Document:

Exhibit
10.1

FISCHER IMAGING

June 29, 2005

Re:          Retention and Severance Benefits

Dear Paula:

This
letter agreement (this “Agreement”)
sets forth certain benefits payable if you remain in the employ of Fischer
Imaging Corporation (the “Company”)
from and after July 1, 2005 (the “Effective Date”) and in the event of an
Involuntary Termination (as defined below) occurring after the date of this
Agreement and prior to December 31, 2006.

If
you remain employed by the Company on the date six (6) months after the Effective
Date, you will be paid a retention bonus equal to six (6) months of your base
salary as in effect on such date, payable within ten (10) days in a lump sum on
such date (the “First Payment Date”); provided however, that in the event of
your Involuntary Termination prior to such First Payment Date, as the case may
be, you shall receive a portion of the applicable retention bonus pro rated for
each full month of service completed prior to the date of Involuntary
Termination, payable in a lump sum on such date.

In
addition, in the event of your Involuntary Termination prior to December 31,
2006, you will be entitled to (a) six (6) months of your base salary as in
effect as of the date of such termination payable either in a lump within ten
(10) days or monthly, at the discretion of the Company and (b) all of your
accrued and unpaid vacation through the date of termination, payable within ten
(10) days of the date of termination. In addition, you will be entitled to
continued participation, at the Company’s cost, in each of the Company’s
benefit plans to the extent participation is permitted for former employees or
in the case of health insurance and to the extent not so permitted, to
reimbursement of your monthly premium payable under COBRA for a period of
12 months.

For
purposes of this letter, “Involuntary
Termination” shall be defined as:

(i)            the
termination of your employment by the Company for reasons other than Cause; or

(ii)           your
voluntary resignation following (a) the assignment to you of any duties
substantially inconsistent with your current status as an executive of the
Company or a substantial adverse alteration in the nature or status of your
responsibilities from those in effect as of the date of this Agreement;
(b) a reduction by the Company in your annual base salary as in effect on
the date hereof or as the same may be increased from time to time, except for
across-the board salary reductions similarly affecting all senior executives of
the Company and all senior executives or any person in control of the Company;
(c) the failure by the Company, without your consent, to pay to you any
portion of your current compensation, within five (5) days of the date such
compensation is due, or (d) a material reduction by the Company in the kind
or level of employee

 

 

benefits to which you are
entitled with the result that your overall benefits package is significantly
reduced, unless such reduction is made in connection with a reduction in the
kind or level of employee benefits of employees of the Company generally.

Termination
by the Company of your employment for “Cause”
shall mean termination for (A) the commission of a felony or a crime
involving moral turpitude or the commission of any other act involving
dishonesty, disloyalty, or fraud with respect to the Company, (B) conduct
tending to bring the Company into substantial public disgrace or disrepute,
(C) substantial and repeated failure to perform duties as reasonably
directed by the Board of Directors of the Company, (D) gross negligence or
willful misconduct with respect to the Company or any of its affiliated
entities, or (E) breach of confidentiality and/or communication of the
terms of this Agreement, the facts of circumstances giving rise to this
Agreement, or the fact that such an Agreement exists, to any third party
except, as necessary, his/her supervisor or manager, immediate family,
accountants, legal or financial advisors or otherwise appropriate or necessary
as required by law or court order or (F) any other material breach of any
other agreement between you and the Company which is not cured within
15 days after written notice thereof to you.

In
all other situations other than Involuntary Termination (i.e., you terminate
employment or the Company terminates your employment for Cause), you will not
be entitled to the above referenced severance pay.

It
is the Company’s intent that payments or benefits payable under this Agreement
not be subject to the additional tax imposed pursuant to Section 409A of
the Internal Revenue Code of 1986, as amended. To the extent such potential
payments or benefits could become subject to this provision, this Agreement may
need to be amended, with your cooperation, to ensure that you receive the
economic benefits described above in a manner that does not result in such tax
being imposed. In addition, if additional guidance changes the application of
Section 409A to potential payments under this Agreement, the Company will
modify this Agreement to the extent allowable without incurring
Section 409A liability to provide that severance payments described above
will be made in equal monthly installments or, if not allowed, to make such
payments as soon after the Involuntary Termination as is allowed.

This
letter supplements the policies and procedures of the Company, and supersedes
any and all prior agreements or arrangements in respect of severance.

	
  

  	
   

  	
  Sincerely,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ David Kirwan

  
	
   

  	
   

  	
  David Kirwan/CFO

  

 

ACCEPTED AND AGREED as of
the date first written above:

	
  /s/ Paula Rosson

  	
   

  	
   

  
	
  Paula Rosson

  	
   

  	
   

  

 

 

Re:          Retention
Agreement Amendment

Dear Paula:

This amendment (this “Amendment”) amends that certain Retention
Agreement, dated June 29, 2005 (the “Agreement”),
between you and Fischer Imaging Corporation (the “Company”).  You have
claimed that there has been an Involuntarily Termination event which entitles
you to certain severance pay under the Agreement.  The Company recognizes your claim and desires
you to remain in its employ until at least October 31, 2006.

We therefore both agree
to amend the Agreement, effective as of July 1, 2006, as follows:

1.               In addition to the
retention and severance benefits provided under the Agreement, you are hereby
granted a stay bonus of $10,000 (the “Stay Bonus”), which resulted in a check
of $6,320.00 (the “Net Stay Bonus”).  The
Stay Bonus is given to you to encourage you to stay as an employee of the
Company until October 31, 2006 (the “Stay Date”).

2.               In the event that
you voluntarily terminate your employment with the Company prior to the Stay
Date, you shall promptly return a pro rata portion of the Net Stay Bonus for
the remaining time period.  For example
if you voluntarily terminate on September 15, 2006, you shall give back
$2,370.00 [(1.5 months ÷ 4 months) x $6,320.00].

3.               Any amount owed the
Company due to your voluntary termination from the Company may be set off
against any severance payments the Company may owe you under the Agreement.

4.               The definition of
the term “Involuntary Termination” in the Agreement shall be amended to
delete clause (a).  The definition of the
term “Involuntary Termination” in the Agreement shall be amended to
add clause (e), “filing of Chapter 7 of the Bankruptcy Code”.

5.               In addition, any
references to December 31, 2006 are changed to January 31, 2007.

6.               In the event of an
Involuntary Termination, as amended, you shall not owe any amounts to the
Company with respect to the Stay Bonus.

7.               The Agreement is
effective as restated and amended.

8.               You hereby waive
and release any and all claims you may have against the Company with respect to
the Agreement that may have arisen prior to the date hereof.

Approved by: /s/
Steven L. Durnil, President and CEO 
Date July 18, 2006

        Accepted
and agreed: Paula Rosson  Date July
18, 2006Exhibit 10.1

EXECUTION COPY

CONFIDENTIAL

 

AGREEMENT AND PLAN OF MERGER

by and among

REAL MEX RESTAURANTS, INC.

RM RESTAURANT HOLDING CORP.

and

RM INTEGRATED, INC.

Dated
August 17, 2006

 

 

TABLE OF
CONTENTS

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 1 -

  	
   

  	
  CERTAIN
  DEFINITIONS

  	
   

  	
  1

  
	
  1.1.

  	
   

  	
  Certain Definitions

  	
   

  	
  1

  
	
  1.2.

  	
   

  	
  Interpretation

  	
   

  	
  14

  
	
  ARTICLE 2 -

  	
   

  	
  THE
  MERGER

  	
   

  	
  15

  
	
  2.1.

  	
   

  	
  The Merger; Effects of the Merger

  	
   

  	
  15

  
	
  2.2.

  	
   

  	
  Closing

  	
   

  	
  15

  
	
  2.3.

  	
   

  	
  Certificate of Merger

  	
   

  	
  15

  
	
  2.4.

  	
   

  	
  Certificate of Incorporation

  	
   

  	
  15

  
	
  2.5.

  	
   

  	
  Bylaws

  	
   

  	
  15

  
	
  2.6.

  	
   

  	
  Officers

  	
   

  	
  16

  
	
  2.7.

  	
   

  	
  Directors

  	
   

  	
  16

  
	
  2.8.

  	
   

  	
  Conversion of Company Stock

  	
   

  	
  16

  
	
  2.9.

  	
   

  	
  Treatment of Options and Warrants

  	
   

  	
  17

  
	
  2.10.

  	
   

  	
  Purchase Price, Calculation and Payment of Estimated
  Purchase Price

  	
   

  	
  18

  
	
  2.11.

  	
   

  	
  Exchange of Certificates

  	
   

  	
  22

  
	
  2.12.

  	
   

  	
  Dissenting Shares

  	
   

  	
  24

  
	
  ARTICLE 3 -

  	
   

  	
  REPRESENTATIONS
  AND WARRANTIES OF THE COMPANY

  	
   

  	
  25

  
	
  3.1.

  	
   

  	
  Organization and Qualification

  	
   

  	
  25

  
	
  3.2.

  	
   

  	
  Authorization

  	
   

  	
  25

  
	
  3.3.

  	
   

  	
  Non-contravention

  	
   

  	
  25

  
	
  3.4.

  	
   

  	
  Governmental Consents

  	
   

  	
  25

  
	
  3.5.

  	
   

  	
  Capitalization; Subsidiaries

  	
   

  	
  26

  
	
  3.6.

  	
   

  	
  Financial Statements; Real Mex SEC Reports

  	
   

  	
  27

  
	
  3.7.

  	
   

  	
  Absence of Certain Developments

  	
   

  	
  27

  
	
  3.8.

  	
   

  	
  Compliance with Laws; Governmental Authorizations;
  Licenses; Etc

  	
   

  	
  28

  
	
  3.9.

  	
   

  	
  Litigation

  	
   

  	
  29

  
	
  3.10.

  	
   

  	
  Taxes

  	
   

  	
  29

  
	
  3.11.

  	
   

  	
  Environmental Matters

  	
   

  	
  30

  
	
  3.12.

  	
   

  	
  Employee Matters

  	
   

  	
  30

  
	
  3.13.

  	
   

  	
  Employee Benefit Plans

  	
   

  	
  31

  

 

 i
 

 

 

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.14.

  	
   

  	
  Intellectual Property Rights

  	
   

  	
  31

  
	
  3.15.

  	
   

  	
  Contracts

  	
   

  	
  32

  
	
  3.16.

  	
   

  	
  Insurance

  	
   

  	
  33

  
	
  3.17.

  	
   

  	
  Real Property

  	
   

  	
  33

  
	
  3.18.

  	
   

  	
  Title to Assets

  	
   

  	
  34

  
	
  3.19.

  	
   

  	
  Related Party Transactions

  	
   

  	
  34

  
	
  3.20.

  	
   

  	
  Brokers

  	
   

  	
  34

  
	
  3.21.

  	
   

  	
  Undisclosed Liabilities

  	
   

  	
  34

  
	
  3.22.

  	
   

  	
  Assets

  	
   

  	
  34

  
	
  3.23.

  	
   

  	
  Franchises

  	
   

  	
  35

  
	
  3.24.

  	
   

  	
  Suppliers

  	
   

  	
  35

  
	
  3.25.

  	
   

  	
  No Additional Representations

  	
   

  	
  36

  
	
  ARTICLE 4 -

  	
   

  	
  REPRESENTATIONS
  AND WARRANTIES OF PARENT AND NEWCO

  	
   

  	
  36

  
	
  4.1.

  	
   

  	
  Organization

  	
   

  	
  36

  
	
  4.2.

  	
   

  	
  Authorization

  	
   

  	
  36

  
	
  4.3.

  	
   

  	
  Non-contravention

  	
   

  	
  36

  
	
  4.4.

  	
   

  	
  No Consents

  	
   

  	
  37

  
	
  4.5.

  	
   

  	
  Litigation

  	
   

  	
  37

  
	
  4.6.

  	
   

  	
  Financial Ability

  	
   

  	
  37

  
	
  ARTICLE 5 -

  	
   

  	
  COVENANTS
  AND AGREEMENTS

  	
   

  	
  38

  
	
  5.1.

  	
   

  	
  Stockholder Matters

  	
   

  	
  38

  
	
  5.2.

  	
   

  	
  Access and Information

  	
   

  	
  38

  
	
  5.3.

  	
   

  	
  Conduct of Business by the Company

  	
   

  	
  39

  
	
  5.4.

  	
   

  	
  Closing Documents

  	
   

  	
  40

  
	
  5.5.

  	
   

  	
  Reasonable Best Efforts; Further Assurances

  	
   

  	
  40

  
	
  5.6.

  	
   

  	
  Supplemental Disclosure

  	
   

  	
  41

  
	
  5.7.

  	
   

  	
  Public Announcements

  	
   

  	
  41

  
	
  5.8.

  	
   

  	
  Employee Benefits

  	
   

  	
  41

  
	
  5.9.

  	
   

  	
  Indemnification of Directors and Officers

  	
   

  	
  42

  

 

 ii
 

 

 

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.10.

  	
   

  	
  Newco; Company Subsidiaries

  	
   

  	
  43

  
	
  5.11.

  	
   

  	
  Management Agreement Termination

  	
   

  	
  43

  
	
  5.12.

  	
   

  	
  Tax Benefits

  	
   

  	
  43

  
	
  5.13.

  	
   

  	
  Ventura Sale Proceeds

  	
   

  	
  45

  
	
  5.14.

  	
   

  	
  Employment Litigation

  	
   

  	
  46

  
	
  5.15.

  	
   

  	
  Seller Expenses

  	
   

  	
  46

  
	
  ARTICLE 6 -

  	
   

  	
  CONDITIONS
  TO CLOSING

  	
   

  	
  47

  
	
  6.1.

  	
   

  	
  Mutual Conditions

  	
   

  	
  47

  
	
  6.2.

  	
   

  	
  Conditions to the Obligations of Parent and Newco

  	
   

  	
  47

  
	
  6.3.

  	
   

  	
  Conditions to the Obligations of the Company

  	
   

  	
  49

  
	
  ARTICLE 7 -

  	
   

  	
  TERMINATION,
  AMENDMENT AND WAIVER

  	
   

  	
  50

  
	
  7.1.

  	
   

  	
  Termination

  	
   

  	
  50

  
	
  7.2.

  	
   

  	
  Effect of Termination

  	
   

  	
  51

  
	
  ARTICLE 8 -

  	
   

  	
  NO
  SURVIVAL OF REPRESENTATIONS; RELEASE

  	
   

  	
  51

  
	
  8.1.

  	
   

  	
  No Survival of Representations

  	
   

  	
  51

  
	
  8.2.

  	
   

  	
  Release

  	
   

  	
  51

  
	
  ARTICLE 9 -

  	
   

  	
  REPRESENTATIVE
  OF THE FORMER SECURITIES HOLDERS

  	
   

  	
  51

  
	
  9.1.

  	
   

  	
  Authorization of Representative

  	
   

  	
  51

  
	
  ARTICLE 10 -

  	
   

  	
  MISCELLANEOUS

  	
   

  	
  54

  
	
  10.1.

  	
   

  	
  Notices

  	
   

  	
  54

  
	
  10.2.

  	
   

  	
  Exhibits and Schedules

  	
   

  	
  55

  
	
  10.3.

  	
   

  	
  Time of the Essence; Computation of Time

  	
   

  	
  56

  
	
  10.4.

  	
   

  	
  Expenses

  	
   

  	
  56

  
	
  10.5.

  	
   

  	
  Governing Law; Jurisdiction

  	
   

  	
  56

  
	
  10.6.

  	
   

  	
  Assignment; Successors and Assigns; No Third Party
  Rights

  	
   

  	
  56

  
	
  10.7.

  	
   

  	
  Counterparts

  	
   

  	
  57

  
	
  10.8.

  	
   

  	
  Titles and Headings

  	
   

  	
  57

  
	
  10.9.

  	
   

  	
  Entire Agreement

  	
   

  	
  57

  
	
  10.10.

  	
   

  	
  Severability

  	
   

  	
  57

  
	
  10.11.

  	
   

  	
  No Strict Construction

  	
   

  	
  57

  

 

 iii
 

 

 

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.12.

  	
   

  	
  Specific Performance

  	
   

  	
  57

  
	
  10.13.

  	
   

  	
  Waiver of Jury Trial

  	
   

  	
  57

  
	
  10.14.

  	
   

  	
  Failure or Indulgence not Waiver

  	
   

  	
  58

  
	
  10.15.

  	
   

  	
  Amendments

  	
   

  	
  58

  

 

 iv

 

 

Exhibits

	
  Exhibit A

  	
   

  	
  Certificate of Merger

  
	
  Exhibit B

  	
   

  	
  Certificate of Incorporation;
  Bylaws

  
	
  Exhibit C

  	
   

  	
  Form of Escrow Agreement

  
	
  Exhibit D

  	
   

  	
  Form of Letter of Transmittal

  
	
  Exhibit E

  	
   

  	
  Commitment Letter

  
	
  Exhibit F

  	
   

  	
  Company Stockholder Approval

  
	
  Exhibit G

  	
   

  	
  Newco Stockholder Approval

  
	
  Exhibit H

  	
   

  	
  Management Agreement
  Termination

  
	
  Exhibit I

  	
   

  	
  Working Capital Schedule

  
	
  Exhibit J

  	
   

  	
  Form of Opinion of Dechert LLP

  
	
  Exhibit K

  	
   

  	
  Form of Opinion of Morgan,
  Lewis & Bockius LLP

  

 

 i

 

 

AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF
MERGER, dated August 17, 2006, by and among Real Mex Restaurants, Inc., a
Delaware corporation (the “Company”), RM Restaurant Holding Corp., a Delaware corporation (“Parent”), RM Integrated, Inc., a Delaware
corporation and wholly owned subsidiary of Parent (“Newco”), and joined
in by Bruckmann, Rosser, Sherrill & Co., Inc., as representative for the
benefit of the Former Securities Holders solely for purposes of Sections 2.10
and 9.1 hereof (the “Representative”).

WHEREAS, the Board of
Directors of each of Parent, Newco and the Company has approved this Agreement
and the merger of Newco with and into the Company on the terms and subject to
the conditions set forth herein; and

WHEREAS, the Board of
Directors of each of Parent, Newco and the Company has determined that this
Agreement and the transactions contemplated by this Agreement, including the
Merger (as defined below), are in the best interests of its respective
stockholders.

NOW, THEREFORE, in consideration
of the premises and of the mutual representations, warranties and covenants
contained herein, and intending to be legally bound, the parties hereto agree
as follows:

ARTICLE 1 - 

CERTAIN DEFINITIONS

1.1.          Certain Definitions.

As used in this Agreement,
the following terms have the respective meanings set forth below.

“1998 Incentive
Compensation Plan” means the Acapulco Acquisition Corp. (a/k/a Real Mex
Restaurants, Inc.) 1998 Stock-Based Incentive Compensation Plan adopted
November 16, 1998, as amended from time to time.

“2000 Incentive
Compensation Plan” means the Amended and Restated Acapulco Acquisition
Corp. (a/k/a Real Mex Restaurants, Inc.) 2000 Stock-Based Incentive
Compensation Plan adopted September 23, 2002, as amended from time to time.

“Accounting Principles
Consistently Applied” means GAAP (A) using the same accounting methods,
policies, practices, and procedures, with consistent classification, judgments,
and estimation methodology, as were used in preparing the December 25,
2005 audited consolidated balance sheet included in the Company Financial
Statements and (B) not taking into account any changes in circumstances or
events occurring after the opening of business on the Closing Date.

“Actual Adjustment”
means (x) the Purchase Price as set forth on the Final Statement of
Purchase Price minus (y) the Estimated Purchase Price (which amount
may be a negative number); provided that the Actual Adjustment shall, if
applicable, be limited to a maximum amount of $5,000,000 and a minimum amount of
$(5,000,000) (a negative number).

“Actual Value” has
the meaning set forth in Section 2.10(d)(iii)(C).

 

 

“Affiliates” means,
with respect to a particular Person, Persons controlling, controlled by, or
under common control with that particular Person, as well as any executive
officers and their immediate family members, directors and their immediate
family members, and majority-owned entities of that particular Person and of
its other Affiliates.  For the purposes of
the foregoing, (i) ownership, directly or indirectly, of 20% or more of the
voting securities or other equity interest shall be deemed to constitute
control and (ii) immediately family members of an individual shall consist of
such individual’s parents, siblings, spouse, children or grandchildren.

“Aggregate Common Stock
Purchase Price” means the Purchase Price, minus the Escrow Amounts, minus
the Aggregate Series A Preferred Stock Consideration, minus the
Aggregate Series B Preferred Stock Consideration, minus the Aggregate
Series C Preferred Stock Consideration and minus the Aggregate Series D
Preferred Stock Consideration.

“Aggregate Series A
Preferred Stock Consideration” means the Per Share Series A Preferred Stock
Consideration (without deduction of any Unpaid Purchase Price Per Share) multiplied
by the number of shares of Series A Preferred Stock outstanding immediately
prior to the Effective Time.

“Aggregate Series B
Preferred Stock Consideration” means the Per Share Series B Preferred Stock
Consideration (without deduction of any Unpaid Purchase Price Per Share)
multiplied by the number of shares of Series B Preferred Stock outstanding
immediately prior to the Effective Time.

“Aggregate Series C
Preferred Participation” means (x) 40% of (y) (i) the Purchase Price, minus
(ii) the Escrow Amounts, minus (iii) the Aggregate Series C Preferred
Preference, minus (iv) the Aggregate Series A Preferred Stock
Consideration, minus (v) the Aggregate Series B Preferred Stock
Consideration and minus the Aggregate Series D Preferred Stock
Consideration.

“Aggregate Series C
Preferred Preference” means the Per Share Series C Preferred Preference
(without deduction of any Unpaid Purchase Price Per Share) multiplied by the
number of shares of Series C Preferred Stock outstanding immediately prior to
the Effective Time.

“Aggregate Series C
Preferred Stock Consideration” means the Aggregate Series C Preferred
Preference plus the Aggregate Series C Preferred Participation.

“Aggregate Series D
Preferred Stock Consideration” means the Per Share Series D Preferred Stock
Consideration multiplied by the number of shares of Series D Preferred Stock
outstanding immediately prior to the Effective Time.

“Agreement” means
this Agreement and Plan of Merger.

“Applicable Percentage”
means (i) 40%, in respect of the Former Series C Preferred Holders, payable to
such holders in accordance with their Series C Ownership Percentages, and (ii)
60%, in respect of the Former Common Securities Holders, payable to such
holders in accordance with their Common Stock Ownership Percentages.

“BRS” means
Bruckmann, Rosser, Sherrill & Co., Inc.

“Business Day” means
a day, other than a Saturday or Sunday, on which commercial banks in New York
City are open for the general transaction of business.

“Certificate of
Incorporation” means the Company’s Amended and Restated Certificate of
Incorporation as in effect from time to time.

 2
 

 

 

“Certificate of Merger”
has the meaning set forth in Section 2.3.

“Certificates” means
the outstanding certificates which immediately prior to the Effective Time
represent shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock and Common Stock.

“Change in Control”
means any direct or indirect sale of the Company to any unaffiliated third
person (whether by merger, consolidation, reorganization, other business
combination transaction, sale of all or substantially all of its business or
assets, or acquisition by any Person of beneficial ownership of securities
representing 50% or more of the combined voting power of the outstanding
securities of the Company).

“Claim” has the
meaning set forth in Section 9.1(a).

“Class A Common Stock”
means the Class A Common Stock, par value $.001 per share, of the Company.

“Class B Common Stock”
means the Class B Common Stock, par value $.001 per share, of the Company.

“Closing” has the
meaning set forth in Section 2.2.

“Closing Date” has
the meaning set forth in Section 2.2.

“Closing Date Funded
Indebtedness” means the Funded Indebtedness as of the Reference Time, less
the Excess Cash.

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

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

“Common Stock” means,
collectively, the Class A Common Stock and the Class B Common Stock.

“Common Stock Options”
means outstanding options to purchase shares of Common Stock, including those
issued pursuant to the 1998 Incentive Compensation Plan, the 2000 Incentive
Compensation Plan and/or the Option Agreements.

“Common Stock Ownership
Percentage” means, for each holder of Common Stock, Common Stock Options
and Warrants, the percentage determined by dividing (x) the number of shares of
Common Stock held by such holder immediately prior to the Effective Time,
assuming the exercise of all In-the-Money Common Stock Options and Warrants, if
any, held by such holder prior to the Effective Time, by (y) the number of
Fully Diluted Shares.

“Company” has the
meaning set forth in the introductory paragraph hereto.

“Company Contracts”
has the meaning set forth in Section 3.15.

“Company Financial
Statements” has the meaning set forth in Section 3.6(a).

“Company Intellectual
Property Rights” has the meaning set forth in Section 3.14.

 3
 

 

 

“Company SEC Financial
Statements” has the meaning set forth in Section 3.6(a).

“Company Stock” means
the Common Stock, Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock, collectively.

“Confidentiality
Agreement” has the meaning set forth in Section 5.2(b).

“Contracts” has the
meaning set forth in Section 3.15.

“Dissenting Shares”
has the meaning set forth in Section 2.12.

“DGCL” has the
meaning set forth in Section 2.1.

“Effective Time” has
the meaning set forth in Section 2.3.

“Employee Benefit Plan”
means each “employee benefit plan” (as such term is defined in Section 3(3) of
ERISA) and each other material employee benefit plan, program or arrangement
maintained, sponsored or contributed to by the Company or any of its
Subsidiaries.

“Employment Litigation”
means:  (i) the litigation matters
disclosed in Items #1, #4, #8, #9, #10 and #11 of Schedule 3.9; (ii) any
litigation claims consolidated with any of the litigation matters described in
the immediately preceding clause (i), to the extent (and only to such extent)
that such claims or any parts thereof arise from the conduct or alleged conduct
of business or any other action allegedly taken or omitted to be taken by the
Company or any of its Subsidiaries prior to Closing; (iii) any claims alleged
against the Company and/or its Subsidiaries that are asserted during the period
after Closing in which the Employment Litigation Escrow Account continues to
hold any funds under the Escrow Agreement, to the extent (and only to such
extent) that such claims or any parts thereof arise from the conduct or alleged
conduct of business or any other action allegedly taken or omitted to be taken
by the Company or any of its Subsidiaries prior to Closing and assert
substantially the same or substantially similar legal theories or bases of
liability (including, without limitation, under any wage and hour laws, codes,
ordinances or rules applicable to the Company and/or its Subsidiaries in
California) as any of the matters described in the immediately preceding
clauses (i) or (ii) (in each case except with respect to litigation claims
disclosed in Item #4 of Schedule 3.9); and (iv) the litigation claims
disclosed in Item #5 of Schedule 3.9.

“Employment Litigation
Escrow Account” has the meaning set forth in Section 2.10(c)(i).

“Employment Litigation
Escrow Amount” has the meaning set forth in Section 2.10(c)(i).

“Employment Litigation
Escrow Funds” has the meaning set forth in Section 2.10(c)(i).

“Employment Litigation
Losses” means (1) all cash payments actually made by the Surviving Corporation
or its Subsidiaries after the Effective Time to third Persons pursuant to the
Employment Litigation Settlement Agreement and (2) in respect of any of the
Employment Litigation that is not covered by the Employment Litigation
Settlement Agreement, any and all reasonable out-of-pocket damages, costs,
losses or expenses (including reasonable and documented attorneys’ fees and all
disbursements) incurred by the Surviving Corporation after the Effective Time
arising out of or resulting from the Employment Litigation

“Employment Litigation
Settlement Agreement” means the Settlement Agreement proposed to be entered
into in respect of the Verdi and Perez Employment Litigation matters disclosed in Item #1 of 

 4
 

 

 

Schedule
3.9, in the nominal
amount (inclusive of plaintiff attorneys’ fees) of $5,000,000, in such form as
may be submitted to Superior Court for the State of California, Los Angeles
County, for approval.

“Environmental Laws”
shall mean all federal, state and local statutes, regulations and ordinances
having the force or effect of law concerning pollution or protection of the
environment as such requirements are enacted and in effect on or prior to the
Closing Date.

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

“ERISA Affiliate”
means any entity that is considered a single employer with the Company under
Section 414 of the Code.

“Escrow Accounts”
means the Employment Litigation Escrow Account and the Purchase Price Escrow
Account.

“Escrow Agreement”
has the meaning set forth in Section 2.10(c)(i).

“Escrow Amounts”
means the Employment Litigation Escrow Amount and the Purchase Price Escrow
Amount.

“Escrow Funds” means
the Employment Litigation Escrow Funds and the Purchase Price Escrow Funds.

“Estimated Per Share
Common Stock Closing Consideration” means the Per Share Common Stock
Closing Consideration, provided that the defined terms “Purchase Price” and “Per
Share Series C Preferred Participation,” as indirectly used in such definition,
shall be deemed replaced with the defined terms “Estimated Purchase Price” and “Estimated
Per Share Series C Preferred Participation,” respectively.

“Estimated Per Share
Series C Preferred Participation” means the Per Share Series C Preferred
Participation, provided that the defined term “Purchase Price,” as indirectly
used in such definition, shall be deemed replaced with the defined term “Estimated
Purchase Price.”

“Estimated Purchase Price”
has the meaning set forth in Section 2.10(b).

“Excess Cash” means
(i) the sum of the fair market value (expressed in United States dollars) of
all cash and cash equivalents of any kind (including bank account balances,
marketable securities and short term investments and including cash proceeds to
the Company from any exercise prior to the Reference Time of Common Stock
Options or Warrants or any payment prior to the Reference Time of “Additional
Consideration” (as defined in the Restricted Stock agreements) in respect of
the Restricted Stock) and certificates of deposit of the Company and its
Subsidiaries as of the Reference Time, without deduct for outstanding checks or
bank check gift certificates, minus (ii) the Petty Cash. To the extent
the Company or its Subsidiaries pays any Prepayment Premiums on Closing Date
Funded Indebtedness, such amount shall be added back to the calculation of
Excess Cash.

“Exchange Act” means
the Securities Act of 1934, as amended (together with the rules and regulations
promulgated thereunder).

“Expense Funds” has
the meaning set forth in Section 9.1(b).

“Final Statement of Purchase
Price” has the meaning set forth in Section 2.10(d)(ii).

 5
 

 

 

“Former Common Securities
Holders” means the former holders of Common Stock (other than any
Dissenting Shares) and the former holders of Common Stock Options and Warrants
who were holders of Common Stock, Common Stock Options and Warrants,
respectively, as of immediately prior to the Effective Time, collectively.

“Former Holders”
means the former holders of Company Stock (other than any Dissenting Shares)
who were holders of Company Stock as of immediately prior to the Effective
Time.

“Former Securities
Holders” means the Former Holders and the former holders of Common Stock
Options and Warrants who were holders of Company Stock, Common Stock Options
and Warrants, respectively as of immediately prior to the Effective Time,
collectively.

“Former Series C
Preferred Holders” means the former holders of Series C Preferred Stock
(other than any Dissenting Shares) who were holders of Series C Preferred Stock
as of immediately prior to the Effective Time.

“Fully Diluted Shares”
means the number of shares of Common Stock outstanding immediately prior to the
Effective Time (other than treasury shares), assuming the exercise of all
In-the-Money Common Stock Options and Warrants immediately prior to the Effective
Time.

“Funded Indebtedness”
means, as of any date, without duplication, the outstanding principal amount of
and accrued and unpaid interest on and other payment obligations arising under
any obligations of the Company or its Subsidiaries for (i) indebtedness
for borrowed money, including under the Senior Secured Notes,
(ii) indebtedness evidenced by any note, bond, debenture or other debt
security, (iii) letters of credit issued for the account of the Company or
its Subsidiaries but only to the extent drawn, or (iv) obligations under leases
required in accordance with GAAP to be recorded as capital leases, in each case
excluding intercompany indebtedness, and excluding the Prepayment
Premiums.

“GAAP” means
generally accepted accounting principles, consistently applied, in the United
States on the date of this Agreement.

“Governmental Authority”
means any national, federal, state, provincial, county, municipal or local
government, foreign or domestic, or the government of any political subdivision
of any of the foregoing, or any entity, authority, agency, ministry or other
similar body exercising executive, legislative, judicial, regulatory or
administrative authority or functions of or pertaining to government, including
any authority or other quasi-governmental entity established to perform
any of such functions.

“Hazardous Substances”
shall mean hazardous or toxic substances or materials, hazardous wastes,
pollutants or contaminants as said terms are defined by Environmental Laws or
with respect to which liability or standards of conduct are imposed under any
Environmental Laws, including without limitation, petroleum or petroleum
constituents, friable asbestos-containing material or polychlorinated
biphenyls.

“High Value” has the
meaning set forth in Section 2.10(d)(iii)(B).

“HSR Act” means the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder.

“In-the-Money Common
Stock Option” has the meaning set forth in Section 2.9(a).

 6
 

 

 

“Indenture” means the
Indenture, dated as of March 31, 2004, as amended and supplemented, by the
Company, the guarantors party thereto and Wells Fargo Bank, N.A., as trustee,
governing the Senior Secured Notes.

“Intellectual Property
Rights” means all patents, patent applications, trademarks, software and
service marks, and all registrations and applications therefor, copyrights,
copyright registrations and applications, domain names and trade secrets.

“Knowledge” means,
with respect to any Person, the actual knowledge of such Person and the actual
knowledge that such Person would have obtained after reviewing the
representations and warranties contained in this Agreement that are relevant to
such Person’s job responsibilities and conducting a reasonable inquiry with respect
to confirming the accuracy thereof; provided that in the case of the
Company, such actual knowledge shall be limited to the Knowledge of Frederick
F. Wolfe, Steven Tanner, Charles Rink, Carlos Angulo and Peter Letendre.

“Law” means any
statute, law, ordinance, regulation, order, or rule of any Governmental
Authority and common law.

“Leased Property” has
the meaning set forth in Section 3.17.

“Letter of Transmittal”
has the meaning set forth in Section 2.11(a).

“Lien” means any
mortgage, pledge, security interest, encumbrance, restriction, lien or charge
of any kind.

“Low Value” has the
meaning set forth in Section 2.10(d)(iii)(A).

“Management Agreement”
means the Amended and Restated Management Agreement, dated as of June 28, 2000,
by and between the Managers, the Company, and the Subsidiaries of the Company
named therein, as amended.

“Management Agreement
Termination” has the meaning set forth in Section 5.11

“Management Fees” has
the meaning set forth in Section 5.11.

“Managers” mean each
of Bruckmann, Rosser, Sherrill & Co., Inc., FS Private Investments, L.L.C.,
and their successors or assigns under the Management Agreement.

“Material Adverse Effect”
means a material adverse effect upon (x) the assets and liabilities (taken
together), financial condition, business, or results of operations of the
Company and its Subsidiaries, taken as a whole; provided, however,
that any adverse change, event or effect occurring after the date hereof, in
each case arising from or related to: (i) conditions generally affecting
the United States economy or generally affecting one or more industries in
which the Company or its Subsidiaries operate that do not affect the Company
and its Subsidiaries in a materially disproportionate manner relative to other
similarly situated participants in the markets or industries in which they
operate; (ii) national or international political or social conditions,
including terrorism or the engagement by the United States in hostilities or
acts of war that do not disproportionately affect the Company and its
Subsidiaries; (iii) financial, banking or securities markets (including any
disruption thereof and any decline in the price of any security or any market
index); (iv) changes in GAAP or other accounting requirements; (v) changes in any
laws, rules, regulations, orders, or other binding directives issued by any
Governmental Authority that do not affect the Company and its Subsidiaries in a
materially 

 7
 

 

 

disproportionate manner
relative to other similarly situated participants in the  markets or industries in which they operate;
(vi) any action taken by a party hereto in accordance with this Agreement
(including any adverse change, event or effect that results from Parent’s
refusal to permit the Company or its Subsidiaries upon the Company’s written
request to take any of the actions specified in Section 5.3 hereof); (vii) the
public announcement, pendency or completion of the transactions contemplated by
this Agreement; or (viii) any failure, in and of itself, by the Company to meet
any internal or disseminated projections, forecasts or revenue or earnings
predictions for any period (it being understood that the facts and
circumstances giving rise or contributing to such failure may be taken into
account in determining whether there has been a Material Adverse Effect), shall
not be taken into account in determining whether a “Material Adverse Effect”
under this clause (x) has occurred or would reasonably be expected to occur
with respect to such entity, or (y) the ability of the Company to consummate
the Merger or the other transactions contemplated hereby.  References in this Agreement to dollar amount
thresholds shall not be deemed to be evidence of a Material Adverse Effect or
materiality.

“Material Lease” has
the meaning set forth in Section 3.17.

“Merger” has the
meaning set forth in Section 2.1.

“Merger Documents”
means, collectively, this Agreement, the Certificate of Merger, and all other
agreements and documents entered into in connection with the Merger and the
other transactions contemplated hereby.

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

“Net Working Capital”
means, as of any date all “current assets” less all “current liabilities”
of the Company and its Subsidiaries on a consolidated basis as determined in
accordance with the Accounting Principles Consistently Applied, and then
adjusted by (1) subtracting cash and cash equivalents to the extent
included in “current assets”, (2) adding any Funded Indebtedness or
Prepayment Premiums included in “current liabilities”, (3) subtracting
any prepaid income taxes or deferred tax assets included in “current assets”
and adding any income taxes payable and deferred income taxes included
in “current liabilities”, (4) adding all fees, expenses, liabilities and
obligations paid or payable by the Company at or prior to the Reference Time or
included in “current liabilities” in connection with any financing by Parent,
Newco and their respective affiliates of the transactions contemplated hereby,
(5) adding any liabilities included in “current liabilities” in respect
of the Common Stock Options, the 1998 Incentive Compensation Plan, the 2000
Incentive Compensation Plan, and the Restricted Stock, (6) adding any
Seller Expenses or other liabilities with respect to the Management Agreement
included in “current liabilities”, (7) adding any expenses or
liabilities relating to the Employment Litigation included in “current
liabilities”, (8) subtracting any outstanding bank check gift
certificates or outstanding checks not otherwise included in “current
liabilities”,  (9) subtracting any
receivable relating to indemnification from J.W. Childs included in “current
assets”, (10) subtracting any tenant allowances included in “current
assets” and (11) adding any severance costs or expenses relating to
former employees of Chevys Restaurants included in “current liabilities.”  A proper illustration of the calculation of
Net Working Capital for the twelve month period ending June 25, 2006 is
attached hereto as Exhibit I.

“Net Working Capital
Adjustment” means (i) the amount by which Net Working Capital as of
the Reference Time exceeds the Reference Amount or (ii) the amount by which Net
Working Capital as of the Reference Time is less than the Reference Amount; provided
that any amount which is calculated pursuant to clause (ii) above shall be
deemed to be a negative number.

“Newco” has the
meaning set forth in the introductory paragraph hereto.

 8
 

 

 

“Newco Plans” has the
meaning set forth in Section 5.8(b).

“Option Agreements”
means the written option agreements of the Company pursuant to which any Common
Stock Options have been issued.

“Owned Real Property”
has the meaning set forth in Section 3.17(a).

“Parent” has the
meaning set forth in the introductory paragraph hereto.

“Per Share Adjustment
Amount (Common)” means the amount obtained by dividing 60% of the Actual
Adjustment (if a positive number) by the number of Fully Diluted Shares.

“Per Share Adjustment
Amount (Series C Preferred)” means the amount obtained by dividing 40% of
the Actual Adjustment (if a positive number) by the number of shares of Series
C Preferred Stock outstanding immediately prior to the Effective Time (other
than treasury shares).

“Per Share Common Stock
Closing Consideration” means the amount obtained by dividing the Aggregate
Common Stock Purchase Price by the number of Fully Diluted Shares.

“Per Share Holdback
Amount (Common)” means the amount obtained by dividing (i) 60% of any
amounts released from Escrow Accounts pursuant to this Agreement and the Escrow
Agreement for payment to Former Securities Holders, when, as and if so released
by (ii) the number of Fully Diluted Shares.

“Per Share Holdback
Amount (Series C Preferred)” means the amount obtained by dividing (i) 40%
of any amounts released from Escrow Accounts pursuant to this Agreement and the
Escrow Agreement for payment to Former Securities Holders, when, as and if so
released by (ii) the number of shares of Series C Preferred Stock outstanding
immediately prior to the Effective Time (other than treasury shares).

“Per Share Series A
Preferred Stock Consideration” means, with respect to each outstanding
share of Series A Preferred Stock (other than Dissenting Shares), an amount
equal to (i) the Liquidation Preference (as defined in the Series A/B Designation)
of such share as of the Closing Date, (ii) plus an amount equal to the
prorated dividend on such share from the last Dividend Payment Date (as defined
in the Series A/B Designation) to the Closing Date and (iii) solely in
the case of each share of Restricted Series A Preferred Stock, minus the
applicable Unpaid Purchase Price Per Share.

“Per Share Series B
Preferred Stock Consideration” means, with respect to each outstanding
share of Series B Preferred Stock (other than Dissenting Shares), an amount equal
to (i) the Liquidation Preference (as defined in the Series A/B Designation) of
such share as of the Closing Date, (ii) plus an amount equal to the
prorated dividend on such share from the last Dividend Payment Date (as defined
in the Series A/B Designation) to the Closing Date and (iii) solely in
the case of each share of Restricted Series B Preferred Stock, minus the
applicable Unpaid Purchase Price Per Share.

“Per Share Series C
Preferred Participation” means, with respect to each outstanding share of
Series C Preferred Stock (other than Dissenting Shares), an amount equal to (i)
the Aggregate Series C Preferred Participation divided by (ii) the number of
shares of Series C Preferred Stock outstanding immediately prior to the
Effective Time (other than treasury shares).

“Per Share Series C
Preferred Preference” means, with respect to each outstanding share of
Series C Preferred Stock (other than Dissenting Shares), an amount equal to (i)
the Liquidation Preference (as 

 9
 

 

 

defined in the Series C
Designation) of such share as of the Closing Date, (ii) plus an amount
equal to the prorated dividend on such share from the last Dividend Payment
Date (as defined in the Series C Designation) to the Closing Date and (iii) solely
in the case of each share of Restricted Series C Preferred Stock, minus
the applicable Unpaid Purchase Price Per Share.

“Per Share Series D
Preferred Stock Consideration” means, with respect to each outstanding
share of Series D Preferred Stock (other than Dissenting Shares), an amount equal
to the Liquidation Preference (as defined in the Series D Designation) of such
share as of the Closing Date plus an amount equal to the prorated
dividend on such share from the last Dividend Payment Date (as defined in the
Series D Designation) to the Closing Date.

“Permitted Liens”
means (a) mechanics’, materialmens’, carriers’, workmens’, repairmens’,
contractors’ or other similar Liens arising or incurred in the ordinary course
of business and for amounts which are not delinquent or which are being contested
in good faith and which are not material to the Company or its Subsidiaries,
(b) Liens for Taxes not yet due and payable, or for Taxes that the taxpayer is
contesting in good faith for which the taxpayer maintains reserves required by
GAAP, and (c) purchase money Liens securing rental payments under capital lease
arrangements.

“Permitted Real Property
Encumbrances” means, with respect to each parcel of Owned Real Property,
(a) real estate taxes, assessments and other governmental levies, fees or charges
imposed with respect to such parcel which are not yet due and payable, or are
being contested in good faith for which the taxpayer maintains reserves
required by GAAP, (b) mechanics’, carriers’, workmens’, repairmens’,
contractors’ or other similar Liens with respect to such parcel incurred in the
ordinary course of business for amounts not yet due and payable or that are
being contested in good faith (or any other Liens against which the Company’s
title insurer shall be prepared to insure), (c) zoning, building and other land
use laws imposed by any Governmental Authority having jurisdiction over such
parcel, (d) easements, covenants, conditions, restrictions, title defects and
other similar matters affecting title to such parcel which do not materially
impair the use, occupancy or value of such parcel in the operation of the
business of the Company and the Subsidiaries, (e) Liens for any financing
secured by such Owned Real Property that is an obligation of the Company or any
of the Subsidiaries that will not be paid off at Closing and (f) matters
disclosed of public record.

“Person” means an
individual, partnership, corporation, limited liability company, joint stock
company, unincorporated organization or association, trust, joint venture,
association or other organization, whether or not a legal entity, or a
Governmental Authority.

“Petty Cash” means
the product of (i) $2,000 and (ii) the number of restaurants operated by the
Company or one of its Subsidiaries as of the Reference Time (excluding licensed
or franchised locations).

“Post-Closing Ventura
Sale Proceeds” means (i) the gross proceeds (including the purchase price
and any payments of any deposits or transaction fees (to the extent not
otherwise included in the purchase price of the Ventura Sale), pursuant to the
terms of any agreement in connection with the Ventura Sale) received by the
Company or its Subsidiaries after the final determination of the Estimated
Purchase Price hereunder in connection with the Ventura Sale, minus (ii)
out-of-pocket transaction costs incurred by the Company or its Subsidiaries
after the Closing in respect of the Ventura Sale, minus (iii) without
duplication of costs included in clause (ii), the Ventura Sale Taxes, minus
(iv) $640,000; minus (v) $250,000 (provided that this clause (v) shall
not apply if the Ventura Sale is pursuant to an agreement with ESA UD
Properties, L.L.C. or Pacifica Companies and occurs on or prior to the
six-month anniversary of the Closing Date).

 10
 

 

 

“Prepayment Premiums”
means all prepayment fees, expenses or
penalties, breakage fees or costs or other prepayment or tender premiums
(including without limitation any make-whole premiums or fees and consent fees
paid in a tender offer and/or consent solicitation) paid or payable by the
Company, the Surviving Corporation or its Subsidiaries with respect to any
Funded Indebtedness, including without limitation any redemption price in
excess of 100% of principal amount of the Senior Secured Notes in connection
with any redemption of the Senior Secured Notes pursuant to Section 3.07 of the
Indenture or in connection with any tender pursuant to a Change of Control
Offer (as defined in the Indenture) pursuant to Section 4.15 of the Indenture
or other tender offer.

“Proposed Closing Date
Calculations” has the meaning set forth in Section 2.10(d)(i).

“Proposed Closing Date
Statement of Net Working Capital” has the meaning set forth in Section
2.10(d)(i).

“Proposed Purchase Price
Calculation” has the meaning set forth in Section 2.10(d)(i).

“Purchase Price” has
the meaning set forth in Section 2.10(a).

“Purchase Price Dispute
Notice” has the meaning set forth in Section 2.10(d)(ii).

“Purchase Price Escrow
Account” has the meaning set forth in Section 2.10(c)(ii).

“Purchase Price Escrow
Amount” has the meaning set forth in Section 2.10(c)(ii).

“Purchase Price Escrow
Funds” has the meaning set forth in Section 2.10(c)(ii).

“Real Mex SEC Reports”
means the reports, schedules and forms filed or required to be filed by the
Company with the Securities and Exchange Commission since June 9, 2004.

“Recent Balance Sheet”
means the balance sheet of the Company as of June 25, 2006.

“Reference Amount”
means $(40,974,000) (a negative number).

“Reference Time”
means (i) if the Closing Date is Monday, August 21, 2006 or Tuesday, August 22,
2006, 11:59PM Pacific Daylight Time on Sunday, August 20, 2006 or (ii) if the
Closing Date is not Monday, August 21, 2006 or Tuesday, August 22, 2006, (x)
11:59PM Pacific Daylight Time on the day immediately preceding the Closing Date
or (y) any such other date and time as the Company and Parent shall mutually
agree.

“Representative” has
the meaning set forth in the introductory paragraph hereto.

“Responsible Party”
has the meaning set forth in Section 8.3(a).

“Restricted Series A
Preferred Stock” means the restricted shares of Series A Preferred Stock
issued to employees of the Company pursuant to restricted stock agreements.

“Restricted Series B
Preferred Stock” means the restricted shares of Series B Preferred Stock
issued to employees of the Company pursuant to restricted stock agreements.

“Restricted Series C
Preferred Stock” means the restricted shares of Series C Preferred Stock
issued to employees of the Company pursuant to restricted stock agreements.

 11
 

 

 

“Restricted Stock”
means the Restricted Series A Preferred Stock, the Restricted Series B
Preferred Stock and the Restricted Series C Preferred Stock.

“Sarbanes-Oxley Act”
has the meaning set forth in Section 3.6(b).

“SEC” means the
United States Securities and Exchange Commission.

“Securities Act”
means the Securities Act of 1933, as amended (together with the rules and
regulations promulgated thereunder).

“Securities Holders
Agreement” means that certain Amended and Restated Securities Holders
Agreement, dated as of June 28, 2000, as amended, by and among the Company, BRS
and the other investors named therein, as the same may be amended from time to
time.

“Seller Expenses”
means (i) the out-of-pocket fees and expenses incurred on or before the
Closing Date (whether or not set forth on invoices delivered to the Company on
or prior to the Closing Date) and payable by the Company to Dechert LLP, to
Piper Jaffray & Co., Deutsche Bank Securities Inc. and Wachovia Capital
Markets, LLC (in their capacity as representatives or advisors to the Company
and not as lenders) or to other legal, accounting or financial advisors in
connection with the transactions contemplated by this Agreement, plus
(ii) the Management Fees payable to the Managers pursuant to Section 5.11
and any transaction bonuses payable by the Company to management in connection
with the Closing, plus (iii) the Expense Funds payable to the
Representative pursuant to Section 9.1(b), and plus (iv) all
costs to be borne by the Company pursuant to Section 5.5 that have not
been paid prior to the Closing.

“Senior Secured Notes”
means the Company’s issued and outstanding 10% Senior Secured Notes due 2010
governed by the Indenture.

“Series A Preferred Stock”
means the Series A 12.5% Cumulative Compounding Preferred Stock, par value
$.001 per share, of the Company.

“Series A/B Designation”
means the Certificate of Designation, Preferences and Rights of Series A
Preferred Stock and Series B Preferred Stock of the Company, as amended.

“Series B Preferred Stock”
means the Series B 13.5% Cumulative Compounding Preferred Stock, par value
$.001 per share, of the Company.

“Series C Designation”
means the Certificate of Designation, Preferences and Rights of Series C
Preferred Stock of the Company, as amended.

“Series C Preferred Stock”
means the Series C 15% Cumulative Compounding Participating Preferred Stock,
par value $.001 per share, of the Company.

“Series C Ownership
Percentage” means, for each holder of Series C Preferred Stock, the
percentage determined by dividing (x) the number of shares of Series C
Preferred Stock held by such holder immediately prior to the Effective Time, by
(y) the number of shares of Series C Preferred Stock outstanding immediately
prior to the Effective Time.

“Series D Designation”
means the Certificate of Designation, Preferences and Rights of Series D
Preferred Stock of the Company, as amended.

 12
 

 

 

“Series D Preferred Stock”
means the Series D 15% Cumulative Compounding Preferred Stock, par value $.001
per share, of the Company.

“Shareholders Voting
Agreements” means the Shareholders Voting Agreements, dated as of July 13,
1998 and November 29, 2001, each as amended, by and among Furman Selz Investors
II L.P. and the other individuals or entities identified therein as
shareholders, and Harold O. Rosser II and Stephen C. Sherrill as proxyholders.

“Subsidiary” means,
with respect to any Person, any corporation, partnership, association or other
business entity of which (i) if a corporation, a majority of the total
voting power of shares of stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a combination
thereof, or (ii) if a partnership, association or other business entity, a
majority of the partnership or other similar ownership interests thereof is at
the time owned or controlled, directly or indirectly, by any Person or one or
more Subsidiaries of that Person or a combination thereof.  For purposes hereof, a Person or Persons
shall be deemed to have a majority ownership interest in a partnership,
association or other business entity if such Person or Persons shall be allocated
a majority of partnership, association or other business entity gains or losses
or shall be or control the managing director, managing member, general partner
or other managing Person of such partnership, association or other business
entity.  Unless the context requires
otherwise, each reference to a Subsidiary shall be deemed to be a reference to
a Subsidiary of the Company.

“Surviving Corporation”
has the meaning set forth in Section 2.1.

“Surviving Corporation
Payment Amount” has the meaning set forth in Section 2.10(f).

“Tax” means any
federal, state, or local income, gross receipts, franchise, estimated,
alternative minimum, add-on minimum, sales, use, transfer, real property
gains, registration, value added, excise, severance, stamp, occupation,
windfall profits, escheat, abandoned property, customs, duties, real property,
personal property, capital stock, social security (or similar), unemployment,
disability, payroll, license, employee or other withholding, or other tax, of
any kind whatsoever, including any interest, penalties or additions to tax or
similar items in respect of the foregoing (whether disputed or not).

“Tax Benefit” means
any reduction in federal or California income Taxes of the Surviving
Corporation, any Subsidiary of the Surviving Corporation or any consolidated
group of which any such entity is a member arising as a result of any Tax
Benefit Item.  For purposes of this
definition and Section 5.12 and 5.13, “California income Taxes” shall include
California franchise taxes measured by reference to income.

“Tax Benefit Advisor” has the meaning set
forth in Section 5.12(f).

“Tax Benefit Item” means any federal or
California income Tax item of deduction, credit or other federal or California
income Tax attribute arising as a result of or in connection with (1) the
compensation expense and related employer’s portion of payroll and employment
taxes of the Company resulting from the vesting of the Restricted Stock and
Options, the exercise of any Options and the payments made in respect of
Options and Restricted Stock pursuant to Section 2.9, 2.10 and 2.11 hereof or
(2) the repayment of any Funded Indebtedness of the Company on the Closing
Date; provided, however, that in determining the extent, if any, that a Tax
Benefit Item results in a Tax Benefit, any limitations or restrictions on such
Tax Benefit Item under applicable Tax law shall be taken into account.

“Tax Benefit Schedule” has the meaning set
forth in Section 5.12(f).

 13
 

 

“Tax Preparation Amount” has the meaning set
forth in Section 5.12(f).

“Tax Return” means
any return, report, declaration, claim for refund, information return or other
document (including any related or supporting schedule, statement or
information) filed or required to be filed in connection with the
determination, assessment or collection of any Tax of any party or the
administration of any laws, regulations or administrative requirements relating
to any Tax (including any amendment thereof).

 “Termination Date” has the meaning set
forth in Section 7.1(b).

“Unpaid Purchase Price
Per Share” means, with respect to each share of Restricted Stock, the “Additional
Consideration” (as defined in the Restricted Stock agreements) or other amount
of purchase price on such share of Restricted Stock which remains unpaid
immediately prior to the Effective Time.

“Valuation Firm” has
the meaning set forth in Section 2.10(d)(ii).

“Ventura Sale” means the transactions
contemplated by the Ventura Sale Agreement or any other agreement entered into
at the direction of the Representative in accordance with Section 5.13 hereof
with respect to the sale of the real property, land and improvements located at
770 Seaward Avenue, Ventura, California 93001.

“Ventura Sale Agreement” means the Purchase
and Sale Agreement and Joint Escrow Instructions by and between El Torito
Restaurants, Inc. and ESA UD Properties, L.L.C., dated August 16, 2005, as
amended November 3, 2005 and February 13, 2006, and as the same may be further
amended (provided that any such amendment following the Closing Date shall
require the written consent of the Surviving Corporation and the
Representative).

“Ventura Sale Taxes” means (i) any income,
transfer or other Taxes incurred or payable by the Company or its Subsidiaries
in connection with the consummation of the Ventura Sale after the Closing Date
(with income Taxes calculated without taking into account any items of loss,
deduction or credit or other tax attributes available to the Company or its
Subsidiaries, other than the adjusted tax basis of the Company in the property
being sold pursuant to the Ventura Sale), minus (ii) any Tax Benefit
that reflects the application of any Tax Benefit Item that has not previously
been taken into account with respect to a payment by the Surviving Corporation
under Section 5.12  (or a payment that
would have been made if not for the first two sentences of the last paragraph
of Section 5.12(b)) and that could, as a matter of law, be applied to reduce
the taxable gain arising from the Ventura Sale, assuming that no other
deductions, losses, credits, or carryovers thereof are available for use in the
taxable period that includes the Ventura Sale, but only to the extent of the
taxable gain arising from the Ventura Sale.

“Warrant Agreements”
means the Warrant Agreements, dated June 27, 2000, by and between the Company
and each of Blackstone Mezzanine Holdings L.P., Blackstone Mezzanine Partners
L.P. and Canterbury Mezzanine Capital II, L.P., as amended from time to time.

“Warrants” means all
warrants to purchase shares of Common Stock, including those issued pursuant to
the Warrant Agreements.

1.2.          Interpretation.

Unless otherwise indicated to the contrary herein by
the context or use thereof: (i) the words, “herein,” “hereto,” “hereof”
and words of similar import refer to this Agreement as a whole and not to any
particular Section or paragraph hereof; (ii) the word “including” means “including,
but not limited

 14

 

to”; (iii) masculine
gender shall also include the feminine and neutral genders, and vice versa; and
(iv) words importing the singular shall also include the plural, and vice
versa.

ARTICLE 2 - 

THE MERGER

2.1.          The Merger; Effects of the Merger.

Upon the terms and subject
to the conditions of this Agreement, at the Effective Time, Newco shall,
pursuant to the provisions of the Delaware General Corporation Law (as amended
from time to time, the “DGCL”), be merged with and into the Company (the
“Merger”), and the separate corporate existence of Newco shall thereupon
cease in accordance with the provisions of the DGCL.  The Company shall be the surviving
corporation in the Merger and shall continue to exist as said surviving
corporation under its present name pursuant to the provisions of the DGCL.  The separate corporate existence of the
Company with all its rights, privileges, powers and franchises shall continue
unaffected by the Merger.  The Merger
shall have the effects specified in the DGCL and in this Agreement.  From and after the Effective Time, the
Company is sometimes referred to herein as the “Surviving Corporation.”

2.2.          Closing.

The closing of the Merger
(the “Closing”) shall take place at the offices of Dechert LLP, 30
Rockefeller Plaza, New York, New York 10112, at 10:00 A.M. on the Business Day
following the satisfaction or waiver of the conditions set forth in Article
6 (other than those conditions that by their terms cannot be satisfied
until the Closing), or at such place and on such date and time as the Company
and Parent shall mutually agree.  The
time and date of the Closing is herein called the “Closing Date.”

2.3.          Certificate of Merger.

As part of the Closing, the
parties hereto shall cause a certificate of merger substantially in the form
attached hereto as Exhibit A (the “Certificate of Merger”)
to be properly executed and filed in accordance with the relevant provisions of
the DGCL and shall make all other filings or recordings required under the
DGCL.  The Merger shall be effective at the
time and on the date of the filing of the Certificate of Merger in accordance
with the DGCL, which filing shall occur on the Closing Date, or at such later
date or time as is agreed to by Parent and the Company and specified in the
Certificate of Merger (the date and time the Merger becomes effective being the
“Effective Time”).

2.4.          Certificate of Incorporation.

The certificate of
incorporation of the Company shall be amended in the Merger to read in its
entirety as set forth in Exhibit B hereto and as so amended shall be the
Certificate of Incorporation of the Surviving Corporation until amended in
accordance with applicable law.

2.5.          Bylaws.

The bylaws of the Company
shall be amended in the Merger to conform to the bylaws of Newco as in effect
on the date hereof and attached hereto as Exhibit B, and as so amended
shall be the bylaws of the Surviving Corporation until amended in accordance
with applicable law.

 15
 

 

 

2.6.          Officers.

The officers of the Company
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation and will hold office until their successors are duly elected or
appointed and qualify in the manner provided in the certificate of
incorporation or bylaws of the Surviving Corporation or as otherwise provided
by law, or until their earlier death, resignation or removal.

2.7.          Directors.

The directors of Newco
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation and will serve until their successors are duly elected or appointed
and qualify in the manner provided in the certificate of incorporation or
bylaws of the Surviving Corporation or as otherwise provided by law, or until
their earlier death, resignation or removal.

2.8.          Conversion of Company Stock.

(a)           Conversion of
Series A Preferred Stock. As of the Effective Time, by virtue of the Merger
and without any action on the part of any holder thereof or any party hereto,
each share of Series A Preferred Stock issued and outstanding immediately prior
to the Effective Time (other than (i) shares held in the Company’s treasury and
(ii) Dissenting Shares) shall be canceled and be converted solely into the
right to receive the Per Share Series A Preferred Stock Consideration, payable
in cash to the holder thereof, without interest thereon, upon surrender of the
Certificate formerly representing such share, all in accordance with Sections
2.10 and 2.11.

(b)           Conversion of
Series B Preferred Stock. As of the Effective Time, by virtue of the Merger
and without any action on the part of any holder thereof or any party hereto,
each share of Series B Preferred Stock issued and outstanding immediately prior
to the Effective Time (other than (i) shares held in the Company’s treasury and
(ii) Dissenting Shares) shall
be canceled and be converted solely into the right to receive the Per Share
Series B Preferred Stock Consideration, payable in cash to the holder thereof,
without interest thereon, upon surrender of the Certificate formerly
representing such share, all in accordance with Sections 2.10 and 2.11.

(c)           Conversion of
Series C Preferred Stock. As of the Effective Time, by virtue of the Merger
and without any action on the part of any holder thereof or any party hereto,
each share of Series C Preferred Stock issued and outstanding immediately prior
to the Effective Time (other than (i) shares held in the Company’s treasury and
(ii) Dissenting Shares) shall
be canceled and be converted solely into the right to receive (A) the Per Share
Series C Preferred Preference, (B) the Per Share Series C Preferred
Participation and (C) the Per Share Holdback Amount (Series C Preferred), if
any, payable in cash to the holder thereof, without interest thereon, upon
surrender of the Certificate formerly representing such share, all in
accordance with Sections 2.10 and 2.11 and the Escrow Agreement.

(d)           Conversion of
Series D Preferred Stock. As of the Effective Time, by virtue of the Merger
and without any action on the part of any holder thereof or any party hereto,
each share of Series D Preferred Stock issued and outstanding immediately prior
to the Effective Time (other than (i) shares held in the Company’s treasury and
(ii) Dissenting Shares) shall
be canceled and be converted solely into the right to receive the Per Share
Series D Preferred Stock Consideration, payable in cash to the holder thereof,
without interest thereon, upon surrender of the Certificate formerly
representing such share, all in accordance with Sections 2.10 and 2.11.

 16
 

 

 

(e)           Conversion of
Common Stock. As of the Effective Time, by virtue of the Merger and without
any action on the part of any holder thereof or any party hereto, each share of
Common Stock issued and outstanding immediately prior to the Effective Time
(other than (i) shares held in the Company’s treasury and (ii) Dissenting
Shares) shall be canceled and be
converted solely into the right to receive (A) the Per Share Common Stock
Closing Consideration and (B) the Per Share Holdback Amount (Common), if any,
payable in cash to the holder thereof, without interest thereon, upon surrender
of the Certificate formerly representing such share, all in accordance with Sections
2.10, 2.11 and the Escrow Agreement.

(f)            Treasury Shares.  Each share of Company Stock held in the
treasury of the Company immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the holders thereof,
be canceled, retired and cease to exist as of the Effective Time and no payment
shall be made with respect thereto.

(g)           Newco Shares.  As of the Effective Time, each share of
capital stock of Newco issued and outstanding immediately prior to the
Effective Time shall, without any action on the part of Newco, be converted on
a one-for-one basis into shares of the corresponding class of capital stock of
the Surviving Corporation.

(h)           Holders of
Certificates.  From and after the
Effective Time, the holders of Certificates (other than Certificates
representing Dissenting Shares) shall cease to have any rights with respect to
such Certificates, except the right to receive (i) the Per Share Series A
Preferred Stock Consideration, (ii) the Per Share Series B Preferred Stock
Consideration, (iii) the Per Share Series C Preferred Preference, the Per Share
Series C Preferred Participation and the Per Share Holdback Amount (Series C Preferred),
(iv) the Per Share Series D Preferred Stock Consideration and (v) the Per Share
Common Stock Closing Consideration and the Per Share Holdback Amount (Common),
as applicable.

2.9.          Treatment of Options and Warrants.

(a)           Common Stock
Options.  As of the Effective Time,
pursuant to this Agreement and without any action on the part of any holder
thereof, each Common Stock Option outstanding immediately prior to the
Effective Time shall be canceled and (to the extent, if at all, payable
pursuant to this Section 2.9(a)) exchanged for the right to receive in
consideration for the cancellation thereof (A) at the Effective Time, an amount
in cash from the Company or the Surviving Corporation, as applicable, equal to
the product of (x) the number of shares of Common Stock subject to such Common
Stock Option, and (y) the excess, if any, of the Estimated Per Share Common
Stock Closing Consideration over the exercise price of such Common Stock Option
(to the extent such result is a positive number, each such Common Stock Option
shall be referred to as an “In-the-Money Common Stock Option” and to the
extent such result is a negative number, such amount shall be treated as zero) plus
(B) for each share of Common Stock subject to an In-the-Money Common Stock
Option, the Per Share Holdback Amount (Common) and the Per Share Adjustment
Amount (Common) as provided herein and in the Escrow Agreement.

(b)           Warrants.  As of the Effective Time, pursuant to this
Agreement and without any further action on the part of any holder thereof,
each Warrant outstanding immediately prior to the Effective Time shall (i) in
the case of Warrants issued pursuant to the Warrant Agreements, be converted in
accordance with its terms pursuant to Section 12(g) of each Warrant Agreement
into the right to receive (A) at the Effective Time, an amount in cash from the
Company or the Surviving Corporation, as applicable, equal to the product of
(x) the number of shares of

 17
 

 

 

Common
Stock subject to such Warrant, and (y) the excess, if any, of the Estimated Per
Share Common Stock Closing Consideration over the exercise price of such
Warrant plus (B) the right to receive, for each share of Common Stock
subject to such Warrant, the Per Share Holdback Amount (Common) and the Per
Share Adjustment Amount (Common) as provided herein and in the Escrow
Agreement, or (ii) in the case of any other Warrants, be canceled and, in
consideration for the cancellation thereof, the holder thereof shall be
entitled to receive (A) at the Effective Time, an amount in cash from the
Company or the Surviving Corporation, as applicable, equal to the product of
(x) the number of shares of Common Stock subject to such Warrant, and (y) the
excess, if any, of the Estimated Per Share Common Stock Closing Consideration
over the exercise price of such Warrant plus (B) the right to receive,
for each share of Common Stock subject to such Warrant, the Per Share Holdback
Amount (Common) and the Per Share Adjustment Amount (Common) as provided herein
and in the Escrow Agreement.  The Company
and the Surviving Corporation shall take all actions required by the terms of
the Warrant Agreements (including pursuant to Section 12(g) and 13(c) thereof)
to effectuate the foregoing.

(c)           Termination of
Options.  Prior to the Effective
Time, the board of directors of the Company shall take such action as may be
required under the 1998 Incentive Compensation Plan, the 2000 Incentive
Compensation Plan, any governing Common Stock Option plan or any Option
Agreement to effectuate the foregoing provisions of this Section 2.9 and
to terminate all other Common Stock Options.

(d)           Withholding.  The Surviving Corporation shall be entitled
to deduct and withhold from the consideration otherwise payable pursuant to
this Agreement such amount as the Surviving Corporation is required to deduct
and withhold with respect to such payment under the Code, or any provision of
applicable state, local or foreign law. 
To the extent that amounts are so withheld, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the Former
Securities Holder in respect of which such deduction and withholding was made.

2.10.        Purchase Price, Calculation and Payment of
Estimated Purchase Price.

(a)           Purchase Price.  “Purchase Price” shall mean a dollar
amount equal to (i) $359,000,000,
plus (ii) the Net Working Capital Adjustment (which may be a
negative number), minus (iii) the amount of Closing Date Funded
Indebtedness, plus (iv) the amount of the Post-Closing Ventura Sale
Proceeds, minus (v) the amount of any Seller Expenses not paid by
the Company prior to the Closing, plus (vi) the amount of any Tax
Benefit payments required by Section 5.12 hereof and plus (vii)
the aggregate exercise price for the In-the-Money Common Stock Options and
Warrants and the Unpaid Purchase Price Per Share on each share of Restricted
Stock.

(b)           Estimated
Purchase Price.  No later than three
Business Days prior to the Closing, the Company shall deliver to Parent a
calculation of the Estimated Purchase Price. 
The “Estimated Purchase Price” shall be a good faith estimate of
the Purchase Price, as reasonably determined by the Company based upon the
Company’s most recent financial statements as of the date of such estimate
while taking into account changes in the Company’s financial position since the
date of such financial statements.  In
connection with determining the Estimated Purchase Price, the Company shall
estimate (i) the Net Working Capital Adjustment, (ii) the amount of
Closing Date Funded Indebtedness by using the actual amount of Funded
Indebtedness as of the date of the estimate and an estimate of the amount of
Excess Cash, (iii) the Seller Expenses not paid by the Company prior to the
Closing, and (iv) the aggregate exercise price for the In-the-Money Common
Stock Options and Warrants and the Unpaid Purchase Price Per Share on each

 18
 

 

 

share
of Restricted Stock.  For purposes of
determining the Estimated Purchase Price, the Tax Benefit payments shall be
estimated to be zero and the Post-Closing Ventura Sale Proceeds shall be
estimated as the amount of the Deposit (as defined in the Ventura Sale
Agreement) as of the Closing Date if the Ventura Sale Agreement has not been
terminated and the closing of the transactions contemplated by the Ventura Sale
Agreement has not occurred prior to the Closing Date.  In the event that Parent disagrees with the
Company’s calculation of the Estimated Purchase Price, Parent shall deliver to
the Company and the Representative its own good faith estimate of the Estimated
Purchase Price and Parent and the Company shall negotiate in good faith to
agree upon the calculation of the Estimated Purchase Price.

(c)           Payment of
Estimated Purchase Price.  On the
Closing Date, contemporaneously with the filing of the Certificate of Merger,
Parent shall pay, or shall cause the Company, Newco or the Surviving
Corporation to pay, the Estimated Purchase Price as follows:

(i)            An amount of cash
equal to $6,000,000 (such amount the “Employment Litigation Escrow Amount”
and such cash the “Employment Litigation Escrow Funds”) shall be
deposited into an interest-bearing escrow account (the “Employment
Litigation Escrow Account”), which shall be established pursuant to an
escrow agreement (the “Escrow Agreement”), which Escrow Agreement
(x) shall be entered into on the Closing Date among Parent, the Surviving
Corporation, the Representative and J.P. Morgan Trust Company, National
Association, as escrow agent, and (y) shall be substantially in the form of Exhibit C
attached hereto;

(ii)           An amount of cash
equal to $5,000,000 (such amount the “Purchase Price Escrow Amount” and
such cash the “Purchase Price Escrow Funds”) shall be deposited into an
interest-bearing escrow account (the “Purchase Price Escrow Account”),
which shall be established pursuant to the Escrow Agreement;

(iii)          The payments
contemplated by Section 2.9 and 2.11 shall be made; and

(iv)          The balance of the
Estimated Purchase Price, if any, shall be held by the Surviving Corporation,
in a segregated account, for the benefit of the Former Securities Holders until
paid in accordance with Section 2.11 hereof or, if requested by the
Representative, paid to the Representative or a bank or trust company selected
by the Representative to hold in trust for the benefit of Former Securities
Holders.

(d)           Preparation of the
Final Statement of Purchase Price.

(i)            As soon as
practicable, but no later than 90 days after the Closing Date, the Surviving
Corporation shall prepare and deliver to the Representative (A) a proposed
calculation of the Net Working Capital as of the Reference Time (the “Proposed
Closing Date Statement of Net Working Capital”) and (B) a proposed
calculation of the Purchase Price (the “Proposed Purchase Price Calculation”)
and the components thereof.  The Proposed
Closing Date Statement of Net Working Capital and the Proposed Purchase Price
Calculation shall collectively be referred to herein from time to time as the “Proposed
Closing Date Calculations.”

(ii)           If the
Representative does not give written notice of dispute (a “Purchase Price
Dispute Notice”) to the Surviving Corporation within 30 days of
receiving the Proposed Closing Date Calculations, the Representative and the
other parties hereto agree that (A) the Proposed Closing Date Statement of
Net Working Capital shall be deemed to 

 19
 

 

 

set
forth the Net Working Capital as of the Reference Time and (B) the
Proposed Purchase Price Calculation shall be deemed to set forth the Purchase
Price.  If the Representative gives a
Purchase Price Dispute Notice to the Surviving Corporation (which Purchase
Price Dispute Notice must set forth, in reasonable detail, the items and
amounts in dispute and include all supporting schedules, analyses, working
papers and other supporting documentation) within such 30-day period, the
Surviving Corporation and the Representative will use reasonable efforts to
resolve the dispute during the 15-day period commencing on the date the
Surviving Corporation receives the applicable Purchase Price Dispute Notice
from the Representative; provided that other than objections with
respect to mathematical errors and the calculation of Proposed Closing Date
Statement of Net Working Capital and the Proposed Purchase Price Calculation
not being calculated in accordance with this Section 2.10, no party may
dispute any other item or amount.  If the
Representative and the Surviving Corporation do not obtain a final resolution
within such 30-day period, then the items in dispute that were properly
included in the Representative’s Purchase Price Dispute Notice shall be
submitted immediately to the Los Angeles, California office of Navigant
Consulting, Inc. (the “Valuation Firm”). 
The Valuation Firm shall be required to render a determination of the
applicable dispute within 30 days after referral of the matter to the Valuation
Firm, which determination must be in writing and must set forth, in reasonable
detail, the basis therefor.  The
determination of the Valuation Firm shall be conclusive and binding upon the
Representative, the Surviving Corporation, Parent and the other parties hereto
and that judgment may be entered upon the determination of the Valuation Firm
in any court having jurisdiction in accordance with this Agreement over the
party against which such determination is to be enforced.

The scope of the disputes to be resolved by
the Valuation Firm is limited to only such items included in the Proposed
Closing Date Calculations that the Representative has disputed in the Purchase
Price Dispute Notice based upon mathematical errors in the Proposed Closing
Date Calculations or based upon the Proposed Closing Date Statement of Net
Working Capital or the Proposed Purchase Price Calculation not being calculated
in accordance with this Section 2.10. 
The Valuation Firm shall determine, based solely on presentations by the
Company, Parent and the Representative and their respective representatives,
and not by independent review, only those issues in dispute specifically set
forth on the Purchase Price Dispute Notice. 
In resolving any disputed item, the Valuation Firm shall be bound by the
principles set forth in this Section 2.10 and shall not assign a value
to any item greater than the greatest value for such item claimed by either
party or less than the smallest value for such item claimed by either party.

The Surviving Corporation will revise the Proposed
Closing Date Calculations as appropriate to reflect the resolution of any
objections thereto pursuant to this Section 2.10(d)(ii).  The “Final Statement of Purchase Price”
shall mean the Proposed Purchase Price Calculation together with any revisions
thereto pursuant to this Section 2.10(d)(ii).

(iii)          In the event the
Representative and the Surviving Corporation submit any unresolved objections
to the Valuation Firm for resolution as provided in Section 2.10(d)(ii) above,
the responsibility for the fees and expenses of the Valuation Firm shall be as
follows:

(A)          if
such Valuation Firm resolves all of the remaining objections in favor of the
Surviving Corporation’s position (the Purchase Price so determined 

 20
 

 

 

is
referred to herein as the “Low Value”), then all of the fees and
expenses of the Valuation Firm shall be paid from the Purchase Price Escrow
Amount;

(B)           if
the Valuation Firm resolves all of the remaining objections in favor of the
Representative’s position (the Purchase Price so determined is referred to
herein as the “High Value”), then the Parent will be responsible for all
of the fees and expenses of the Valuation Firm; and

(C)           if
such Valuation Firm neither resolves all of the remaining objections in favor
of the Surviving Corporation’s position nor resolves all of the remaining
objections in favor of the Representative’s position (the Purchase Price so
determined is referred to herein as the “Actual Value”), then that
fraction of the fees and expenses of the Valuation Firm equal to (x) the difference
between the High Value and the Actual Value over (y) the difference
between the High Value and the Low Value shall be paid from the Purchase Price
Escrow Amount, and Parent will be responsible for the remainder of the fees and
expenses of the Valuation Firm.

(iv)          Each party hereto,
including the Representative, will cooperate with, make its financial records
available to (in the case of the Representative, only financial records in its
possession or control related to the Company) and otherwise assist the other
parties and their accountants and other representatives at reasonable times
during the preparation and review of, and the resolution of any objections with
respect to, the Proposed Closing Date Calculations.

(e)           Adjustment to
Estimated Purchase Price.

(i)            If the Actual
Adjustment is a positive amount, then within three Business Days after the date
on which the Purchase Price is finally determined pursuant to Section
2.10(d) above, the Surviving Corporation will pay to (A) each Former Series
C Preferred Holder an amount equal to the number of shares of Series C
Preferred Stock held by such former holder multiplied by the sum of the Per
Share Adjustment Amount (Series C Preferred) and the Per Share Holdback Amount
(Series C Preferred) and (B) each Former Common Securities Holder an amount
equal to the number of Fully Diluted Shares held by such former holder
multiplied by the sum of the Per Share Adjustment Amount (Common) and the Per
Share Holdback Amount (Common), by wire transfer or delivery of other
immediately available funds, in each case, within three Business Days after the
date on which the Purchase Price is finally determined pursuant to Section
2.10(d) above.

(ii)           If the Actual
Adjustment is a negative amount, then within three Business Days after the date
on which the Purchase Price is finally determined pursuant to Section
2.10(d) above, the Parent and the Representative shall deliver joint
written instructions to the Escrow Agent instructing the Escrow Agent to
deliver to the Surviving Corporation an amount equal to the absolute value of
such negative amount (which amount shall be reduced dollar-for-dollar by any
amounts previously paid to the Surviving Corporation pursuant to Section
2.10(f) below), up to then-remaining amount available from the Purchase
Price Escrow Account.

(f)            Purchase Price
Escrow Funds.  If upon the Surviving
Corporation’s receipt of a Purchase Price Dispute Notice from the
Representative, there is an amount which has been conclusively determined to be
payable to Surviving Corporation pursuant to Section 2.10(e) (the

 21
 

 

 

“Surviving
Corporation Payment Amount”), then the Parent and the Representative shall
promptly deliver joint written instructions to the Escrow Agent instructing the
Escrow Agent to deliver to the Surviving Corporation the Surviving Corporation
Payment Amount.  If upon the Surviving
Corporation’s receipt of a Purchase Price Dispute Notice from the
Representative, the amount then in the Purchase Price Escrow Account (prior to
the distribution of the Surviving Corporation Payment Amount) is in excess of
the sum of (i) the Surviving Corporation Payment Amount and (ii) the
amount of the Purchase Price then in dispute, then the Parent and the
Representative shall promptly deliver joint written instructions to the Escrow
Agent instructing the Escrow Agent to deliver to the Surviving Corporation an
amount equal to such excess for further payment to the Former Common Securities
Holders and Former Series C Preferred Holders in accordance with the Applicable
Percentage.  If during the period after
the Surviving Corporation’s receipt of a Purchase Price Dispute Notice from the
Representative and prior to the final determination of the Purchase Price, any
of the items of the Purchase Price which are in dispute are agreed upon in the
Representative’s favor in accordance with Section 2.10(d), then the
Parent and the Representative shall promptly deliver joint written instructions
to the Escrow Agent instructing the Escrow Agent to deliver to the Surviving
Corporation, for further payment to the Former Common Securities Holders and
Former Series C Preferred Holders in accordance with the Applicable Percentage,
an amount equal to the amount of the Purchase Price such former holders are
entitled to as a result of such agreement. 
If during the period after the Surviving Corporation’s receipt of a
Purchase Price Dispute Notice from Representative and prior to the final
determination of the Purchase Price, any of the items of the Purchase Price
which are in dispute are agreed upon in the Surviving Corporation’s favor in
accordance with Section 2.10(d), then the Parent and the Representative
shall promptly deliver joint written instructions to the Escrow Agent
instructing the Escrow Agent to deliver to the Surviving Corporation an amount
equal to the amount of the Purchase Price the Surviving Corporation is entitled
to as a result of such agreement.  Once
the Purchase Price has been conclusively determined in accordance with Section
2.10(d) (whether or not a Purchase
Price Dispute Notice has been delivered) and
any amounts payable to the Surviving Corporation out of the Purchase Price
Escrow Funds pursuant to the terms hereof have been made, then the
Representative and the Parent shall promptly deliver joint written instructions
to the Escrow Agent instructing the Escrow Agent to deliver to the Surviving
Corporation, for further payment to the Former Common Securities Holders and
Former Series C Preferred Holders in accordance with the Applicable Percentage,
all amounts, if any, then remaining in the Purchase Price Escrow Account.  If the Surviving Corporation receives any
cash from either Escrow Account for the benefit of the Former Series C
Preferred Holders or Former Common Securities Holders, respectively, then the
Surviving Corporation shall promptly pay by wire transfer of immediately
available funds to each such holder an amount of cash equal to such former
holder’s Series C Ownership Percentage or Common Stock Ownership Percentage,
respectively, of the aggregate amount of cash received by the Surviving
Corporation from such Escrow Account in respect of such former holders.  In accordance with Section 2.6 of the Escrow
Agreement, the Representative may instruct the Escrow Agent that all payments
to the Surviving Corporation for the benefit of any Former Securities Holders
shall be paid to the Representative, as agent for the Former Securities
Holders, for further payment to such parties.

2.11.        Exchange of Certificates.

(a)           Upon surrender of
its original Certificates (other than Certificates representing Dissenting
Shares) or an affidavit as set forth in Section 2.11(c) hereof, together
with a duly executed and completed letter of transmittal in the form attached
as Exhibit D hereto (a “Letter of Transmittal”) in accordance
with this Section 2.11, the holder of each Certificate shall have the
right to receive from the Surviving Corporation in exchange for each share of
Company Stock formerly evidenced thereby:

 22
 

 

 

(i)            in exchange for
each share of Series A Preferred Stock, the Per Share Series A Preferred Stock
Consideration;

(ii)           in exchange for
each share of Series B Preferred Stock, the Per Share Series B Preferred Stock
Consideration;

(iii)          in exchange for
each share of Series C Preferred Stock, the Per Share Series C Preferred Preference
and the Estimated Per Share Series C Preferred Participation;

(iv)          in exchange for each
share of Series D Preferred Stock, the Per Share Series D Preferred Stock
Consideration; and

(v)           in exchange for each
share of Common Stock, the Estimated Per Share Common Stock Closing
Consideration.

Promptly
after the Effective Time, the Surviving Corporation shall mail or otherwise
deliver to each record holder of Certificates (other than Certificates
representing Dissenting Shares) a Letter of Transmittal for return to the
Surviving Corporation and instructions for use in effecting the surrender of
the Certificates and payment therefor. 
Upon surrender to the Surviving Corporation of its original Certificates
(other than Certificates representing Dissenting Shares), together with such
duly executed and completed Letter of Transmittal, the holder of each such
Certificate shall receive from the Surviving Corporation immediately thereafter
in exchange therefor, the applicable consideration specified in Section 2.11(a)(i)-(v)
above.  Each such Certificate so
surrendered shall be canceled, provided that notwithstanding the cancellation
of such Certificate, the former holder thereof shall remain entitled to receive
the amount set forth herein.  If payment
or delivery is to be made to a Person other than the Person in whose name a
Certificate so surrendered is registered, it shall be a condition of payment
that the Certificate so surrendered shall be properly endorsed or otherwise in
proper form for transfer, that the signatures on the certificate or any related
stock power shall be properly guaranteed and that the Person requesting such
payment either pay any transfer or other Taxes required by reason of the
payment to a Person other than the registered holder of the Certificate so
surrendered or establish to the satisfaction of the Surviving Corporation that
such Tax has been paid or is not applicable. 
Until surrendered in accordance with the provisions of this Section
2.11, each Certificate (other than Certificates canceled pursuant to Section
2.8(f) and Certificates representing Dissenting Shares) shall represent for
all purposes only the right to receive (i) the Per Share Series A Preferred
Stock Consideration, (ii) the Per Share Series B Preferred Stock Consideration,
(iii) the Per Share Series C Preferred Preference, the Per Share Series C
Preferred Participation and Per Share Holdback Amount (Series C Preferred),
(iv) the Per Share Series D Preferred Stock Consideration or (v) the Per Share
Common Stock Closing Consideration and the Per Share Holdback Amount (Common),
as applicable.

(b)           Notwithstanding the
foregoing, any record holder of Company Stock that has delivered copies of its
original Certificates or an affidavit as set forth in Section 2.11(c)
hereof together with a duly executed and completed Letter of Transmittal to
Parent in accordance with this Section 2.11 and the Letter of
Transmittal (including valid wire transfer instructions), in each case, at
least one (1) Business Day prior to the Closing Date (the originals of which
Certificates or affidavit are delivered to Parent on the Closing Date), shall
be entitled to payment by wire transfer on the Closing Date of the applicable
consideration specified in Section 2.11(a)(i)-(iv) above in accordance
with the instructions specified in such Person’s Letter of Transmittal.  No 

 23
 

 

 

interest
will be paid or will accrue for the benefit of the holders of the Certificates
on the consideration payable following the surrender of the Certificates.

(c)           In the event that
any Certificate (other than any Certificate representing Dissenting Shares)
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the registered holder of such lost, stolen or destroyed
Certificate in form and substance reasonably acceptable to Parent and Newco
(if such affidavit is accepted before the Effective Time) or the Surviving
Corporation (if such affidavit is accepted after the Effective Time), the
Surviving Corporation will issue in exchange for such lost, stolen or destroyed
Certificate the applicable form of consideration in respect thereof in the
manner set forth in Sections 2.10 and 2.11.

(d)           If Certificates are
not surrendered prior to the date that is two (2) years after the Effective
Time, unclaimed amounts (including interest thereon) of such consideration
shall, to the extent permitted by applicable law, become the property of the
Surviving Corporation and may be commingled with the general funds of the
Surviving Corporation.  Notwithstanding
the foregoing, any Former Securities Holders of the Company who have not
theretofore complied with the provisions of this Section 2.11 shall
thereafter look only to the Surviving Corporation and only as general creditors
thereof for payment for their claims in the form and amounts to which such
stockholders are entitled.

(e)           After the Effective
Time, there shall be no transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Stock that were outstanding immediately
prior to the Effective Time.  If, after
the Effective Time, Certificates (other than Certificates representing
Dissenting Shares) are presented to the Surviving Corporation for transfer,
they shall be canceled and exchanged for the applicable consideration as
provided for, and in accordance with, the provisions, of this Agreement.

2.12.        Dissenting Shares.

Each share of Company Stock
issued and outstanding immediately prior to the Effective Time held by
stockholders who shall have properly exercised their appraisal rights with
respect thereto under Section 262 of the DGCL (“Dissenting Shares”)
shall not be converted into the right to receive the applicable form of
consideration pursuant to the Merger, but shall be entitled to receive payment
of the fair value of such shares in accordance with the provisions of
Section 262 of the DGCL, except that each Dissenting Share held by a
stockholder who shall thereafter withdraw his or her demand for appraisal or
shall fail to perfect or otherwise waive or lose his or her right to such payment
as provided in such Section 262 shall be deemed to be converted, as of the
Effective Time, into the right to receive the applicable form of consideration
in the form such holder otherwise would have been entitled to receive as a
result of the Merger.  The Company will
enforce any contractual waivers that stockholders of the Company have granted
regarding appraisal rights that would apply to the Merger.

 24
 

 

 

ARTICLE 3 - 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby
represents and warrants to Parent and Newco as follows:

3.1.          Organization and Qualification.

Each of the Company and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation specified on Schedule
3.1 and has the corporate power and authority necessary to own or lease its
property and assets and to carry on its business as presently conducted, and is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction wherein the nature of its business or the ownership of its
assets makes such qualification necessary, except where the failure to be so
qualified and in good standing would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.  The Company has previously provided to Parent
and Newco true and complete copies of (i) its Certificate of Incorporation and
its bylaws as currently in effect and (ii) the certificate or articles of
incorporation and bylaws (or comparable organizational documents) as currently
in effect of each of its Subsidiaries.

3.2.          Authorization.

The Company has the
corporate power and authority to execute and deliver this Agreement and each
other Merger Document to be executed by the Company in connection herewith and,
subject to receipt of the Company Stockholder Approval, to perform its
obligations hereunder and thereunder, all of which have been duly authorized by
all requisite corporate action.  Subject
to receipt of the Company Stockholder Approval, this Agreement has been duly
authorized, executed and delivered by the Company and, assuming that this
Agreement has been duly and validly authorized, executed and delivered by
Parent and Newco, constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms.  The Merger and the transactions contemplated
hereby constitute an Approved Sale (as defined in the Securities Holders
Agreement).

3.3.          Non-contravention.

Except as set forth on Schedule
3.3, neither the execution and delivery of this Agreement nor any other
Merger Document, the consummation of the Merger and the other transactions
contemplated hereby nor the fulfillment of and the performance by the Company
of its obligations hereunder will (i) following
receipt of the Company Stockholder Approval, contravene any provision contained
in the Company’s Certificate of Incorporation or bylaws or that of any
Subsidiary of the Company, (ii) conflict
with, violate or result in a breach (with or without the lapse of time, the
giving of notice or both) of, or constitute a default (with or without the
lapse of time, the giving of notice or both) under, or require the consent or
approval of any third party under, (A) any contract, agreement, commitment, indenture,
mortgage, lease, pledge, note, bond, license, permit or other instrument or
obligation or (B) assuming satisfaction of the requirements set forth in Section
3.4 below, any judgment, order, decree, statute, law, rule or regulation or
other restriction of any Governmental Authority, in each case to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound or to which any of their respective assets or
properties are subject, (iii) except
as contemplated herein or with respect to Liens granted to any lender at the
Closing in connection with any financing by Parent or Newco of the transactions
contemplated hereby, result in the creation or imposition of any Lien on any of
the assets or properties of the Company or its Subsidiaries, or
(iv) result in the acceleration of, or permit any
Person to terminate, modify, cancel, accelerate or declare due and payable
prior to its stated maturity, any obligation of the Company or any
Subsidiaries, except in the case of any of clauses (ii) or (iv) above as would
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.

3.4.          Governmental Consents.

No consent, approval, order,
permit or authorization of, or registration, declaration, notice or filing
with, any Governmental Authority is required by or with respect to the Company
in connection with 

 25
 

 

 

the execution and delivery
of this Agreement by the Company or the consummation by the Company of the
Merger and the other transactions contemplated hereby, except for those
required under or in relation to the HSR Act or the filing of the Certificate
of Merger in accordance with the DGCL, except as set forth on Schedule 3.4
and except as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

3.5.          Capitalization; Subsidiaries.

(a)           The Company’s
authorized capital stock consists solely of (i) 1,000,000 authorized shares of
Class A Common Stock, 300,423.160 shares of which are issued and
outstanding as of the date hereof and (except for any changes resulting from
(x) the exercise of Common Stock Options or Warrants or (y) any conversion of
Class A Common Stock into Class B Common Stock or (z) any conversion of Class B
Common Stock into Class A Common Stock) 
as of the Closing Date, (ii) 1,000,000 authorized shares of Class B
Common Stock (15,866.820 shares of which are issued and outstanding), and
(iii) 100,000 authorized shares of Preferred Stock, par value $.001 per
share, of which (w) 21,000 shares have been designated Series A Preferred Stock
(20,136.557 shares of which are issued and outstanding), (x) 15,000 shares have
been designated Series B Preferred Stock (13,756.205 shares of which are issued
and outstanding), (y) 18,000 shares have been designated Series C Preferred
Stock (17,477.904 of which are issued and outstanding) and (w) 1,300 shares
have been designated Series D Preferred Stock (1,176.648 shares of which are
issued and outstanding).  As of the date
hereof, the outstanding shares of Company Stock are held of record by the
Persons set forth on Schedule 3.5(a) in the amounts set forth opposite
such Person’s name.

(b)           Schedule 3.5(b)
hereto is a list setting forth the holder and exercise price of each Common
Stock Option and Warrant outstanding. 
Except as set forth in Schedule 3.5(b), the Company does not have
any outstanding options or warrants relating to its capital stock or any
outstanding securities or obligations convertible into or exchangeable for, or
giving any Person any right to subscribe for or acquire from it, any shares of
its capital stock.

(c)           Except as set forth
in Schedule 3.5(c), in this Agreement, in the Warrant Agreements, in the
Securities Holders Agreement or in the Shareholders Voting Agreements, there are
no (i) outstanding obligations of the Company to repurchase, redeem or
otherwise acquire any capital stock of the Company or (ii) voting trusts,
proxies or other agreements among the Company’s stockholders with respect to
the voting or transfer of the Company’s capital stock.  All of the issued and outstanding shares of
capital stock of the Company have been duly authorized, validly issued, are
fully paid and are nonassessable.

(d)           All Subsidiaries of
the Company are listed on Schedule 3.5(d).  Except as set forth on Schedule 3.5(d),
all of the issued and outstanding shares of capital stock of each Subsidiary of
the Company are directly or indirectly owned by the Company free and clear of
all Liens except for Permitted Liens.  No
Subsidiary of the Company has any outstanding options or warrants relating to
its capital stock or any outstanding securities or obligations convertible into
or exchangeable for, or giving any Person any right to subscribe for or acquire
from it, any shares of its capital stock. 
There are no (i) outstanding obligations of any Subsidiary of the
Company to repurchase, redeem or otherwise acquire any of its capital stock or
(ii) voting trusts, proxies or other agreements among its stockholders with
respect to the voting or transfer of the capital stock of such Subsidiary.  All of the issued and outstanding shares of
capital stock of each Subsidiary of the Company have been duly authorized,
validly issued, are fully paid and are nonassessable.

 26
 

 

 

3.6.          Financial Statements; Real Mex SEC Reports.

(a)           Each of the
consolidated financial statements of the Company (including the related notes)
included in the Real Mex SEC Reports were derived from the books and records of
the Company and presents fairly, in all material respects, the consolidated
financial position and consolidated results of operations and cash flows of the
Company and its consolidated Subsidiaries as of the respective dates or for the
respective periods set forth therein, all in conformity with GAAP, except as
otherwise noted therein or on Schedule 3.6(a) hereto, and subject, in
the case of the unaudited interim financial statements, to the absence of
footnotes and to normal year-end adjustments.

(b)           The Company has
filed with, or furnished to, as applicable, the SEC all of the Real Mex SEC
Reports.  As of the respective dates they
were filed (and if amended or superseded by a filing prior to the date of this
Agreement then as of the date of such filing), (i) each Real Mex SEC Report
complied in all material respects with the applicable requirements of the
Securities Act, the Exchange Act and the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley
Act”), and the applicable rules and regulations of the SEC promulgated
thereunder, and (ii) none of the Real Mex SEC Reports contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading.  No Subsidiary of the Company is required to
file any form, report or other document with the SEC or any national securities
exchange or quotation service.

(c)           The Company has
provided to Parent true, correct and complete copies of all written
correspondence with the SEC since December 31, 2003.  The Company does not have Knowledge of any
ongoing SEC review of any of the Real Mex SEC Reports.

(d)           The Company is in
compliance in all material respects with the applicable provisions of the
Sarbanes-Oxley Act currently required to be complied with by it.

(e)           Since December 31,
2003, the Company has not received any oral or written notification from its
independent auditors of a “reportable condition” or “material weakness” in the
Company’s internal controls (as defined in Statement of Auditing Standards 60,
as in effect on the date hereof).

3.7.          Absence of Certain Developments.

Except as set forth in Schedule
3.7 or as expressly permitted by this Agreement, since December 25, 2005
(i) there has not been any Material Adverse Effect and (ii) the Company has
conducted its business in the ordinary and usual course consistent with past
practices.  Without limitation of the
foregoing, since December 25, 2005 and except as set forth in Schedule 3.7
or as expressly permitted by this Agreement, neither the Company nor any of its
Subsidiaries has:

(a)           declared or made any
distribution or payment in respect of its capital stock by way of dividends,
purchase, or redemption of shares or otherwise;

(b)           made any increase in
the compensation payable or to become payable to any director, officer,
employee, or agent, except for (i) increases pursuant to existing contractual
obligations disclosed on Schedule 3.13 or Schedule 3.15, (ii)
increases for non-officer employees or agents (x) to the extent that the annual
post-increase salary or wages of such employees do not exceed $80,000, and (y)
otherwise made in the ordinary course of business consistent with past 

 27
 

 

 

practice,
and (iii) any transaction bonuses paid to management in connection with the Closing
that constitute Seller Expenses;

(c)           entered into any
employment retention, severance or change in control contract or agreement with
any Person;

(d)           established any
Employee Benefit Plan, or amended any Employee Benefit Plan except as required
by Law;

(e)           effected any sale,
assignment, or transfer of material assets other than in the ordinary course of
business consistent with past practice;

(f)            mortgaged, pledged,
or subjected to any Lien any asset, other than Permitted Liens, Permitted Real
Property Encumbrances or other Liens securing Funded Indebtedness;

(g)           other than in the
ordinary course of business or as contemplated by clause (h) below, waived or
released any material claim or right;

(h)           abandoned or
permitted the lapse or cancellation of any material item of the Company-owned
Intellectual Property Rights or any license of material Intellectual Property
Rights to the Company or its Subsidiaries, other than with respect to
Intellectual Property Rights that the Company or its Subsidiaries have, in the
exercise of their reasonable business judgment, determined are not necessary to
the conduct of their respective businesses;

(i)            entered into or
terminated any Contract outside the ordinary course of business; or

(j)            made any material
change in the Tax elections made by the Company or any of its Subsidiaries or
settled or compromised any material income Tax liability of the Company or any
of its Subsidiaries.

3.8.          Compliance with Laws; Governmental
Authorizations; Licenses; Etc.

Except as set forth in Schedule 3.8 and except
with respect to Environmental Laws (which matters are addressed in Section
3.11), the Company and its Subsidiaries are in compliance with all applicable
laws, rules, regulations, codes, ordinances, orders, policies and guidelines of
all Governmental Authorities, except for noncompliance which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.  Except as set forth in Schedule
3.8, the Company and its Subsidiaries have all permits, licenses,
approvals, certificates and other authorizations, and have made all
notifications, registrations, certifications and filings with all Governmental
Authorities, necessary or advisable for the operation of its business as
currently conducted, except as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.  Except as set forth in Schedule 3.8
and except with respect to Environmental Laws (which matters are addressed in
Section 3.11), there is no action, case or proceeding pending or, to the
Company’s Knowledge, threatened by any Governmental Authority with respect to
(i) any alleged violation by the Company or its Subsidiaries of any
statute, law, rule, regulation, code, ordinance, order, policy or guideline of
any Governmental Authority, or (ii) any alleged failure by the Company or
its Subsidiaries to have any permit, license, approval, certification or other
authorization required in connection with the operation of the business of the
Company and its Subsidiaries, except for any such violation or failure as would
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.

 28

 

 

3.9.                              Litigation.

Except as set forth in Schedule
3.9 and except with respect to Environmental Laws (which matters are
addressed in Section 3.11), there are no lawsuits, actions, proceedings, claims
or complaints by or before any Governmental Authority, pending or, to the
Company’s Knowledge, threatened against the Company or its Subsidiaries
(i) relating to the Company, its Subsidiaries or their business or
properties which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect, or (ii) seeking to enjoin the
transactions contemplated hereby.  Except
as set forth in Schedule 3.9, neither the Company nor its Subsidiaries
are subject to any order, writ, judgment, investigation or decree of any court
or Governmental Authority which, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.

3.10.                        Taxes.

(a)                                  Except as set forth on Schedule 3.10,
the Company and its Subsidiaries have duly and timely filed all material Tax
Returns required to be filed by them, and all such Tax Returns have been
prepared in material compliance with all applicable laws and regulations and
are true, correct and complete in each case in all material respects.  Except as set forth in Schedule 3.10,
all material Taxes owed by each of the Company and its Subsidiaries (whether or
not shown as due on such Tax Returns) have been timely paid.

(b)                                 Except as set forth on Schedule 3.10:

(i)                                     neither the Company nor any of its
Subsidiaries is currently the subject of a material Tax audit or examination;

(ii)                                  neither the Company nor any of its
Subsidiaries has consented to extend the time, or is the beneficiary of any
extension of time, in which any Tax may be assessed or collected by any
Governmental Authority; and

(iii)                               no Governmental Authority with which the
Company or any of its Subsidiaries does not file Tax Returns has asserted in
writing that the Company or any of its Subsidiaries is or may be required to
pay any material Taxes to or file Tax Returns reflecting a material amount of
Taxes with that Governmental Authority.

(c)                                  Neither the Company nor any of its
Subsidiaries is a party to a Tax sharing agreement or any other agreement to
indemnify any Person for Tax liability. 
Except as set forth on Schedule 3.10, neither the Company nor any
of its Subsidiaries is a party to any agreement that, by reason of, or in
connection with, the consummation of the transactions contemplated by this
Agreement, would result in the payment of any “excess parachute payment” within
the meaning of Section 280G of the Code or would constitute compensation in
excess of the limitations set forth in Section 162(m) of the Code.  The Company and its Subsidiaries have
withheld and paid all material Taxes required to have been withheld and paid in
connection with amounts paid to any employee, independent contractor, agent or
other Person for all periods for which the statutory period of limitations for
the assessment of such Tax has not yet expired.

(d)                                 There are no accounting method changes, or
proposed or threatened accounting method changes, of the Company or any of its
Subsidiaries that will give rise to a material adjustment under Section 481 of
the Code or any similar provision of state or local Tax law for periods after
the Closing Date.  Neither the Company
nor any of its Subsidiaries has received or is subject to any written ruling of
a taxing authority related to Taxes or has entered into any written

 29
 

 

and
legally binding agreement with a taxing authority relating to Taxes, which
agreement will have continuing effect after the Closing Date.  Neither the Company nor any of Subsidiaries
has any liability for Taxes of any person or entity other than the Company or
any of its Subsidiaries (i) under Section 1.1502-6 of the Treasury regulations
(or any similar provision of state, local or foreign law), (ii) as a transferee
or successor, (iii) by Contract or (iv) otherwise.

(e)                                  Neither the Company nor any of its
Subsidiaries has participated in or cooperated with an international boycott
within the meaning of Section 999 of the Code. 
Neither the Company nor any of its Subsidiaries has participated in a “listed
transaction” within the meaning of Treasury Regulations Section
1.6011-4(b).  Neither the Company or any
of its Subsidiaries will be required to include any material item of income in,
or exclude any item of deduction from, taxable income for any taxable period
(or portion thereof) ending after the Closing Date as a result of any: (i)
installment sale or open transaction disposition made on or prior to the
Closing Date or (ii) prepaid amount received on or prior to the Closing Date.

3.11.                        Environmental Matters.

(a)                                  Except as set forth on Schedule 3.11
hereto, the Company and its Subsidiaries are in compliance with all
Environmental Laws, except for any failures to so comply as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

(b)                                 Except as set forth on Schedule 3.11
hereto, the Company and its Subsidiaries have not received any written notice
from any Governmental Authority or other Person regarding any actual or alleged
violation of Environmental Laws, or any liabilities or potential liabilities
for personal injury, property damage or investigatory or cleanup obligations
arising under Environmental Laws, in either case the subject of which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.

(c)                                  Except as set forth on Schedule 3.11
hereto, neither the Company nor its Subsidiaries have disposed of or released
any Hazardous Substance on the Owned Real Property or Leased Property so as to
give rise to any liabilities or investigatory, corrective or remedial
obligations under any Environmental Laws which, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect.

(d)                                 The Company has provided to Buyer all
material non-privileged documents and records in the possession of the Company
concerning any material environmental or health and safety matter relevant to
the Company, its Subsidiaries or to any Owned Real Property or Leased Property.

3.12.                        Employee Matters.

Except as set forth on Schedule
3.12, (i)  the
Company and its Subsidiaries have not entered into any collective bargaining
agreements with respect to their employees, (ii) there
is no labor strike, labor dispute, or work stoppage or lockout pending or, to
the Company’s Knowledge, threatened against or affecting the Company or any of
its Subsidiaries and during the past two years there has been no such action,
(iii) to the Company’s Knowledge, no union
organization campaign is in progress with respect to any of the employees of
the Company or its Subsidiaries, and no question concerning representation
exists respecting such employees, and (iv) there
is no unfair labor practice, charge or complaint pending against the Company or
any of its Subsidiaries except as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.  The Company and its Subsidiaries have not
engaged in any employee layoff activities within the last two (2) years that
would violate or in any way

 30
 

 

implicate the Worker
Adjustment Retraining and Notification Act of 1988, as amended, or any similar
state or local mass layoff statute, rule or regulation.

3.13.                        Employee Benefit Plans

(a)                                  Schedule 3.13(a) lists all Employee Benefit Plans.

(b)                                 Except as set forth on Schedule 3.13(b),
no Employee Benefit Plan is a Multiemployer Plan or a plan that is subject to
Title IV of ERISA, and no Employee Benefit Plan provides health or other
welfare benefits to former employees of the Company or any of its Subsidiaries
other than as required by COBRA.

(c)                                  Except as set forth on Schedule 3.13(c),
each Employee Benefit Plan is maintained and administered in compliance in all
material respects with the terms of such plan and the applicable requirements
of ERISA, the Code and any other applicable laws.  Each Employee Benefit Plan that is intended
to be qualified under Section 401(a) of the Code has received a
determination from the Internal Revenue Service that it is so qualified and, to the Company’s Knowledge, there are no
facts or circumstances that would be reasonably likely to adversely affect the
qualified status of any such Employee Benefit Plan.

(d)                                 No material liability under Title IV of ERISA
has been or, to the Company’s Knowledge, is expected to be incurred by any
ERISA Affiliate that would reasonably be expected to become a liability of the
Company or any of its Subsidiaries.

(e)                                  The Company and the ERISA Affiliates have
complied, in all material respects, with the requirements of COBRA.

(f)                                    Neither the Company nor any of its
Subsidiaries has, nor to the Company’s Knowledge has any other Person, engaged
in any transaction with respect to any Employee Benefit Plan that would be
reasonably likely to subject the Company or any of its Subsidiaries to any
material Tax or penalty (civil or otherwise) imposed by ERISA, the Code or
other applicable law.

(g)                                 With respect to each Employee Benefit Plan,
the Company has provided to Parent and Newco true, complete and correct copies,
to the extent applicable, of (i) the plan and trust documents and the most
recent summary plan description, (ii) the most recent annual report (Form
5500 series), (iii) the most recent financial statements, and
(iv) the most recent Internal Revenue Service determination letter.

3.14.                        Intellectual Property Rights.

(a)                                  Except as set forth in Schedule 3.14,
the Company and its Subsidiaries own and possess all right, title and interest
in (other than license agreements executed in the normal course of business),
or have a license to use, all of the material Intellectual Property Rights
necessary for the conduct of the business of the Company and its Subsidiaries
as currently conducted (the “Company Intellectual Property Rights”).  Schedule 3.14 sets forth a list of:
(i) all registered Company Intellectual Property Rights owned by the Company or
any of its Subsidiaries; (ii) all applications for the registration of Company
Intellectual Property Rights owned by the Company or any of its Subsidiaries;
(iii) all material trade and corporate names or logos owned or used by the
Company or any of its Subsidiaries; and (iv) all computer software (other than
mass-marketed

 31
 

 

software
having a license fee of less than $25,000) owned or used by the Company or its
Subsidiaries as of the date hereof.

(b)                                 Except as set forth in Schedule 3.14,
there is no pending claim against the Company or any of its Subsidiaries by any
third party contesting the validity, enforceability, or ownership of any
Company Intellectual Property Right. 
Except as set forth on Schedule 3.14, the Company and its
Subsidiaries have not received any written notice or claim that any of them
have infringed any Intellectual Property Rights of any third party, which such
claims, individually or in the aggregate, would reasonably be expected to have
a Material Adverse Effect.  To the
Knowledge of the Company, the operation of the businesses of the Company or its
Subsidiaries does not infringe the Intellectual Property Rights of any third
party.  Except as set forth in Schedule
3.14, to the Company’s Knowledge no third party is infringing or
misappropriating any of the Company Intellectual Property Rights, which such
infringement or misappropriation, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.

3.15.                        Contracts.

Schedule 3.15 sets forth all written contracts (except for
purchase or service orders executed in the normal course of business),
agreements, leases, permits or licenses, to which as of the date hereof the
Company or any of its Subsidiaries is a party or is otherwise bound, of the
type described below (the “Contracts”):

(a)                                  all agreements or commitments for the
purchase or lease by the Company or any of its Subsidiaries of delivery
vehicles, machinery, equipment, supplies or other personal property other than
those that are for amounts not in excess of $500,000;

(b)                                 all employment agreements and all consulting
agreements in each case to the extent involving annual compensation in excess
of $200,000 and not terminable at-will;

(c)                                  all material license, royalty or other
agreements relating to any of the Company Intellectual Property Rights owned by
the Company or any of its Subsidiaries;

(d)                                 all agreements prohibiting the Company or any
of its Subsidiaries from freely engaging in any material business;

(e)                                  all mortgages, indentures, notes, bonds or
other agreements relating to indebtedness incurred or provided by the Company
or any of its Subsidiaries in an amount in excess of $250,000;

(f)                                    all partnership agreements, joint venture
agreements and franchise agreements relating to the Company and its
Subsidiaries;

(g)                                 except for restrictions contained in the
Material Leases, all non-competition or exclusive dealing agreements, or any
other agreement or obligation which purports to limit or restrict in any
respect (i) the ability of the Company or its Subsidiaries to compete in any
line of business, (ii) the ability of the Company or its Subsidiaries to
solicit customers for their businesses, or (C) the localities in which all or
any portion of the business of the Company or its Subsidiaries may conducted;

 32
 

 

(h)                                 all other agreements or commitments not
described in clauses (a) through (g) that require payments to or from the
Company or its Subsidiaries in any fiscal year in excess of $500,000; and

(i)                                     any commitment to do any of the foregoing
described in clauses (a) through (h).

Each Contract set forth on Schedule 3.15,
each other material agreement to which the Company or one of its Subsidiaries
is bound or subject, and each Material Lease (collectively with all of the
Contracts, the “Company Contracts”) is a valid and binding agreement of
the Company or a Subsidiary, as applicable, enforceable in accordance with its
terms (subject to applicable bankruptcy, insolvency, reorganization, moratorium
or other laws affecting generally the enforcement of creditors’ rights and
subject to general principles of equity). 
Except as set forth in Schedule 3.15, the Company or a Subsidiary
and, to the knowledge of the Company, each of the other parties thereto, have
performed all obligations required to be performed by them under, and are not
in default under, any of the Company Contracts and no event has occurred which,
with notice or lapse of time, or both, would constitute such a default, except
for any such non-performance or defaults which would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.  Except as disclosed on Schedule 3.15,
the Company has not received any written claim during the last 2 years from any
other party to any such Company Contract that the Company or any of its
Subsidiaries has breached any obligations to be performed by it thereunder, or
is otherwise in default or delinquent in performance thereunder, in any manner
that, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.  The Company has
provided to Newco true and complete copies of all Contracts, including all
amendments thereto.

3.16.                        Insurance.

Schedule 3.16 contains an accurate and complete
description of all current policies of fire, liability, workers’ compensation,
property, casualty and other forms of insurance owned or held by the Company
and its Subsidiaries as of the date hereof. 
All such policies are in full force and effect and will continue in
effect until Closing (or if such policies are canceled or lapse prior to
Closing, renewals or replacements thereof will be entered into in the ordinary
course of business to the extent available on commercially reasonable
terms).  No notice of cancellation or
termination (except with respect to expiration of a policy in accordance with
its terms, which policy will be renewed or replaced as aforesaid) has been
received with respect to any such policy.

3.17.                        Real Property.

(a)                                  Schedule 3.17(a) sets forth the address of each parcel of
real property owned by the Company or its Subsidiaries (the “Owned Real
Property”).  With respect to each
parcel of Owned Real Property: (i) the Company or one of its Subsidiaries has
good and valid fee simple title, free and clear of all Liens, except Permitted
Real Property Encumbrances; (ii) except for Permitted Real Property
Encumbrances or as set forth on Schedule 3.17(a), neither the Company
nor any of the Subsidiaries has leased or otherwise granted to any Person the
right to use or occupy such Owned Real Property or any portion thereof; and
(iii) there are no outstanding options, rights of first offer or rights of
first refusal to purchase such Owned Real Property or any portion thereof or
interest therein.

(b)                                 Schedule 3.17(b) sets forth (whether as lessee or lessor) a
list of all leases and subleases (including date, store number and names of the
parties to such document) of real property (such real property, the “Leased
Property”) to which the Company or any of its Subsidiaries is a party or by
which it is bound as of the date hereof (each a “Material Lease”, and

 33
 

 

collectively
the “Material Leases”).  Except as
set forth on Schedule 3.17(b), each Material Lease is valid and
binding on the Company or a Subsidiary and, to the Company’s Knowledge, on the
other parties thereto and is in full force and effect.  Except as set forth on Schedule 3.17,
the Company or a Subsidiary and, to the Company’s Knowledge, each of the other
parties thereto has performed in all material respects all material obligations
required to be performed by it under each Material Lease.  The Owned Real Property and, to the Company’s
Knowledge, the Leased Property complies with all applicable laws and is
benefited by those licenses or permits required to be maintained for the
development, or use or occupancy of any portion of the Owned Real Property or
Leased Property, except to the extent such failures to comply, individually or
in the aggregate, would not reasonably be expected to have a Material Adverse
Effect.

3.18.                        Title to Assets.

The Company and its
Subsidiaries have such title to all of their assets and properties (including
those reflected on the Recent Balance Sheet, but excluding any such assets and
properties sold, consumed, or otherwise disposed of in the ordinary course of
business since June 25, 2006) as is necessary to permit the use and enjoyment
of such assets and properties taken as a whole in the manner such assets and
properties are now utilized by the Company and its Subsidiaries, free and clear
of all Liens except for Permitted Liens or Permitted Real Property Encumbrances
and except as set forth on Schedule 3.18.

3.19.                        Related Party Transactions.

Except as set forth on Schedule
3.19, none of the Company’s directors, executive officers or stockholders
owning greater than 5% of the issued and outstanding Common Stock is involved
in any business arrangement or relationship with the Company or any of its
Subsidiaries other than employment arrangements entered into in the ordinary
course of business, and none of the Company’s directors, executive officers or
5% holders of Common Stock owns any material property or right, tangible or
intangible, which is used by the Company or its Subsidiaries.

3.20.                        Brokers.

Except for Piper Jaffray
& Co., Deutsche Bank Securities Inc. and Wachovia Capital Markets, LLC, no
Person is or will be entitled to a broker’s, finder’s, investment banker’s,
financial adviser’s or similar fee from the Company or its Subsidiaries in
connection with this Agreement or any of the transactions contemplated hereby.

3.21.                        Undisclosed Liabilities.

Neither the Company nor any
of its Subsidiaries have any liabilities or obligations, other than (a) as
specified on Schedule 3.21 hereto, the other Schedules hereto or the
Real Mex SEC Reports, (b) as disclosed in the Company SEC Financial Statements
or the notes thereto (except as heretofore paid or discharged), (c) as incurred
in the ordinary course of business of the Company or such Subsidiary since the
date of the Recent Balance Sheet or incurred in connection with this Agreement
and the transactions contemplated hereby, (d) liabilities or obligations
arising under the executory portion of any contract by which the Company or any
of its Subsidiaries is bound or (e) liabilities or obligations which would not
reasonably be expected to have a Material Adverse Effect.

3.22.                        Assets.

All tangible personal
property of the Company and its Subsidiaries is usable in the ordinary course
of business, subject to normal wear and tear or other deficiencies or inability
to use which would

 34
 

 

not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.  Except for those items that the Company and
its Subsidiaries have rights to under valid leases, licenses or other valid
right to use, no Person other than the Company or its Subsidiaries owns any
vehicles, equipment, or other tangible assets that are currently used in by the
Company or its Subsidiaries which are material to the operations of their
respective business.  The assets of the
Company and its Subsidiaries taken as whole are in good working condition,
subject to normal wear and tear, and, there are no facts or conditions affecting
such assets that could, individually or in the aggregate, interfere in any
respect with the use, occupancy, or operation thereof as currently used,
occupied, or operated, except, in each case, which would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.

3.23.                        Franchises.

(a)                                   Schedule 3.23(a) hereto accurately
identifies all current franchise agreements, development agreements, and master
franchise agreements to which the Company or any of its Subsidiaries is a party
as of the date hereof (collectively, “Franchise Agreements”), by name of
franchisee, licensee or developer (“Franchisee”), date of agreement,
location of restaurant(s), and type of restaurant concept, and except as
provided on Schedule 3.14 no other contracts exist between the Company
or any of its Subsidiaries and any third party granting the right, or any
option or right of first refusal, to conduct business under the names “Chevys
Fresh Mex”, “Chevys Express Mex”, “Fuzio Universal Pasta”, “El Torito
Restaurant” or any other trade marks or trade names owned or used by the
Company or any of its Subsidiaries. The Company has made available to Parent
and Newco true and complete copies of each Franchise Agreement.

(b)                                 Except as set forth on Schedule 3.23(b)
hereto and except as would not, in the aggregate, reasonably be expected to
have a Material Adverse Effect:  (i)
there are no disputes between the Company or any of its Subsidiaries, on the
one hand, and any Franchisee, on the other hand; (ii) each Franchise Agreement
is enforceable and in full force and effect in all material respects (subject
to applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting generally the enforcement of creditors’ rights and subject to general
principles of equity); (iii) neither the Company nor any of its Subsidiaries
(and to the Company’s Knowledge, no counter-party) is in breach of any
Franchise Agreement, and to the Company’s Knowledge no event has occurred that
with notice or lapse of time would constitute a breach under the Franchise
Agreement; and (iv) no party to a Franchise Agreement has delivered a written
demand or request for early termination, cancellation or other cessation
thereof.

(c)                                  Except as set forth on Schedule 3.23(c)
hereto and except as would not, in the aggregate, reasonably be expected to
have a Material Adverse Effect, neither the Company nor any of its Subsidiaries
has committed any material violation of any law, rule or regulation of the
Federal Trade Commission or of any foreign country, state or other jurisdiction
relating to the relationship between franchisors and franchisees, or the offer,
sale, assignment, renewal, advertising, termination or rights of succession, of
franchises, business opportunities or seller-assisted marketing plans
(collectively, “Franchise Laws”), including but not limited to making
any unauthorized earnings claims to prospective franchisees.

3.24.                        Suppliers.

None of the Company’s or any
of its Subsidiaries’ material suppliers has given the Company or any of its
Subsidiaries written notice terminating, canceling, or threatening to terminate
or cancel (or reduce business under) any material contract with the Company or
its Subsidiaries (or otherwise advising

 35
 

 

the Company or its
Subsidiaries of such actions or intentions), nor does the Company or its
Subsidiaries have Knowledge that any such material supplier has any such
intention.

3.25.                        NO ADDITIONAL REPRESENTATIONS.

EXCEPT AS OTHERWISE
EXPRESSLY SET FORTH IN THIS AGREEMENT, (A) THE COMPANY EXPRESSLY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR IMPLIED,
INCLUDING AS TO THE CONDITION, VALUE, PROSPECTS OR QUALITY OF THE BUSINESS OR
THE ASSETS OF THE BUSINESS, AND (B) THE COMPANY SPECIFICALLY DISCLAIMS ANY REPRESENTATION
OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY
PARTICULAR PURPOSE WITH RESPECT TO THE ASSETS OF THE BUSINESS, OR ANY PART
THEREOF, OR AS TO THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS
THEREIN, WHETHER LATENT OR PATENT.

ARTICLE 4 - 

REPRESENTATIONS AND WARRANTIES OF PARENT AND NEWCO

Parent and Newco jointly and
severally represent and warrant to the Company:

4.1.                              Organization.

Each of Parent and Newco is
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all requisite corporate power
and authority to own, lease and operate its property and assets and to carry on
its business as presently conducted.  Each
of Parent and Newco has delivered or made available to the Company true and
complete copies of its certificate of incorporation and by-laws (as
currently in effect).  Newco holds no
tangible personal property or real property and has not and will not prior to
the Effective Time conduct any business or make any investments except as
contemplated by this Agreement.

4.2.                              Authorization.

Each of Parent and Newco has
the corporate power and authority to execute and deliver this Agreement and
each other agreement or instrument to be executed in connection herewith and,
subject to receipt of the Newco Stockholder Approval, to perform its
obligations hereunder and thereunder, all of which have been duly authorized by
all requisite corporate action.  Subject
to receipt of the Newco Stockholder Approval, this Agreement and each other
agreement or instrument to be executed in connection herewith has been duly
authorized, executed and delivered by Parent and Newco and constitutes a valid
and binding agreement of Parent and Newco, enforceable against Parent and Newco
in accordance with its terms.

4.3.                              Non-contravention.

The execution, delivery and
performance by Parent and Newco of this Agreement and any other Merger
Document, the consummation of the Merger and the other transactions
contemplated hereby do not and will not (i) contravene
any provision contained in such entity’s certificate of incorporation or
bylaws, (ii) conflict with, violate or
result in a material breach (with or without the lapse of time, the giving of
notice or both) of or constitute a material default (with or without the lapse
of time, the giving of notice or both) under, or require the consent or
approval of any third party under (A) any contract, agreement, commitment,
indenture, mortgage, lease, pledge, note, bond, license, permit or other

 36
 

 

instrument or obligation or
(B) assuming satisfaction of the requirements set forth in Section 4.4
below, any judgment, order, decree, statute, law, rule or regulation or other
restriction of any Governmental Authority, in each case to which such entity is
a party or by which it is bound or to which any of its assets or properties are
subject, (iii) except as
contemplated herein or with respect to Liens granted to any lender at the
Closing in connection with any financing by Parent or Newco of the transactions
contemplated hereby, result in the creation or imposition of any Lien on any of
the assets or properties of such entity, or (iv) result
in the acceleration of, or permit any Person to terminate, modify, cancel,
accelerate or declare due and payable prior to its stated maturity any material
obligation of such entity.

4.4.                              No Consents.

No consent, approval, order,
permit or authorization of, or registration, declaration, notice or filing
with, any Governmental Authority is required by or with respect to Parent or
Newco in connection with the execution and delivery of this Agreement by
Parent and Newco or the consummation by Parent and Newco of the Merger and the
other transactions contemplated hereby, except for those required under or in
relation to the HSR Act or the filing of the Certificate of Merger in
accordance with the DGCL, except as set forth on Schedule 4.4 and except
as would not, individually or in the aggregate, reasonably be expected to have
a material adverse effect on Parent’s or Newco’s ability to consummate the
transactions contemplated by this Agreement.

4.5.                              Litigation.

Neither Parent nor Newco is
party to any litigation or threatened litigation which would reasonably be
expected to affect or prohibit the consummation of the transactions
contemplated hereby.

4.6.                              Financial Ability.

 In accordance with the commitment letter
attached hereto as Exhibit E (the “Commitment Letter”), subject
to the receipt of the funding commitment set forth therein, Parent and Newco
will have as of the Effective Time immediately available funds necessary to
consummate the Merger and the transactions contemplated by this Agreement and
to pay all related fees and expenses. 
Nothing contained in the Commitment Letter nor in any other agreement
entered into by the Merger Sub or Parent in connection with transactions
contemplated hereby will require the Senior Secured Notes to become due and
payable on the Closing Date (it being understood that for purposes of this
Section 4.6 the Senior Secured Notes shall not be deemed to be due and payable
on the Closing Date in connection with any tender pursuant to a Change of
Control Offer (as defined in the Indenture) pursuant to Section 4.15 of the
Indenture).   The Commitment Letter
constitutes all of the agreements entered into between the parties identified
in such letter with respect to their obligations to make available funds
necessary to consummate the Merger as described therein.  The Commitment Letter has been duly executed
and delivered by all parties thereto, are legal, valid and binding, in full
force and effect and have not been amended. 
The obligations to fund the commitments under the Commitment Letter are
not subject to any condition other than the conditions set forth in the
Commitment Letter.

 37
 

 

ARTICLE 5 - 

COVENANTS AND AGREEMENTS

5.1.                              Stockholder Matters.

(a)                                  The Company shall take all action necessary
in accordance with the DGCL and its Certificate of Incorporation and bylaws to
obtain the requisite approval and adoption of this Agreement and the Merger by
the holders of a majority of the issued and outstanding shares of Common Stock
and Series C Preferred Stock by written consent (a copy of the form of which is
attached hereto as Exhibit F) pursuant to Section 228 of the DGCL
(the “Company Stockholder Approval”) and shall take such other actions
as may be required by such Section, including sending the notice required by
Sections 228(e) and 262 of the DGCL together with such information regarding
the Merger as is required by Law and as the parties may otherwise mutually
agree.

(b)                                 Newco shall take all action necessary in
accordance with the DGCL and its certificate of incorporation and bylaws to
obtain the approval and adoption of this Agreement and the Merger by Parent, as
the sole stockholder of Newco, by unanimous written consent, a copy of the form
of which is attached hereto as Exhibit G (the “Newco Stockholder
Approval”), and, other than the Newco Stockholder Approval, no vote or
approval of Parent (except the approval of the board of directors of Parent
which has already been obtained) is necessary for the execution, approval,
adoption or performance of this Agreement and the Merger by Parent or Newco.

5.2.                              Access and Information.

(a)                                  From the date hereof until the Closing Date
or termination of this Agreement, Parent and Newco shall be entitled to make or
cause to be made such reasonable investigation of the Company and its
Subsidiaries, and the financial and legal condition thereof, as Parent and
Newco deem reasonably necessary or advisable during normal business hours and
upon advance notice, and the Company shall cooperate with any such reasonable
investigation to the extent such access does not unreasonably interfere with
the operations, activities and employees of the Company and its Subsidiaries.  The foregoing investigation rights shall not
include the right to (i) take any samples or conduct any environmental reviews
or investigations the written work plan for which has not been approved by the
Company in its sole discretion, (ii) have access to any information the
disclosure of which is restricted by contract or applicable law or which would
result in the waiver of any privileges, or (iii) have access to any formulae,
know-how or other proprietary knowledge of the Company or its Subsidiaries.  Parent and Newco and its representatives and
agents shall not contact or hold discussions with suppliers or customers of the
Company or its Subsidiaries without the prior written consent of the Company
and in any event only with the participation of representatives of the
Company.  Parent and Newco agree to
conduct any such discussions with reasonable discretion and sensitivity to the
Company’s and its Subsidiaries’ relationships with their respective suppliers,
customers and employees.

(b)                                 All information disclosed, whether before or
after the date hereof, pursuant to this Agreement or in connection with the
transactions contemplated by, or the discussions and negotiations preceding,
this Agreement to Parent and Newco (or their representatives or affiliates)
shall be kept confidential by such Persons in accordance with the
confidentiality agreement dated January
19, 2006 by and between Piper Jaffray & Co. as agent for the Company
and Sun Capital

 38
 

 

Partners Group IV, Inc. (the “Confidentiality Agreement”).  At the Effective Time, the Confidentiality
Agreement shall terminate and be of no further force and effect.

(c)                                  Other than with respect to any disputes
between the parties hereto, including the Representative, after the Effective
Time, Parent shall make available and shall cause the Surviving Corporation to
make available to the Representative and its accountants, agents and
representatives any and all books, records, contracts and other information of
the Company and its Subsidiaries existing at the Effective Time to the extent
requested by the Representative in connection with any purposes contemplated by
this Agreement.  Parent will cause the
Surviving Corporation to hold all of the books and records of the Company and
its Subsidiaries existing on the Effective Date and not destroy or dispose of
any thereof for a period of seven years from the Effective Date or such longer
time as may be required by law, and thereafter, if it desires to destroy or
dispose of such books and records, will offer first in writing at least 60 days
prior to such destruction or disposition to surrender them to the
Representative.

5.3.                              Conduct of Business by the Company.

From the date hereof to the
Effective Time, the Company will and will cause each of its Subsidiaries to,
except as otherwise contemplated or provided herein or consented to in writing
by Parent (which consent shall not be unreasonably withheld), conduct its
business only in the ordinary course consistent with past practice, and not
take or omit to be taken any action which would result in a Material Adverse
Effect.  Without limiting the foregoing,
from the date hereof and prior to the Closing Date, except as set forth in Schedule
5.3 or unless Parent shall otherwise consent in writing (which consent
shall not be unreasonably withheld), the Company shall, and shall cause each of
its Subsidiaries to:

(a)                                  not amend its Certificate of Incorporation or
bylaws;

(b)                                 not merge or consolidate with, or purchase
all or substantially all of the assets of, or otherwise acquire the business
of, any person;

(c)                                  not sell, transfer, lease or otherwise
dispose of any material assets other than in the ordinary course of business
and consistent with past practice;

(d)                                 maintain its books of account and records
consistent with its past practice in all material respects;

(e)                                  not issue any capital stock or issue or
become a party to any subscriptions, warrants, rights, options, convertible
securities or other agreements or commitments of any character relating to its
issued or unissued capital stock, or its other equity securities, if any, or
grant any stock appreciation or similar rights (other than issuances of capital
stock upon the exercise of any Company Stock Options or Warrants);

(f)                                    not declare or pay any dividend or make any
other distribution to its stockholders in respect of its capital stock (other
than dividends or distributions payable to the Company or its wholly owned
Subsidiaries to the extent permitted by the Indenture);

(g)                                 not make any material change in any method of
accounting or accounting practice or policy other than those required by GAAP;

 39
 

 

(h)                                 except as set forth in the Company’s 2006
budget for capital expenditures attached hereto as Schedule 5.3(h), not
make any capital expenditures in excess of $500,000 individually or $2,000,000
in the aggregate;

(i)                                     not make any increase in the compensation
payable or to become payable to any director, officer, employee, or agent,
except for (i) increases pursuant to existing contractual obligations disclosed
on Schedule 3.13 or Schedule 3.15, (ii) increases for non-officer
employees or agents (x) to the extent that the annual post-increase salary or
wages of such employees do not exceed $80,000, and (y) otherwise made in the
ordinary course of business consistent with past practice, and (iii) any
transaction bonuses paid to management in connection with the Closing that
constitute Seller Expenses;

(j)                                     not intentionally delay or postpone the
payment of its accounts payables beyond when customarily paid (other than with
respect to payables being disputed or contested in good faith);

(k)                                  not make any material change in the Tax
elections made by the Company or any of its Subsidiaries or settle or
compromise any material income Tax liability of the Company or any of its
Subsidiaries; and

(l)                                     not agree or commit to do any of the
foregoing referred to in clauses (a) - (k) of this Section 5.3.

5.4.                              Closing Documents.

The Company shall, prior to
or on the Closing Date, execute and deliver, or cause to be executed and
delivered to Parent and Newco, the documents or instruments described in Section
6.2.  Parent and Newco shall, prior
to or on the Closing Date, execute and deliver, or cause to be executed and
delivered, to the Company, the documents or instruments described in Section
6.3.

5.5.                              Reasonable Best Efforts; Further
Assurances.

Subject to the terms and
conditions herein provided, each of the parties hereto shall use its
commercially reasonable best efforts to take, or cause to be taken, all action,
and to do, or cause to be done, all things reasonably necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement.  Each of the Company and Parent and Newco will
use their respective commercially reasonable best efforts to obtain consents of
all Governmental Authorities and third parties necessary to the consummation of
the transactions contemplated by this Agreement; provided, however,
that neither Parent nor Newco nor any of their Affiliates shall be required to
consent to the divestiture or other disposition of any of its assets or consent
to any other conduct or structural remedy and neither Parent nor Newco nor
their Affiliates shall have any obligation to contest, administratively or in
court, any order or other action of any Governmental Authority or private party
respecting the transactions contemplated by this Agreement; provided, further,
that the Company is not obligated to obtain further consents from third parties
under the leases listed on Schedule 3.3 so long as the conditions in Section
6.2(b)(iii) are satisfied.  Each
party shall bear its own costs incurred in connection with obtaining such
consents (and any such costs incurred by the Company shall be deemed to be
Seller Expenses); provided that the HSR Act filing fee shall be borne by
the Parent.  In connection with the
filing made pursuant to the HSR Act on July 28, 2006, each party shall supply
as promptly as practicable to the appropriate Governmental Authorities any
additional information and documentary material that may be requested pursuant
to the HSR Act, including a prompt response by the parties to any Request for
Additional Information from the Department of Justice or the Federal Trade

 40
 

 

Commission (the “FTC”).  Without limitation of the foregoing, the
Company, Parent, Newco and their respective affiliates shall not extend any
waiting period or comparable period under the HSR Act or enter into any
agreement with any Governmental Authority not to consummate the transactions
contemplated hereby, except with the prior written consent of the other parties
hereto.  Each party shall (A) promptly
notify the other party of any written communication to that party from the FTC,
the Antitrust Division or any other Governmental Authority and, subject to
applicable law, permit the other party to review in advance any proposed
written communication to any of the foregoing and (B) furnish the other party
with copies of all correspondence, filings, and communications (and memoranda
setting forth the substance thereof) between them and their respective
affiliates on the one hand, and any Governmental Authority on the other hand,
with respect to this Agreement and the Merger. 
Parent shall use its reasonable best efforts to assist the Company in
obtaining the Liquor License consents and approvals required for the
satisfaction of the condition set forth in Section 6.2(b)(iv).

5.6.                              Supplemental Disclosure.

(a)                                  The Company shall notify Parent in writing of
the occurrence, or failure to occur, of any event which occurrence or failure
would cause any representation or warranty of the Company contained in the
Merger Documents to be untrue or inaccurate at any time from the date hereof to
the Effective Time that could reasonably be expected to result in the failure
to satisfy any of the conditions specified in Article 6.  Any such notice shall not have the effect of
curing any breach or default of any representation or warranty contained
herein.

(b)                                 Between the date hereof and the Closing Date,
except with respect to any months for which quarterly or annual financial
statements are prepared (which financial statements shall be promptly provided
to Parent), the Company shall (i) furnish to Parent not later than the 30th day
following the end of any fiscal month ending prior to the Closing Date (if the
Closing has not occurred by such 30th day) its regularly prepared monthly financial
information in the form historically prepared by the Company’s management for
the period ended on such last day of such fiscal month, and (ii) promptly
notify Parent in writing of (A) any Material Adverse Effect and (B) the
institution of or, if the Company has Knowledge thereof, the threat of
institution of any lawsuits, actions, proceedings, claims or legal complaints
against the Company or any of its Subsidiaries related to this Agreement or the
Merger.

5.7.                              Public Announcements.

The timing and content of
all announcements regarding any aspect of this Agreement or the Merger to the
financial community, government agencies, employees or the general public shall
be mutually agreed upon in advance by the Company and Parent; provided
that each party hereto may make any such announcement which it in good faith
believes, based on advice of counsel, is required by law.  Notwithstanding the foregoing, each party
shall use its commercially reasonable best efforts to consult with the other
parties prior to any such announcement to the extent practicable, and shall in
any event promptly provide the other parties hereto with copies of any such
announcement.

5.8.                              Employee Benefits.

(a)                                  Parent and Newco hereby agree that Parent
shall cause the Surviving Corporation to, for a period of at least one year
following the Closing Date, continue to provide to employees of the Company and
its Subsidiaries compensation and employee benefit plans, programs and
arrangements that are substantially similar in the aggregate (excluding equity
arrangements but including existing bonus plans through December 31, 2006; provided,
however, that the Surviving Corporation shall not be required to
continue any aspect of such existing bonus plans

 41
 

 

describing
an “annual kicker bonus” or pay any “annual kicker bonus” under the terms of
such existing bonus plans) to the employee benefit plans, programs and
arrangements provided to such employees immediately prior to the Closing Date.

(b)                                 Parent and Newco hereby agree that, from and
after the Closing Date, Parent shall cause the Surviving Corporation to grant
all employees of the Company and its Subsidiaries credit for any service with
the Company or its Subsidiaries earned prior to the Closing Date (i) for
eligibility, vesting and benefit accrual purposes and (ii) for purposes of
vacation accrual under any employee benefit plan, program or arrangement
established or maintained by the Surviving Corporation or its Subsidiaries on
or after the Closing Date (the “Newco Plans”).  In addition, Parent and Newco hereby agree
that Parent shall cause (i) the Surviving Corporation to waive all pre-existing
condition exclusion and actively-at-work requirements and similar limitations,
eligibility waiting periods and evidence of insurability requirements under any
Newco Plans to the extent waived or satisfied by an employee under any Employee
Benefit Plan as of the Closing Date, and (ii) any covered expenses incurred on
or before the Closing Date by any employee (or covered dependent thereof) of
the Company or any of its Subsidiaries to be taken into account for purposes of
satisfying applicable deductible, coinsurance and maximum out-of-pocket
provisions after the Closing Date under any applicable Newco Plan.

(c)                                  Parent and Newco hereby agree to cause the
Surviving Corporation from and after the Effective Time to continue to be bound
by and comply with the terms of all written employment agreements and severance
agreements of the Company existing on the date hereof.

5.9.                              Indemnification of Directors and Officers.

(a)                                  The Parent shall cause the Surviving
Corporation and its Subsidiaries to maintain in effect and comply with in its
certificate of incorporation and bylaws (or similar governing documents) for a
period of six (6) years after the Effective Time, provisions regarding
elimination of liability of directors and indemnification of, and advancement
of expenses to, officers, directors and employees substantially no less
favorable to the indemnified persons than the corresponding provisions
contained in the certificate of incorporation and bylaws of the Company or such
Subsidiary (but in no event in excess of the maximum elimination of liability
or advancement of expenses then permitted by applicable law with respect to
such prior periods). The Surviving Corporation shall purchase and maintain a “tail”
directors’ and officers’ liability insurance policy covering a period of six
(6) years after the Effective Time for the benefit of the directors and
officers of the Company with respect to claims arising from facts or events
that occurred at or before the Effective Time; provided, however,
that in no event shall the Surviving Corporation be required to expend in the
aggregate for such tail policy an amount in excess of three hundred percent
(300%) of the annual premiums currently paid by the Company for directors’ and
officers’ liability insurance; and provided  further that if the
aggregate premiums of such tail policy would exceed such amount, the Surviving
Corporation shall be obligated to obtain a tail policy which the Surviving
Corporation, following consultation with the Representative, reasonably
believes to provide the greatest coverage that is available for a cost not
exceeding such amount.

(b)                                 Notwithstanding any time limit herein to the
contrary, if any claim, action, proceeding or investigation (whether arising
before, at or after the Effective Time) is made against any present or former
director, officer or employee of the Company or its Subsidiaries on or prior to
the sixth anniversary of the Effective Time, the provisions of Section
5.9(a)(i) (without regard to any such time limit) shall continue in effect
until the final disposition of such claim, action, proceeding or investigation.

 42
 

 

(c)                                  In the event that the Surviving Corporation
or any of its successors or assigns (i) consolidates with or merges into any
other Person and shall not be the continuing or surviving corporation or entity
of such consolidation or merger or (ii) transfers or conveys all or
substantially all of its properties and assets to any Person, then, and in each
such case, proper provision shall be made so that the successors or assigns of
the Surviving Corporation shall succeed to the obligations set forth in this Section
5.9.

(d)                                 This Section 5.9 shall survive the
consummation of the Merger at the Effective Time, is intended to benefit the
Surviving Corporation and the former or continuing directors, officers and
employees of the Company and its Subsidiaries to the fullest extent possible,
shall be binding on all successors and assigns of the Surviving Corporation and
shall be enforceable by the former or continuing directors, officers and
employees of the Company and its Subsidiaries to the fullest extent possible.

5.10.                        Newco; 
Company Subsidiaries.

(a)                                  The Parent will take all action necessary
(a) to cause Newco to perform its obligations under this Agreement and to
consummate the Merger on the terms and conditions set forth in this Agreement
and (b) to ensure that, prior to the Effective Time, Newco shall not
conduct any business or make any investments other than as specifically
contemplated by this Agreement.

(b)                                 The Company will take all action necessary to
cause each of its Subsidiaries to comply with terms of this Agreement
applicable to its Subsidiaries.

5.11.                        Management Agreement Termination.

On the Closing Date, the
Surviving Corporation shall pay an aggregate of $1,927,320 to the Managers,
which amount shall constitute full satisfaction of (i) all “Management Fees”
and “Six-Month Management Fees” (each as defined in the Management
Agreement) earned and accrued by the Managers as of the Closing Date but not
yet paid, (ii) any unreimbursed out-of-pocket expenses incurred by the Managers
and not yet paid and (iii) a termination fee payable to the Managers in
consideration for their agreement to terminate the Management Agreement (in the
case of clauses (i) and (iii) to be allocated between each Manager in the same
ratio as Management Fees are allocated under the Management Agreement and in
the case of clause (ii) to be allocated as incurred by such Managers)
(collectively, all such fees, the “Management Fees”), and the Management
Agreement shall terminate upon the Closing in accordance with the termination
letter attached as Exhibit H hereto (the “Management Agreement
Termination”).

5.12.                        Tax Benefits.

(a)                                  The Surviving Corporation shall pay the
amount of any Tax Benefit (reduced as provided in the first two sentences of the
last paragraph of Section 5.12(b)), plus interest at a rate of 10% per annum
compounding monthly, from the date on which such Tax Benefit is actually
realized, minus any unreimbursed Tax Preparation Amount, to the Former Common
Securities Holders and the Former Series C Preferred Holders not later than
five business days after the date on which the Surviving Corporation (or any
consolidated group of which the Surviving Corporation is a member) files an
annual (or part-year, in the case of a short tax year) federal or California
income Tax Return (not including any amended Tax Return) with respect to a
period for which a Tax Benefit is actually realized.

 43
 

 

(b)                                 For purposes of this Section 5.12, the amount
of any Tax Benefit for any tax year (or part-year, in the case of a short tax
year), shall be calculated on a “with and without” basis, and shall equal the
excess, if any, of:

(i)                                     the aggregate amount of federal and
California income Tax liability of the Surviving Corporation, any Subsidiary of
the Surviving Corporation and any consolidated group of which any such entity
is a member for such tax year (or part-year) if no Tax Benefit Items had been
available for any year, but all other items of deduction, credit or other Tax
attributes were available and had been applied as if no Tax Benefit Items were
ever available, to the Surviving Corporation, any Subsidiary of the Surviving
Corporation and any consolidated group of which any such entity is a member for
that or any other tax year, over

(ii)                                  the aggregate amount of federal and
California income Tax liability of the Surviving Corporation, any Subsidiary of
the Surviving Corporation and any consolidated group of which any such entity
is a member for any tax year (or part-year, in the case of a short tax year), taking
into account both Tax Benefit Items and all other items of deduction, credit or
other Tax attributes as all such items are actually used under applicable Tax
law.

In
calculating the amount to be paid by the Surviving Corporation pursuant to this
Section 5.12 with respect to the short tax year ending on or before the Closing
Date, the amount of such payment shall be the lesser of the amount of Tax
Benefit calculated above and the amount of cash federal or California income
Tax refund received by the Surviving Corporation or any Subsidiary of the
Surviving Corporation, after the Closing Date, with respect to such short tax
year.  If the Surviving Corporation or
any Subsidiary of the Surviving Corporation is required to pay any federal or
California income Taxes, after the Closing Date, with respect to such short tax
year (that is, if the estimated and other Tax payments made by the Surviving
Corporation or such Subsidiaires prior to the Closing Date are less than the
Tax liability determined under clause (ii) above), the aggregate amount to be
paid by the Surviving Corporation pursuant to this Section 5.12 for any later
tax years shall be reduced by the amount of such post-Closing Tax payment.  For the avoidance of doubt, there may be a
Tax Benefit attributable to a Tax Benefit Item for a year after the year in
which a Tax Benefit Item is used to reduce Taxes as a matter of Tax law.

(c)                                  The date on which a Tax Benefit is actually
realized shall be the date that is two months and fifteen days after the last
day of the tax year with respect to which the Surviving Corporation pays less
Taxes than it would be required to pay if there were no Tax Benefit (using the “with
and without” methodology of Section 5.12(b)).

(d)                                 For the avoidance of doubt, any Tax Benefit
Item applied in the computation of Ventura Sale Taxes shall be treated as no
longer being available for purposes of this Section 5.12 and shall not result
in additional payment to the Former Common Securities Holders and the Former
Series C Preferred Holders in respect of such Tax Benefit Item in any year in
which such Tax Benefit Item is used by the Surviving Corporation.

(e)                                  The Surviving Corporation shall not make,
change or revoke any election that would limit the ability to carry back any
Tax losses attributable to a Tax Benefit Item.

(f)                                    Until the entire Tax Benefit has been paid to
the Former Common Securities Holders and the Former Series C Preferred Holders,
the Surviving Corporation shall provide to the Representative an annual report
(the “Tax Benefit Schedule”), not later than thirty (30) days

 

 44

 

after
the date on which a federal income Tax Return including the Surviving
Corporation is filed for any tax year (or part-year, in the case of a short
year), computing in reasonable detail what Tax Benefit Items, if any, have been
used and the amount of any Tax Benefit, if any, for such year, which report
shall be prepared or reviewed by an independent accounting firm of national or
regional repute, which may be the accounting firm engaged by the Surviving
Corporation for the preparation or review of its tax returns generally (the “Tax
Benefit Advisor”), and shall provide to the Representative any information
reasonably requested to support such computation.  The amount of any payment under this Section
5.12 by the Surviving Corporation to the Former Common Securities Holders and
the Former Series C Preferred Holders shall be reduced by the reasonable fees,
out-of-pocket costs and expenses of the Tax Benefit Advisor in connection with
the computations required for the calculation of the Tax Benefit (whether for
purposes of this Section 5.12 or determination of Ventura Sale Taxes) and the
amount of any payment to be made under this Section 5.12 (collectively,
including a reasonable estimate of any accrued costs and expenses, the “Tax
Preparation Amount”).  The
Representative shall have the opportunity to review and comment on the Tax
Benefit Schedule for any year, it being understood that the Surviving
Corporation shall be required to take into account any such comments with
respect to manifest errors, and shall be permitted to, but shall not be
required to, take into account any other such comments (in its sole
discretion), in a revised Tax Benefit Schedule.  The Tax Benefit Schedule, subject to any such
revisions, shall be binding on the Surviving Corporation and the
Representative, the Former Common Securities Holders and the Former Series C
Preferred Holders.

(g)           Any Tax Benefit
payments to be made to the Former Common Securities Holders and Former Series C
Preferred Holders shall be distributed to such holders in accordance with the
Applicable Percentage.

(h)           If there is a Change
in Control, the Surviving Corporation and its Subsidiaries may (but shall not
be required to) pay the Former Common Securities Holders and Former Series C
Preferred Holders an aggregate amount equal to 90% times the sum of ((x) plus
(y) minus (z)), where (x) equals the maximum aggregate amount of any Tax
credits that could be claimed as a result of any Tax Benefit Items (whether or
not such Tax Benefit Items have yet given rise to any such tax credits), (y)
equals the product of (i) 41% and (ii) the total amount of Tax Benefit Items
that give or gave rise to Tax deductions (whether or not such Tax deductions
have been used as a matter of Tax law), and (z) equals the total amount of Tax
Benefits actually paid to the Former Common Securities Holders and Former
Series C Preferred Holders pursuant to this Agreement.  If the Surviving Corporation makes the
payment described in this Section 5.12(h), not later than 30 days after the
Change in Control, it shall have no future obligation to make any payment with
respect to any Tax Benefits.

5.13.        Ventura Sale Proceeds.

Any Post-Closing Ventura
Sale Proceeds received on or prior to the second anniversary of the Closing
Date by the Surviving Corporation or its Subsidiaries after the Effective Time
that have not been included in the final determination of the Purchase Price
pursuant to Section 2.10 hereof shall be paid promptly, and in any event
within five (5) Business Days of receipt thereof by the Surviving Corporation
to the Former Common Securities Holders and Former Series C Preferred Holders
in accordance with the Applicable Percentage. 
If the closing of the Ventura Sale pursuant to the Ventura Sale Agreement
has not occurred prior to the Effective Time, the Surviving Corporation shall
use its commercially reasonable efforts to consummate the Ventura Sale pursuant
to the Ventura Sale Agreement as promptly as reasonably practicable.  Following the Effective Time no amendment,
modification or waiver of any provision of the Ventura Sale Agreement shall be
made, and the Ventura Sale Agreement shall not be

 45
 

 

terminated by the Surviving
Corporation or its Subsidiaries, without the prior written consent of the
Representative not to be unreasonably withheld. 
The Surviving Corporation shall keep the Representative reasonably
informed of the status of and any material developments in the transactions
contemplated by the Ventura Sale Agreement, and shall consult with the
Representative on all material decisions and actions to be taken by the
Surviving Corporation or its Subsidiaries with respect to the Ventura
Sale.  If directed by the Representative,
the Surviving Corporation shall (if it has the right to do so) amend or
terminate the Ventura Sale Agreement and enter into any other agreement
providing for the consummation of the Ventura Sale with another Person (and
shall use its commercially reasonable efforts to consummate the Ventura Sale
pursuant to such agreement as promptly as reasonably practicable); provided
that (i) such amendment or agreement shall be subject to the reasonable review
and comment of Parent; and (ii) such amendment or agreement shall not result in
any post-closing obligations, indemnities or liabilities that taken as a whole
are more burdensome to the Surviving Corporation than the Ventura Sale
Agreement without the prior written consent of Parent not to be unreasonably
withheld.

5.14.        Employment Litigation.

(a)             The Surviving Corporation shall be
responsible for and shall pay and discharge when due the first $2,500,000 of
Employment Litigation Losses.  If and to
the extent the Employment Litigation Losses exceed $2,500,000 (the amount of
such excess above $2,500,000 being the “Excess Losses”), then the
Surviving Corporation shall be entitled to recover such Excess Losses solely
from the Employment Litigation Escrow Account up to the amount of the
Employment Litigation Escrow Funds then available.  To the extent the Excess Losses exceed the
Employment Litigation Escrow Funds, they shall be borne by the Surviving
Corporation.  In the event the Surviving
Corporation incurs Excess Losses, it shall provide the Representative a
reasonably detailed calculation of such Excess Losses together with reasonable
supporting documentation.  In such event,
the Parent and the Representative shall promptly deliver joint written
instructions to the Escrow Agent instructing the Escrow Agent to deliver to the
Surviving Corporation the amount of such Excess Losses up to the full amount of
Employment Litigation Escrow Funds available. 
If, upon the third anniversary of the Closing Date, any amount remains
in the Employment Litigation Escrow Account, then the Parent and the
Representative shall promptly deliver joint written instructions to the Escrow
Agent instructing the Escrow Agent to deliver any such remaining amounts to the
Surviving Corporation for further distribution to the Former Common Securities
Holders and Former Series C Preferred Holders in accordance with the Applicable
Percentage.

(b)           Following the
Effective Time no provision of the Employment Litigation Settlement Agreement
shall be modified, amended or waived, and the Employment Litigation Settlement
Agreement shall not be terminated, without the prior written consent of the
Representative not to be unreasonably withheld. 
The Surviving Corporation shall keep the Representative reasonably
informed of the status of and any material developments in the transactions and
proceedings contemplated by the Employment Litigation Settlement Agreement or
the Employment Litigation, and shall consult with the Representative on all
material decisions and actions to be taken with respect to such
transactions.  The Representative shall
have the right to participate in (but not control) any negotiations, claims or proceedings
relating to the Employment Litigation Settlement Agreement or the Employment
Litigation.

5.15.        Seller Expenses.

Upon request of the
Surviving Corporation and submission of reasonable supporting documentation
therefor, the Representative shall promptly pay any Seller Expenses that are
incurred but not paid by the Company prior to the Closing and that did not
reduce the final Purchase Price.  Neither
the

 46
 

 

Surviving Corporation nor
any of its Subsidiaries shall have any obligation, liability or responsibility
in respect of any Seller Expenses required to be paid by the Representative
pursuant to this Section 5.15, and the Representative shall (and hereby
does) indemnify and agree to defend and hold harmless the Surviving
Corporation, its Subsidiaries, and their respective Affiliates from and against
any such liability, obligation or responsibility and any related loss, cost,
damage or expense.

ARTICLE 6 - 

CONDITIONS TO CLOSING

6.1.          Mutual Conditions.

The respective obligations
of each party to consummate the transactions contemplated by this Agreement
shall be subject to the fulfillment at or prior to the Effective Time of each
of the following conditions:

(a)           No Injunction.  At the Effective Time there shall be no
effective injunction, writ or preliminary restraining order or any order of any
nature issued by a court or Governmental Authority of competent jurisdiction to
the effect that the Merger may not be consummated as herein provided, and no
proceeding or lawsuit shall have been commenced by any Governmental Authority
or other Person for the purpose of obtaining any such injunction, writ or
preliminary restraining order.

(b)           Antitrust
Clearance.  The waiting period (and
any extension thereof) under the HSR Act shall have expired or shall have
been terminated.

6.2.          Conditions to the Obligations of Parent and
Newco.

The obligations of Parent
and Newco to consummate the transactions contemplated by this Agreement shall
be subject to the fulfillment prior to or at Closing of each of the following
conditions, any and all of which may be waived in writing, in whole or in part,
by Parent and Newco to the extent permitted by applicable law:

(a)           Representations
and Warranties; Covenants.  All
representations and warranties made by the Company in this Agreement that are
qualified by Material Adverse Effect or “material” and the representations and
warranties contained in Sections 3.5(a) and 3.5(b) shall have been true and
correct on the date of this Agreement and shall be true and correct as of the
Closing Date as though such representations and warranties were made as of the
Closing Date (or on the date when made in the case of any representation or
warranty which specifically relates to an earlier date), and all other
representations and warranties made by the Company in this Agreement not so
qualified shall have been true and correct in all material respects on the date
of this Agreement and shall be true and correct in all material respects as of
the Closing Date as though such representations and warranties were made as of
the Closing Date (or on the date when made in the case of any representation or
warranty which specifically relates to an earlier date), and the Company shall
have duly performed or complied with, in all material respects, all of the covenants,
obligations and conditions to be performed or complied with by it under the
terms of this Agreement on or prior to or at Closing; provided that, with
respect to covenants, obligations and conditions that are qualified by
materiality, the Company shall have performed or complied with all such
covenants, obligations and conditions in all respects.

 47
 

 

(b)           Closing
Deliveries.  The Company shall have
delivered to Parent and Newco the following:

(i)            the Management
Agreement Termination, duly executed by each of the Managers, the Company, and
the Subsidiaries of the Company;

(ii)           executed
counterparts to the Escrow Agreement signed by the Company, the Representative,
and the Escrow Agent;

(iii)          such of the
landlord consents as are required in connection with the transactions
contemplated hereby under the restaurant lease agreements identified on Schedule
3.3, such that the Company’s Store-Level EBITDA generated in 2005 at such
restaurants with respect to which such consents have been obtained, together
with the Company’s Store-Level EBITDA generated in 2005 at all other
restaurants owned and operated by the Company or its Subsidiaries under
restaurant lease agreements not identified on Schedule 3.3 for which
consent is not required to be obtained in connection with the transactions
contemplated hereby, together constitute at least 95% of the Company’s
Store-Level EBITDA generated in 2005 at all of the Company’s and its
Subsidiaries owned and operated restaurants (the Store-Level EBITDA for each
Restaurant in 2005 being the dollar amounts set forth on Schedule 6.2);

(iv)          such of the
necessary consents and transfer approvals from the appropriate Governmental
Authorities for the Liquor Licenses are required to be obtained prior to the
Closing in connection with the transactions contemplated hereby, each in form
customarily given by the applicable Governmental Authorities, such that the
Company’s Store-Level EBITDA generated in 2005 at the restaurants under which
such Liquor License consents and transfer approvals have been obtained,
together with the Company’s Store-Level EBITDA generated in 2005 at all other
restaurants owned and operated by the Company or its Subsidiaries for which
Liquor License consents or transfer approvals from Governmental Authorities are
not required to be obtained prior to the Closing in connection with the
transactions contemplated hereby, together constitute at least 90% of the
Company’s Store-Level EBITDA generated in 2005 at all of the restaurants owned
and operated by the Company or its Subsidiaries (the Store-Level EBITDA for
each restaurant in 2005 being the dollar amounts set forth on Schedule 6.2);
and

(v)           a certificate,
signed by the Secretary of the Company, dated the Closing Date: (A) attaching
copies of all resolutions adopted by the board of directors of the Company in
respect of the transactions contemplated by this Agreement and by all
agreements ancillary hereto or entered into in connection herewith; (B)
attaching copies of all resolutions adopted by the stockholders of the Company
(including by written consent) in respect of the transactions contemplated by
this Agreement; (C) certifying that the copies of resolutions attached thereto
pursuant to clauses (A) and (B) above are true, correct and complete copies of
such resolutions; (D) certifying that the resolutions, copies of which are
attached thereto pursuant to clauses (A) and (B) above, have remained in full
force and effect continuously since their adoption, and have not been modified,
amended or repealed in any manner; (E) attaching a copy of the certificate of
incorporation of the Company, as amended through the Closing Date, certified by
the Secretary of State of the State of Delaware; (F) attaching a copy of the
bylaws of the Company, as amended through the Closing Date; and (G) certifying
that the copies of the

 48
 

 

Certificate
of Incorporation and bylaws attached thereto pursuant to clauses (E) and (F)
above are true, complete and correct copies of such documents;

(vi)          a certificate of
good standing of the Company issued by the Secretary of State of the State of
Delaware as of a date not more than three days prior to the Closing Date; and

(vii)         the calculation of
the Estimated Purchase Price, made and delivered pursuant to Section 2.10(b).

(c)           Closing
Certificates.

(i)            The Company shall
have delivered to Parent a certificate signed by the President or a Vice
President of the Company, dated the Closing Date, to the effect that the
conditions specified in Section 6.2(a) has been satisfied;

(ii)           The Company shall
have delivered to Parent a certificate, in the form and substance required
under Treasury Regulation §1.897-2(h), so that Parent is exempt from
withholding any portion of the Purchase Price pursuant to Treasury Regulation
§1.1445-2.

(d)           Legal Opinion.  Dechert LLP, counsel to the Company, shall
have delivered its legal opinion to Parent in substantially the form attached
hereto as Exhibit J.

(e)           Material Adverse
Effect.  Since the date of this
Agreement, there shall not have occurred any fact, circumstance, or event that has
had or would reasonably be expected to have a Material Adverse Effect.

6.3.          Conditions to the Obligations of the Company.

The obligations of the
Company to consummate the transactions contemplated by this Agreement shall be
subject to the fulfillment at or prior to the Closing of each of the following
conditions, any and all of which may be waived in writing in whole or in part
by the Company to the extent permitted by applicable law:

(a)           Representations
and Warranties; Covenants.  All
representations and warranties made by Parent and Newco in this Agreement that
are qualified by “material adverse effect” or “material” shall have been true
and correct on the date of this Agreement and shall be true and correct as of
the Closing Date as though such representations and warranties were made as of
the Closing Date (or on the date when made in the case of any representation or
warranty which specifically relates to an earlier date), and all other
representations and warranties made by Parent or Newco in this Agreement not so
qualified shall have been true and correct in all material respects on the date
of this Agreement and shall be true and correct in all material respects as of
the Closing Date as though such representations and warranties were made as of the
Closing Date (or on the date when made in the case of any representation or
warranty which specifically relates to an earlier date), and Parent and Newco
shall have duly performed or complied with, in all material respects, all of
the covenants, obligations and conditions to be performed or complied with by
each of them under the terms of this Agreement on or prior to or at Closing;
provided that, with respect to covenants, obligations and conditions that are
qualified by materiality, Parent and Newco shall have performed or complied
with all such covenants, obligations and conditions in all respects. 

 49
 

 

(b)           Closing
Deliveries.  Parent shall have
delivered to the Company an executed counterpart to the Escrow Agreement signed
by Parent and the Escrow Agent and of each other document or agreement required
to be delivered hereunder by Parent or Newco.

(c)           Closing
Certificate.  Parent and Newco shall
have delivered to the Company a certificate, signed by the President or a Vice
President of Parent and Newco, dated the Closing Date, to the effect that the
condition specified in Section 6.3(a) has been satisfied.

(d)           Legal Opinion.  Morgan, Lewis & Bockius LLP, counsel to
the Parent and Newco, shall have delivered its legal opinion to Company in
substantially the form attached hereto as Exhibit K.

ARTICLE 7 - 

TERMINATION, AMENDMENT AND WAIVER

7.1.          Termination.

This Agreement may be
terminated and the Merger may be abandoned at any time, notwithstanding the
approval thereof by the stockholders of the Company at any time prior to
Closing:

(a)           by mutual written
consent of the Company and Parent;

(b)           by either the
Company or Parent, if the Merger shall not have been consummated on or before
30 days after the date hereof (the “Termination
Date”), unless extended by written agreement of the parties hereto; provided,
however, that the right to terminate this Agreement and abandon the Merger
under this paragraph shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of, or resulted
in, the failure of the Merger to occur on or prior to such date;

(c)           by either the
Company or Parent, if any Governmental Authority shall have issued an order,
decree or ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall
have become final and nonappealable;

(d)           by Parent, if the
Company shall have breached, defaulted under, or failed to comply with any of
its obligations under this Agreement or any representation or warranty made by
the Company in this Agreement shall have been incorrect when made if (i) such
breach, default, failure to comply, or incorrect representation or warranty has
not been cured within 15 Business Days after written notice thereof to the
Company and the Representative, (ii) such breach, default, failure to comply or
incorrect representation or warranty, individually or in the aggregate, would
cause the conditions set forth in Section 6.2 to become incapable of
being satisfied and (iii) Parent’s failure to fulfill any obligation under this
Agreement has not been the primary cause of, or resulted in, the failure of the
Merger to occur by the date of termination; and

(e)           by the Company, if
Parent or Newco shall have breached, defaulted under, or failed to comply with
any of its obligations under this Agreement or any representation or warranty
made by Parent or Newco in this Agreement shall have been incorrect when made
if (i) such breach, default, failure to comply, or incorrect representation or
warranty has not been cured

 50
 

 

within
15 Business Days after written notice thereof to Parent, (ii) such breach,
default, failure to comply or incorrect representation or warranty,
individually or in the aggregate, would cause the conditions set forth in Section
6.3 to become incapable of being satisfied and (iii) the Company’s failure
to fulfill any obligation under this Agreement has not been the primary cause
of, or resulted in, the failure of the Merger to occur by the date of termination.

7.2.          Effect of Termination.

If this Agreement is
terminated pursuant to Section 7.1 hereof, (a) all rights and
obligations of the parties hereunder shall terminate and no party shall have
any liability to the other party, except for obligations of the parties hereto
in Sections 5.2(b) and 10.4, which shall survive the termination
of this Agreement and (b) such termination shall not preclude either party from
suing the other party for any willful breaches of this Agreement.

ARTICLE 8 - 

NO SURVIVAL OF REPRESENTATIONS; RELEASE

8.1.          No Survival of Representations.

The representations and
warranties contained in this Agreement (whether or not contained in Articles 3
and 4) or in any certificate delivered pursuant to Section 6.2
or Section 6.3 shall not survive and shall terminate at the
Effective Time.  The covenants and
agreements to be performed prior to the Effective Time pursuant to this
Agreement shall terminate at the Effective Time, and all other covenants and agreements
shall survive the Effective Time and remain in effect indefinitely or in
accordance with their terms.

8.2.          Release.

Notwithstanding anything
else contained in this Agreement to the contrary, as a material inducement to
the Company entering into this Agreement, Parent and Newco each hereby waive,
from and after the Closing, any claim or cause of action, known and unknown,
foreseen and unforeseen, which it or any of its affiliates (including the
Surviving Corporation) may have against the other parties hereto or their
directors, officers, stockholders or affiliates, including without limitation
under the common law or federal or state securities laws, trade regulation laws
or other laws (including any relating to tax, environmental or employee
matters), by reason of this Agreement, the events giving rise to or subject
matter of this Agreement and the transactions contemplated hereby, except in
the case of fraud, and except in the case of any claim under any Letter of
Transmittal.  For the avoidance of doubt,
the foregoing release shall not prohibit Parent or the Surviving Corporation
from making a claim (i) for a proper distribution from the Purchase Price
Escrow Account with respect to the Actual Adjustment or (ii) for a proper
distribution from the Employee Litigation Escrow Account in accordance with Section
5.14.

ARTICLE 9 - 

REPRESENTATIVE OF THE FORMER SECURITIES HOLDERS

9.1.          Authorization of Representative.

(a)           BRS (and any
successor of BRS or any assign of BRS so long as such assign is an affiliate of
BRS) is hereby appointed, authorized and empowered to act as the
Representative, for the benefit of the Former Securities Holders, and BRS
hereby accepts such appointment, as

 51
 

 

the
exclusive agent and attorney-in-fact to act on behalf of each Former Securities
Holder, in connection with and to facilitate the consummation of the
transactions contemplated hereby, including pursuant to the Escrow Agreement,
which shall include the power and authority:

(i)            to execute and
deliver the Escrow Agreement (with such modifications or changes therein as to
which the Representative, in its sole discretion, shall have consented) and to
agree to such amendments or modifications thereto as the Representative, in its
sole discretion, determines to be desirable;

(ii)           to execute and
deliver such waivers and consents in connection with this Agreement and the
Escrow Agreement and the consummation of the transactions contemplated hereby
and thereby as the Representative, in its sole discretion, may deem necessary
or desirable;

(iii)          as Representative,
to enforce and protect the rights and interests of the Former Securities
Holders (including the Representative, in its capacity as a stockholder in the
Company) and to enforce and protect the rights and interests of the
Representative arising out of or under or in any manner relating to this
Agreement and the Escrow Agreement, and each other agreement, document,
instrument or certificate referred to herein or therein or the transactions
provided for herein or therein, and to take any and all actions which the
Representative believes are necessary or appropriate under the Escrow Agreement
and/or this Agreement for and on behalf of the Former Securities Holders,
including, without limitation, asserting or pursuing any claim, action,
proceeding or investigation (a “Claim”) against Parent, Newco and/or
Surviving Corporation, consenting to, compromising or settling any such Claims,
conducting negotiations with Parent, Surviving Corporation and their respective
representatives regarding such Claims, and, in connection therewith, to
(A) assert any claim or institute any action, proceeding or investigation;
(B) investigate, defend, contest or litigate any claim, action, proceeding
or investigation initiated by Parent, the Surviving Corporation or any other
person, or by any federal, state or local Governmental Authority against the
Representative and/or any of the Former Securities Holders, and/or the Escrow
Funds, and receive process on behalf of any or all of the Former Securities
Holders in any such claim, action, proceeding or investigation and compromise
or settle on such terms as the Representative shall determine to be
appropriate, and give receipts, releases and discharges with respect to, any
such claim, action, proceeding or investigation; (C) file any proofs of debt,
claims and petitions as the Representative may deem advisable or necessary;
(D) settle or compromise any claims asserted under the Escrow Agreement;
and (E) file and prosecute appeals from any decision, judgment or award
rendered in any such action, proceeding or investigation, it being understood
that the Representative shall not have any obligation to take any such actions,
and shall not have any liability for any failure to take any such actions;

(iv)          to refrain from
enforcing any right of the Former Securities Holders or any of them and/or the
Representative arising out of or under or in any manner relating to this
Agreement, the Escrow Agreement or any other agreement, instrument or document
in connection with the foregoing; and

(v)           to make, execute,
acknowledge and deliver all such other agreements, guarantees, orders,
receipts, endorsements, notices, requests, instructions, certificates, stock
powers, letters and other writings, and, in general, to do any and all things
and to take any and all action that the Representative, in its sole and
absolute discretion, may

 52
 

 

consider
necessary or proper or convenient in connection with or to carry out the
transactions contemplated by this Agreement, the Escrow Agreement, and all
other agreements, documents or instruments referred to herein or therein or
executed in connection herewith and therewith.

(b)           The Representative
shall not be entitled to any fee, commission or other compensation for the
performance of its services hereunder, but shall be entitled to the payment of
all its expenses incurred as the Representative.  In connection with the foregoing, at the
Closing, the Company shall transfer $500,000 (the “Expense Funds”) to
the Representative, to be used by Representative to pay expenses incurred by
Representative in its capacity as Representative.  Once Representative determines, in its sole
discretion, that Representative will not incur any additional expenses in its
capacity as Representative, then the Representative will distribute the
remaining unused Expense Funds pro rata to the Former Series C Preferred
Holders and the Former Common Securities Holders in accordance with their
Applicable Percentage.  In connection
with this Agreement, the Escrow Agreement and any instrument, agreement or
document relating hereto or thereto, and in exercising or failing to exercise
all or any of the powers conferred upon the Representative hereunder
(i) the Representative shall incur no responsibility whatsoever to any
Former Securities Holders by reason of any error in judgment or other act or
omission performed or omitted hereunder or in connection with the Escrow
Agreement or any such other agreement, instrument or document, excepting only
responsibility for any act or failure to act which represents bad faith or
willful misconduct, and (ii) the Representative shall be entitled to rely
in good faith on the advice of counsel, public accountants or other experts
experienced in the matter at issue, and any error in judgment or other act or
omission of the Representative pursuant to such advice shall in no event
subject the Representative to liability to any Former Securities Holders.  Each Former Securities Holder shall
indemnify, pro rata based upon the portion of the Purchase Price to which such
holder is entitled pursuant to this Agreement, the Representative against all
losses, damages, liabilities, claims, obligations, costs and expenses,
including reasonable attorneys’, accountants’ and other experts’ fees and the
amount of any judgment against them, of any nature whatsoever (including, but
not limited to, any and all expense whatsoever reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened or any claims whatsoever), arising out of or in connection with any
claim, investigation, challenge, action or proceeding, or in connection with
any appeal thereof, relating to the acts or omissions of the Representative
hereunder, or under the Escrow Agreement or otherwise; provided, however,
that the foregoing indemnification shall not apply in the event of any action
or proceeding which finally adjudicates the liability of the Representative
hereunder for its bad faith or willful misconduct.  In the event of any indemnification
hereunder, upon written notice from Representative to the Former Securities
Holders as to the existence of a deficiency toward the payment of any such
indemnification amount, each Former Securities Holder shall promptly deliver to
the Representative full payment of his or her ratable share of the amount of such
deficiency (pro rata based upon the portion of the Purchase Price to which such
holder is entitled pursuant to this Agreement); provided, that no such
holder shall be liable for that portion of any claim of indemnification,
individually or in the aggregate, that is in excess of such holder’s pro rata
portion of the Purchase Price to which such holder is entitled pursuant to this
Agreement.

(c)           All of the
indemnities, immunities and powers granted to the Representative under this
Agreement by the Former Securities Holders shall survive the Closing Date
and/or any termination of this Agreement and/or the Escrow Agreement.

(d)           Parent and Surviving
Corporation shall have the right to (i) rely upon all actions taken or omitted
to be taken by the Representative pursuant to this Agreement and the Escrow

 53
 

 

Agreement,
all of which actions or omissions shall be legally binding upon the Former
Securities Holders and (ii) ignore any communication from any Former Securities
Holder other than the Representative relating to powers granted to the
Representative hereunder, which Representative shall be solely responsible for
all communications between any Former Securities Holders, on the one hand, and
Parent or the Surviving Corporation, on the other hand relating to powers
granted to the Representative hereunder.

(e)           The grant of
authority provided for herein (i) is coupled with an interest and shall be
irrevocable and survive the death, incompetency, bankruptcy or liquidation of
any Former Securities Holder; and (ii) shall survive the consummation of
the Merger.

(f)            Notwithstanding
anything herein to the contrary, upon delivery of any amounts or other property
hereunder to the Representative in accordance with the terms of this Agreement
or the Escrow Agreement for itself or on behalf of any Former Securities
Holder, none of the Parent, the Surviving Corporation or any of its
Subsidiaries shall have any further liability, responsibility or obligation
with respect to the delivery of any such amounts or other property or with respect
to any such Former Securities Holder.

ARTICLE 10 - 

MISCELLANEOUS

10.1.        Notices.

All notices or other
communications required or permitted hereunder shall be in writing and shall be
delivered personally, by facsimile or sent by certified, registered or express
air mail, postage prepaid, and shall be deemed given when so delivered
personally, or by facsimile upon electronic confirmation of receipt, or if
mailed by overnight courier service guaranteeing next day delivery, one day
after mailing, or if mailed in any other way, then upon receipt, as follows:

If to Parent and Newco:

RM Restaurant Holding Corp.

5200 Town Center Circle

Suite 470

Boca Raton, FL 
33486

Facsimile:  (561)
394-0540

Attention:  M.
Steven Liff and C. Deryl Couch

with
a copy to (which shall not constitute notice):

Morgan, Lewis & Bockius LLP

One Oxford Centre

Thirty-Second Floor

Pittsburgh, PA 
15219-6401

Facsimile:  (412)
560-7001

Attention:  David
A. Gerson

If to the Company:

 54
 

 

Real Mex Restaurants, Inc.

5660 Katella Avenue

Suite 100

Cypress, CA 90630

Facsimile:  (562) 346-1474

Attention:  Frederick F. Wolfe

with a copy to (which shall
not constitute notice):

Dechert LLP

Cira Centre

2929 Arch Street

Philadelphia, PA 19104-2808

Facsimile:  (215) 994-2222

Attention:  Carmen J. Romano, Esq.

If to The Representative:

Bruckmann, Rosser, Sherrill
& Co., Inc.

126 East 56th Street

29th Floor

New York, NY 10022

Facsimile:  (212) 521-3799

Attention:  Harold O. Rosser

with a copy to (which shall
not constitute notice):

Dechert LLP

Cira Centre

2929 Arch Street

Philadelphia, PA 19104-2808

Facsimile:  (215) 994-2222

Attention:  Carmen J. Romano, Esq.

or to such other address as any party hereto shall
notify the other parties hereto (as provided above) from time to time.

10.2.        Exhibits and Schedules.

All exhibits and schedules
hereto, or documents expressly incorporated into this Agreement, are hereby
incorporated into this Agreement and are hereby made a part hereof as if set
out in full in this Agreement.  For the
purposes of this Agreement, any matter that is disclosed in a particular
Schedule to this Agreement shall be deemed to have been included in the other
Schedules, not withstanding the omission of a cross reference thereto, so long
as the relevance of such matter to such other Schedules is reasonably apparent
on the face of the disclosure of such matter. 
Disclosure of any fact or item in any Schedule shall not necessarily
mean that such fact or item is material to the Company or its Subsidiaries
individually or taken as a whole.

 55
 

 

10.3.        Time of the Essence; Computation of Time.

Time is of the essence for
each and every provision of this Agreement. 
Whenever the last day for the exercise of any privilege or the discharge
or any duty hereunder shall fall upon a day that is not a Business Day, the
party having such privilege or duty may exercise such privilege or discharge
such duty on the next succeeding day which is a regular Business Day.

10.4.        Expenses.

Regardless of whether the
transactions provided for in this Agreement are consummated, except as
otherwise provided herein, each party hereto shall pay its own expenses
incident to this Agreement and the transactions contemplated herein.  Subject to the provisions of this Agreement,
including Section 2.10, Parent and Newco understand and acknowledge that
all out-of-pocket fees and expenses incurred or to be incurred by
the Company in connection with the transactions contemplated hereby (including,
without limitation, the Seller Expenses) shall be paid by the Company and/or
the Surviving Corporation.  Except as
contemplated by Section 2.11(a), any transfer, documentary, sales,
use, stamp, registration and other such Taxes, and all conveyance fees,
recording charges and other fees and charges (including any penalties and
interest) incurred in connection with consummation of the transactions
contemplated by this Agreement shall be paid, or caused to be paid, by the
Parent when due, and the Parent shall, at its own expense, file all necessary
Tax Returns and other documentation with respect to all such Taxes, fees and
charges.

10.5.        Governing Law; Jurisdiction.

This Agreement shall be
governed by, and construed in accordance with, the internal laws of the State
of New York, without reference to the choice of law or conflicts of law
principles thereof, except that the DGCL shall apply to the effect of the
Merger.  The parties hereto hereby agree
and consent to be subject to the exclusive jurisdiction of the United States
District Court for the Southern District of New York, and in the absence of
such federal jurisdiction, the parties consent to be subject to the exclusive
jurisdiction of the state courts located in New York, New York, and hereby
waive the right to assert the lack of personal or subject matter jurisdiction
or improper venue in connection with any such suit, action or other
proceeding.  In furtherance of the
foregoing, each of the parties (i) waives the defense of inconvenient forum,
(ii) agrees not to commence any suit, action or other proceeding arising out of
this Agreement or any transactions contemplated hereby other than in any such
court, and (iii) agrees that a final judgment in any such suit, action or other
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit or judgment or in any other manner provided by law.

10.6.        Assignment; Successors and Assigns; No Third
Party Rights.

Except as otherwise provided
herein, this Agreement may not, without the prior written consent of the other
parties hereto, be assigned by operation of law or otherwise, and any attempted
assignment shall be null and void; provided, however, that from
and after the Effective Time each of Parent, Newco and/or the Surviving
Corporation may assign this Agreement and its obligations hereunder without the
consent of the Company or the Representative to (x) its lenders for collateral
purposes, including as collateral security, or (y) any Person that acquires all
or substantially all of the business and assets of Parent or the Surviving
Corporation.  Subject to the foregoing,
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, successors, permitted assigns and legal
representatives.  Except as set forth in Section
5.9 and Section 9.1(a) hereof, this Agreement shall be for the sole
benefit of the parties to this Agreement and their respective heirs,
successors, permitted assigns and legal representatives and is not intended,
nor shall be construed, to give any Person, other than the

 56
 

 

parties hereto and their
respective heirs, successors, assigns and legal representatives, any legal or
equitable right, remedy or claim hereunder.

10.7.        Counterparts.

This Agreement may be
executed in one or more counterparts for the convenience of the parties hereto,
each of which shall be deemed an original and all of which together will
constitute one and the same instrument. 
Delivery of an executed counterpart of a signature page to this
Agreement by facsimile shall be effective as delivery of an executed
counterpart to this Agreement.

10.8.        Titles and Headings.

The titles, captions and
table of contents in this Agreement are for reference purposes only, and shall
not in any way define, limit, extend or describe the scope of this Agreement or
otherwise affect the meaning or interpretation of this Agreement.

10.9.        Entire Agreement.

This Agreement, including
the Exhibits and Schedules attached thereto, and, prior to the Effective Time,
the Confidentiality Agreement, constitute the entire agreement among the
parties with respect to the matters covered hereby and supersedes all previous
written, oral or implied understandings among them with respect to such
matters.

10.10.      Severability.

The invalidity of any
portion hereof shall not affect the validity, force or effect of the remaining
portions hereof.  If it is ever held that
any restriction hereunder is too broad to permit enforcement of such
restriction to its fullest extent, such restriction shall be enforced to the
maximum extent permitted by law.

10.11.      No Strict Construction.

Each of the parties hereto
acknowledge that this Agreement has been prepared jointly by the parties
hereto, and shall not be strictly construed against either party.

10.12.      Specific Performance.

Each of the Company and
Parent and Newco acknowledge that the rights of each party to consummate the
transactions contemplated hereby are unique and recognize and affirm that in
the event of a breach of this Agreement by any party, money damages may be
inadequate and the non-breaching party may have no adequate remedy at
law.  Accordingly, the parties agree that
such non-breaching party shall have the right, in addition to any other
rights and remedies existing in their favor at law or in equity, to enforce
their rights and the other party’s obligations hereunder not only by an action
or actions for damages but also by an action or actions for specific
performance, injunctive and/or other equitable relief.

10.13.      Waiver of Jury Trial.

Each of the parties hereto
waives any right it may have to trial by jury in respect of any litigation
based on, arising out of, under or in connection with this Agreement or any
course of conduct, course of dealing, verbal or written statement or action of
any party hereto.

 57
 

 

10.14.      Failure or Indulgence not Waiver.

No failure or delay on the
part of any party hereto in the exercise of any right hereunder shall impair
such right or be construed to be waiver of, or acquiescence in, any breach of
any representation, warranty or agreement herein, nor shall any single or
partial exercise of any such right preclude any other or further exercise
thereof or any other right.  All rights
and remedies existing under this Agreement are cumulative to, and not exclusive
of, any rights or remedies otherwise available.

10.15.      Amendments.

Subject to and in accordance
with applicable Law, this Agreement may be amended, modified and supplemented
by a written instrument authorized and executed (a) on behalf of Parent, the
Company and the Representative at any time prior to the Closing Date with
respect to any of the terms contained herein and (b) on behalf of Parent and
the Representative at any time after the Closing Date with respect to any of
the terms contained herein.

* 
*  *  * 
*  *  *

 58

 

IN WITNESS WHEREOF, the
parties hereto have caused this Agreement and Plan of Merger to be duly
executed as of the day and year first above written.

	
   

  	
  REAL MEX RESTAURANTS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Frederick Wolfe

  	
   

  
	
   

  	
  Name: Frederick Wolfe

  
	
   

  	
  Title: Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  RM RESTAURANT HOLDING CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Anthony Polazzi

  	
   

  
	
   

  	
  Name: Anthony Polazzi

  
	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  RM INTEGRATED, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Anthony Polazzi

  	
   

  
	
   

  	
  Name: Anthony Polazzi

  
	
   

  	
  Title: Vice President

  

 

JOINDER

The Representative joins in this Agreement solely
for purposes of Sections 2.10 and 9.1 hereof and solely in its capacity as the
Representative and for no other purposes and in no other capacity.

	
  

  	
  REPRESENTATIVE:

  
	
   

  	
   

  
	
   

  	
  BRUCKMANN, ROSSER, SHERRILL & CO., INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Harold O. Rosser

  	
   

  
	
   

  	
  Name: Harold O. Rosser

  
	
   

  	
  Title: Managing Director

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