the essence with respect to this
Agreement.

 

11.16       Survival
of Representations and Warranties.  All representations and warranties of the
parties set forth herein shall not survive the Closing and shall not be of any
force or effect thereafter.  Without
limiting the foregoing, the parties agree and acknowledge that (a) any
representations and warranties of the Seller contained in Article 3 of
this Agreement and referenced in this Section 11.16 are qualified in their
entirety by those qualifications set forth in clauses (i) through (iv) of
the introductory paragraph to such Article 3, and (b) Seller’s
liability with respect to representations and warranties made by Seller
hereunder are subject to the limitations set forth herein and in Section 8.1.

 

25

 

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

 

 

	
   

  	
  BARNHILL’S BUFFET,
  INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ W. Craig Barber

  
	
   

  	
  Name:

  	
  W. Craig Barber

  
	
   

  	
  Its:

  	
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  STARLITE HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ron Dowdy

  
	
   

  	
  Name:

  	
  Ron Dowdy

  
	
   

  	
  Its:

  	
  Secretary

  
						

 

26

 

SCHEDULES
TO ASSET PURCHASE AGREEMENT

 

The following
schedules (each a “Schedule” and together the “Schedules”) to the
Asset Purchase Agreement (the “Agreement”), dated as of the 29th
day of January , 2008, by and among Starlite Holdings, Inc., a
Delaware corporation (the “Buyer”), and Barnhill’s Buffet, Inc., a
Tennessee corporation (the “Seller”), are incorporated by reference in
and made a part of the Agreement. 
Capitalized terms used but not defined in the Schedules have the
meanings ascribed thereto in the Agreement.

 

Each disclosure in a particular
Schedule is made specifically, and a disclosure made in any particular Schedule
or section thereof shall not be deemed to have been disclosed in any other
section of such Schedule or in any other Schedule.

 

27

 

EXHIBIT A

 

Restaurant Locations

 

1. Apopka, FL

2. Orange City, FL

3. Gulfport, MS

4. Moss Point, MS

 

28

 

EXHIBIT B

 

Tangible Personal
Property

 

 

EXHIBIT C

 

Personal Property
Leases; Executory Contract; Additional Contracts

 

 

FIRST
AMENDMENT TO ASSET PURCHASE AGREEMENT

 

This First Amendment to the
ASSET PURCHASE AGREEMENT (this “Agreement”), dated as of February 5,
2008, is by and among BARNHILL’S BUFFET, INC., a Tennessee corporation (the “Seller or the Company”)
and STARLITE HOLDINGS, INC., a wholly owned subsidiary of Star Buffet, Inc.,
a Delaware corporation, (together with any successor and assigns, the “Buyer”).

 

RECITALS

 

WHEREAS, the Company
and the Buyer entered into the Agreement, such agreement being subject to terms
and conditions set forth therein; and

 

WHEREAS, the Company
and the Buyer desire to make modifications to certain terms within the
Agreement;

 

NOW,
THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, it is agreed as follows:

 

1.                                       Section 2.2
of the Agreement is hereby deleted in its entirety and replaced with the
following:

 

“Purchase Price.  The purchase price for the sale of the Assets
shall be $1,075,000.00 in cash (the “Purchase Price”).”

 

2.                                       Section 2.3
of the Agreement is hereby deleted in its entirety and replaced with the
following:

 

“Closing.  The “Closing” of the transactions
contemplated herein, including payment of the Purchase Price, shall take place
at the offices of the Company or such other location in Nashville, TN as may be
agreed upon, no later March 31, 2008 (the “Target Date”) (or such
earlier date as Buyer and Seller may mutually agree, the “Closing Date”);
provided, that no stay of the Sale Order shall be in effect and provided, further,
that the Sale Order shall contain a waiver of the automatic ten (10) day
stay under Rule 6004(h) of the Federal Rules of Bankruptcy
Procedure; provided, further, however,
that in no event unless otherwise agreed in writing shall the Closing take place
on a date which is after March 31, 2008 (the “Termination Date”).  At the Closing, Buyer shall
pay the Purchase Price to Seller by wire transfer of immediately available
funds to one or more bank accounts of Seller, or as directed by Seller in
accordance with the terms of the Sale Order approved by the Bankruptcy Court.”

 

 

3.                                       Section 7.4 of the Agreement that is shown [Intentionally Omitted]
shall be replaced with the following

 

Payment of Termination Fee.

 

(a)                                  Subject to approval of the Bankruptcy Court, if a Qualified Bid
submitted in accordance with the Bid Procedures Order is approved by Order of
the Bankruptcy Court and Buyer is not in breach under this Agreement, the Buyer
shall be paid a termination fee of Seventy-five Thousand Dollars ($75,000) (the
“Buyer Termination Fee”). 
Similarly, Buyer shall pay Seller a termination fee equal to the amount
of the Deposit (the “Seller Termination Fee”) in the event Seller has
satisfied its conditions to closing under the Agreement (or is prevented from
doing so by Buyer’s actions) and Buyer fails to close the transactions
contemplated by this Agreement.  Payment
of the Seller Termination Fee to Seller by Buyer shall constitute liquidated
and agreed damages in respect of this Agreement and the transactions contemplated
by this Agreement, and Buyer shall have no further liability to Seller.  Seller believes that it is impossible to
determine accurately the amount of all damages that Seller would incur by
virtue of a breach by Buyer of its obligations to proceed with the transactions
contemplated by this Agreement, and its sole and exclusive remedy for any such
breach shall be to receive payment of the Seller Termination Fee.  Buyer’s obligation to pay the Seller
Termination Fee to Seller shall be discharged upon the release to Seller from
the escrow described in Section 2.8 of the full amount of the
Deposit.  If this Agreement is terminated
for any reason that does not result in the payment of the Seller Termination
Fee, the Deposit shall be released from escrow and refunded to Buyer not later
than five (5) business days following such termination.

 

(b)                                 Payment of the Buyer Termination Fee to Buyer shall (i) be full
consideration for the Buyer’s efforts and expenses in connection with the
bidding process, this Agreement and the transactions contemplated hereby,
including the due diligence efforts of the Buyer and its professionals and
advisors and (ii) constitute liquidated and agreed damages in respect of
this Agreement and the transactions contemplated by this Agreement, and Seller
shall have no further liability to Buyer. 
Buyer believes that it is impossible to determine accurately the amount
of all damages that Buyer would incur by virtue of a breach by Seller of its obligations
to proceed with the transactions contemplated by this Agreement, and its sole
and exclusive remedy for any such breach shall be to receive payment of the
Buyer Termination Fee.  Except as
provided in this Section 7.4, Buyer shall have no right nor remedy
against Seller, at law or in equity, by reason of a breach by Seller of its
obligation to proceed with the transactions contemplated by this Agreement.

 

(c)                                  The Buyer Termination Fee shall be afforded administrative expense
priority status pursuant to Section 503(b)(1)(A) of the Bankruptcy
Code and shall be paid upon the earlier of (i) the closing of the
transactions contemplated by an accepted Qualified Bid and (ii) entry of
any Order of the Bankruptcy Court directing payment by Seller of such amounts.

 

(d)                                 Notwithstanding anything contained in this Agreement to the contrary,
no Buyer Termination Fee or Seller Termination Fee shall be payable to any
party to this Agreement if such party is in material breach of any provision of
this Agreement.

 

 

4.                                       Capitalized
terms used in this Amendment which are not defined in this Amendment shall have
the meaning assigned to such term or terms in the Agreement.

 

5.                                       No other term
or terms of the Agreement are changed, altered, modified or amended, except as
specifically set forth in this Amendment. 
The Agreement, as amended and modified by this Amendment, is hereby
ratified and remains in full force and effect.

 

IN WITNESS WHEREOF, the parties have executed
this Agreement as of February 14, 2008.

 

 

	
   

  	
  BARNHILL’S BUFFET, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  W. Craig Barber

  
	
   

  	
  Name:
   W. Craig Barber

  
	
   

  	
  Its:
   President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  STARLITE HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Ron Dowdy

  
	
   

  	
  Name:

  	
  Ron Dowdy

  
	
   

  	
  Its:

  	
  Secretary

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