Document:

Exhibit 10.1

 

EXECUTION
COPY

 

 

STOCK PURCHASE AGREEMENT

 

by
and among

 

ELMET
TECHNOLOGIES, INC.

 

and

 

THE
STOCKHOLDERS NAMED HEREIN

 

and

 

HARBOR
ACQUISITION CORPORATION

 

 

Dated
as of October 17, 2006

 

 

INDEX

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Section 1.

  	
  Purchase and Sale of Company Shares and Company
  Warrants; Continuing Stockholders; Payment of Discretionary Bonuses

  	
  2

  
	
   

  	
   

  	
   

  
	
  1.1

  	
  Transfer
  of Company Shares and Company Warrants

  	
  2

  
	
  1.2

  	
  Sale
  and Purchase; Aggregate Value

  	
  2

  
	
  1.3

  	
  Rollover
  Stockholders; Continuing Stockholders; Put Right

  	
  3

  
	
  1.4

  	
  Discretionary
  Bonuses

  	
  4

  
	
  1.5

  	
  Contingent
  Payment

  	
  4

  
	
  1.6

  	
  Working
  Capital Adjustment to Purchase Price.

  	
  8

  
	
  1.7

  	
  Closing

  	
  9

  
	
  1.8

  	
  Transfer
  Taxes

  	
  10

  
	
  1.9

  	
  Stockholders’
  Representative

  	
  10

  
	
  1.10

  	
  Escrow

  	
  11

  
	
  1.11

  	
  Rule 145

  	
  12

  
	
  1.12

  	
  Tax
  Treatment; Tax Matters

  	
  12

  
	
   

  	
   

  	
   

  
	
  Section 2.

  	
  Representations and Warranties of the Company
  and the Stockholders

  	
  12

  
	
   

  	
   

  	
   

  
	
  2.1

  	
  Organization
  and Corporate Power of the Company

  	
  13

  
	
  2.2

  	
  Authorization
  and Non-Contravention

  	
  13

  
	
  2.3

  	
  Capitalization

  	
  14

  
	
  2.4

  	
  Subsidiaries;
  Investments

  	
  15

  
	
  2.5

  	
  Financial
  Statements

  	
  15

  
	
  2.6

  	
  Absence
  of Certain Developments

  	
  16

  
	
  2.7

  	
  Transactions
  with Affiliates

  	
  17

  
	
  2.8

  	
  Real
  Property

  	
  17

  
	
  2.9

  	
  Tax
  Matters

  	
  18

  
	
  2.10

  	
  Certain
  Contracts and Arrangements

  	
  20

  
	
  2.11

  	
  Intellectual
  Property

  	
  21

  
	
  2.12

  	
  Litigation

  	
  22

  
	
  2.13

  	
  Labor
  Matters

  	
  22

  
	
  2.14

  	
  Compliance
  with Laws

  	
  22

  
	
  2.15

  	
  Employee
  Benefit Plans

  	
  23

  
	
  2.16

  	
  Insurance
  Coverage

  	
  24

  
	
  2.17

  	
  Investment
  Banking; Brokerage

  	
  24

  
	
  2.18

  	
  Environmental
  Matters

  	
  24

  
	
  2.19

  	
  Customers
  and Distributors

  	
  25

  
	
  2.20

  	
  Suppliers

  	
  25

  
	
  2.21

  	
  Bank
  Accounts; Credit Cards; Corporate Accounts; Powers of Attorney

  	
  25

  

 

i

 

	
  2.22

  	
  Books
  and Records

  	
  26

  
	
  2.23

  	
  Investor
  Status; Investment Intent

  	
  26

  
	
  2.24

  	
  Disclosure

  	
  27

  
	
  2.25

  	
  Disclaimer
  of Other Representations and Warranties

  	
  27

  
	
   

  	
   

  	
   

  
	
  Section 3.

  	
  Representations and Warranties of Harbor

  	
  27

  
	
   

  	
   

  	
   

  
	
  3.1

  	
  Existence;
  Good Standing

  	
  28

  
	
  3.2

  	
  Authorization
  and Non-Contravention

  	
  28

  
	
  3.3

  	
  Capitalization

  	
  28

  
	
  3.4

  	
  SEC
  Filings; Financial Statements; Liabilities

  	
  29

  
	
  3.5

  	
  [Intentionally
  Omitted]

  	
  30

  
	
  3.6

  	
  Subsidiaries;
  Investments

  	
  30

  
	
  3.7

  	
  Litigation

  	
  30

  
	
  3.8

  	
  Investment
  Banking; Brokerage Fees

  	
  30

  
	
  3.9

  	
  Financing

  	
  30

  
	
  3.10

  	
  American
  Stock Exchange Listing

  	
  30

  
	
  3.11

  	
  Board
  Approval; Stockholder Approval; Fairness Opinion

  	
  31

  
	
  3.12

  	
  Trust
  Fund.

  	
  31

  
	
  3.13

  	
  Investment
  Company Act

  	
  32

  
	
  3.14

  	
  Business
  Activities

  	
  32

  
	
  3.15

  	
  Inspection

  	
  32

  
	
  3.16

  	
  Disclosure

  	
  32

  
	
  3.17

  	
  Disclaimer
  of Other Representations and Warranties

  	
  33

  
	
   

  	
   

  	
   

  
	
  Section 4.

  	
  Certain Covenants of the Company and Harbor

  	
  33

  
	
   

  	
   

  	
   

  
	
  4.1

  	
  Conduct
  of Business Prior to Closing

  	
  33

  
	
  4.2

  	
  Access
  to Information

  	
  35

  
	
  4.3

  	
  Confidentiality

  	
  35

  
	
  4.4

  	
  Regulatory
  and Other Authorizations; Consents

  	
  35

  
	
  4.5

  	
  Further
  Action

  	
  36

  
	
  4.6

  	
  Public
  Announcements

  	
  36

  
	
  4.7

  	
  No
  Solicitation

  	
  37

  
	
  4.8

  	
  Notice
  of Claims, Notice of Certain Facts

  	
  38

  
	
  4.9

  	
  Management
  Equity Transfers; Estimated Tax Payments

  	
  38

  
	
  4.10

  	
  Proxy
  Statement; Harbor Stockholder Meeting

  	
  38

  
	
  4.11

  	
  Directors
  and Officers of Harbor On Closing Date

  	
  40

  
	
  4.12

  	
  AMEX
  Matters

  	
  40

  
	
  4.13

  	
  Reasonable
  Efforts

  	
  40

  
	
  4.14

  	
  Harbor
  Common Stock Issuable

  	
  40

  
	
  4.15

  	
  No
  Claim Against Trust Fund

  	
  40

  
	
  4.16

  	
  Rule 144
  Holding Period.

  	
  41

  
	
   

  	
   

  	
   

  
	
  Section 5.

  	
  Employee Matters

  	
  41

  
	
   

  	
   

  	
   

  
	
  5.1

  	
  Employees;
  Benefits

  	
  41

  

 

ii

 

	
  5.2

  	
  Books
  and Records; Insurance

  	
  42

  
	
  5.3

  	
  Officers’
  and Directors’ Indemnification

  	
  42

  
	
   

  	
   

  	
   

  
	
  Section 6.

  	
  Closing Conditions and Deliveries

  	
  43

  
	
   

  	
   

  	
   

  
	
  6.1

  	
  Conditions
  to Each Party’s Obligations to Effect the Closing

  	
  43

  
	
  6.2

  	
  Conditions
  to Obligations of Harbor to Effect the Closing

  	
  43

  
	
  6.3

  	
  Conditions
  to Obligations of the Company and the Stockholders to Effect the Closing.

  	
  45

  
	
  6.4

  	
  Deliveries
  by Harbor to the Company and the Stockholders

  	
  45

  
	
  6.5

  	
  Deliveries
  by the Company and the Stockholders to Harbor

  	
  46

  
	
   

  	
   

  	
   

  
	
  Section 7.

  	
  Survival of Representations and Warranties;
  Transaction-Related Indemnification.

  	
  47

  
	
   

  	
   

  	
   

  
	
  7.1

  	
  Survival
  of Representations, Warranties and Covenants; Stockholders’ Agreement
  Concerning Releases from Escrow Fund.

  	
  47

  
	
  7.2

  	
  Transaction-Related
  Indemnification

  	
  48

  
	
  7.3

  	
  Limitations
  on Transaction-Related Indemnification.

  	
  49

  
	
  7.4

  	
  Notice;
  Payment of Losses; Defense of Claims

  	
  50

  
	
  7.5

  	
  Treatment
  of Indemnity Payments

  	
  52

  
	
  7.6

  	
  Exclusive
  Remedy; Setoff; Order of Application

  	
  52

  
	
  7.7

  	
  Limitation
  on Contribution and Certain Other Rights; Contribution Among Stockholders for
  Certain Breaches

  	
  53

  
	
   

  	
   

  	
   

  
	
  Section 8.

  	
  Termination

  	
  53

  
	
   

  	
   

  	
   

  
	
  8.1

  	
  Termination

  	
  53

  
	
  8.2

  	
  Effect
  of Termination

  	
  54

  
	
  8.3

  	
  Termination
  Fee

  	
  54

  
	
  8.4

  	
  Waiver

  	
  54

  
	
   

  	
   

  	
   

  
	
  Section 9.

  	
  General

  	
  55

  
	
   

  	
   

  	
   

  
	
  9.1

  	
  Waivers
  and Consents; Amendments

  	
  55

  
	
  9.2

  	
  Governing
  Law

  	
  55

  
	
  9.3

  	
  Section Headings;
  Construction

  	
  55

  
	
  9.4

  	
  Counterparts

  	
  55

  
	
  9.5

  	
  Notices
  and Demands

  	
  56

  
	
  9.6

  	
  Dispute
  Resolution

  	
  57

  
	
  9.7

  	
  Consent
  to Jurisdiction

  	
  58

  
	
  9.8

  	
  Remedies;
  Severability

  	
  58

  
	
  9.9

  	
  Integration

  	
  58

  
	
  9.10

  	
  Assignability;
  Binding Agreement

  	
  58

  
	
  9.11

  	
  Expenses

  	
  59

  
	
  9.12

  	
  Certain
  Definitions

  	
  59

  
	
  9.13

  	
  Terms
  Defined Elsewhere

  	
  61

  

 

iii

 

EXHIBITS

 

	
  Exhibit A

  	
   

  	
  Form of
  Counterpart Signature Page

  
	
  Exhibit B

  	
   

  	
  Form of
  Stockholder Release

  
	
  Exhibit C

  	
   

  	
  Form of Harbor
  Equity Incentive Plan

  
	
  Exhibit D

  	
   

  	
  Form of
  Registration Rights Agreement

  
	
  Exhibit E

  	
   

  	
  Form of Escrow Agreement

  
	
  Exhibit F

  	
   

  	
  List of Officers and Directors of Harbor at Closing

  
	
  Exhibit G

  	
   

  	
  List of Resigning Officers and Directors of Harbor

  
	
  Exhibit H

  	
   

  	
  Letter Agreement with Rollover Stockholders

  
	
  Exhibit I

  	
   

  	
  Form of
  Non-Compete and Non-Solicitation Agreement

  
	
  Exhibit J

  	
   

  	
  Form of Opinion of Counsel from Goodwin Procter LLP

  
	
  Exhibit K

  	
   

  	
  Form of Opinion of Counsel from Davis, Malm &
  D’Agostine, P.C.

  

 

DISCLOSURE SCHEDULE

 

	
  Schedule A-1

  	
   

  	
  List of Stockholders (as of the date of the
  Agreement)

  
	
  Schedule A-2

  	
   

  	
  List of Stockholders (at Closing)

  
	
  Schedule 1.6

  	
   

  	
  Adjustment to Purchase Price

  
	
  Schedule 2.1

  	
   

  	
  Organization and Corporate Power

  
	
  Schedule 2.2

  	
   

  	
  Authorization and Non-Contravention

  
	
  Schedule 2.3

  	
   

  	
  Capitalization

  
	
  Schedule 2.4

  	
   

  	
  Subsidiaries; Investments

  
	
  Schedule 2.5

  	
   

  	
  Financial Statements

  
	
  Schedule 2.6

  	
   

  	
  Absence of Certain Developments

  
	
  Schedule 2.7

  	
   

  	
  Transactions with Affiliates

  
	
  Schedule 2.8

  	
   

  	
  Real Property

  
	
  Schedule 2.9

  	
   

  	
  Tax Matters

  
	
  Schedule 2.10

  	
   

  	
  Certain Contracts and Arrangements

  
	
  Schedule 2.11

  	
   

  	
  Intellectual Property

  
	
  Schedule 2.12

  	
   

  	
  Litigation

  
	
  Schedule 2.14

  	
   

  	
  Compliance with Laws

  
	
  Schedule 2.15

  	
   

  	
  Employee Benefit Plans

  
	
  Schedule 2.16

  	
   

  	
  Insurance Coverage

  
	
  Schedule 2.17

  	
   

  	
  Investment Banking; Brokerage

  
	
  Schedule 2.18

  	
   

  	
  Environmental Matters

  
	
  Schedule 2.19

  	
   

  	
  Customers and
  Distributors

  
	
  Schedule 2.21

  	
   

  	
  Bank Accounts;
  Credit Cards; Corporate Accounts; Powers of Attorney

  
	
  Schedule 3.4

  	
   

  	
  SEC Filings; Financial Statements; Liabilities

  
	
  Schedule 4.1

  	
   

  	
  Conduct of
  Business Prior to Closing

  
	
  Schedule 5.1

  	
   

  	
  Company
  Obligations

  
	
  Schedule 6.1

  	
   

  	
  Release of
  Company Indebtedness

  
	
  Schedule 6.2(h)

  	
   

  	
  Stockholders
  Executing Non-Compete and Non-Solicitation Agreements

  

 

iv

 

STOCK PURCHASE AGREEMENT

 

THIS STOCK PURCHASE AGREEMENT (the “Agreement”) is
made and entered into as of October 17, 2006, by and among Elmet
Technologies, Inc., a Delaware corporation (the “Company”), the stockholders of the Company listed
on Schedule A-1
attached hereto and the persons listed on Schedule A-2 attached
hereto that are not listed on Schedule A-1 who become stockholders
of the Company and subject to the terms of this Agreement after the date hereof
and prior to the Closing (as defined in Section 1.7 hereof) (the “Stockholders,” and each individually, a “Stockholder”),
and Harbor Acquisition Corporation, a Delaware corporation (“Harbor”).

 

WHEREAS,
all of the outstanding shares of the Company’s capital stock as of the date of
this Agreement are owned by the Stockholders as set forth on Schedule A-1 attached hereto;

 

WHEREAS, in connection with the consummation of the
transactions contemplated hereby, the Company will adopt an Employee Cash and
Stock Bonus Plan (the “Company Bonus Plan”)
and, subject to Step 1 of Section 4.1 of the Disclosure Schedules, immediately
prior to the Closing the Company may consummate the Management Equity Transfers
(as defined in Section 4.1) and the Discretionary Bonuses (as defined in Section 1.4);

 

WHEREAS,
immediately following the Management Equity Transfers, should they occur, it is
anticipated that all of the outstanding shares of the Company’s capital stock
as of the Closing (as defined in Section 1.7) will be owned by the
Stockholders as set forth on Schedule A-2
attached hereto, which may be amended from time to time prior to the Closing in
accordance with Section 9.1(b) hereof (collectively, the “Company Shares”);

 

WHEREAS, prior to the Closing, each Stockholder set
forth on Schedule A-2
that is not set forth on Schedule A-1
shall either (a) agree to be bound by the terms of this Agreement by
executing a counterpart signature page to this Agreement in the form
attached hereto as Exhibit A, or (b) enter into a stock award
agreement (an “Award Agreement”) pursuant to
the terms of the Company Bonus Plan that provides that such Stockholder shall
be subject to certain of the matters set forth in this Agreement, including the
provisions relating to the working capital adjustment, indemnification and the escrow,
and shall make certain representations and warranties as to himself or herself;

 

WHEREAS, each Stockholder desires to sell to Harbor and
Harbor desires to acquire from such Stockholder all of the Company Shares
(other than the Retained Shares (as defined in Section 1.3(b)) and the Company
Warrants (as defined in Section 1.2) owned by such Stockholder; and

 

WHEREAS,
in connection with and as a condition precedent to the consummation of the
transactions contemplated hereby, among other things (a) Harbor will adopt
the Equity Incentive Plan in the form attached hereto as Exhibit C (the “Equity Incentive Plan”) pursuant to which Harbor will reserve for
issuance thereunder no fewer than 840,000 shares of Harbor common stock, $.0001
par value (“Harbor Common Stock”), and (b) Harbor
and certain of the

 

 

Stockholders will enter
into a registration rights and lock-up agreement in the form attached hereto as
Exhibit D (the “Registration Rights
Agreement”).

 

NOW THEREFORE, in consideration of the foregoing and
the mutual covenants and agreements hereinafter set forth, the parties hereto
agree as follows:

 

Section 1.                                          Purchase
and Sale of Company Shares and Company Warrants; Continuing Stockholders; Payment
of Discretionary Bonuses.

 

1.1                               Transfer
of Company Shares and Company Warrants. At the Closing, the
Stockholders shall deliver or cause to be delivered to Harbor (a) certificates
representing all of the Company Shares (other than the Retained Shares) and (b) all
of the Company Warrants (as defined in Section 1.2(a)). Such stock
certificates and Company Warrants shall be duly endorsed in blank for transfer
or shall be presented with stock powers duly executed in blank, with such other
documents as may be reasonably required by Harbor to effect a valid transfer of
such Company Shares and Company Warrants by the Stockholders to Harbor, free
and clear of any and all liens, claims, options, charges, pledges, security
interests, deeds of trust, voting agreements, voting trusts, encumbrances,
rights or restrictions of any nature (“Encumbrances”) (except for federal and state
securities law restrictions of general applicability).

 

1.2                               Sale
and Purchase; Aggregate Value.

 

(a)                                  In
consideration of the sale by the Stockholders to Harbor of the Company Shares
(other than the Rollover Shares and the Retained Shares) and the Company
Warrants (collectively, the “Stock Sale”),
and in reliance upon the representations and warranties of the Company and the
Stockholders contained herein and subject to the satisfaction or waiver of all
of the conditions contained herein, Harbor agrees to pay to the Stockholders,
by wire transfer of immediately available funds, an aggregate amount of cash equal
to:

 

(i)                                     the
Cash Purchase Price (as defined in Section 1.2(b) below), minus

 

(ii)                                  the
sum of (A) the Escrow Amount (as defined in Section 1.10), plus
(B) the aggregate amount of Selling Expenses (as defined in Section 9.12);

 

allocated among the Stockholders as set forth on Schedule A-2 attached hereto,
as consideration for (I) the Company Shares (other than the Rollover Shares and
the Retained Shares) and (II) all of the issued and outstanding warrants (the “Company Warrants”) to purchase shares
of the Company’s common stock, par value $0.01 per share (the “Company Common Stock”).

 

(b)                                 The
“Aggregate Value” is equal to $150,000,000
subject to adjustment based upon the Closing Working Capital determined in
accordance with Section 1.6 hereof. Subject to the Company’s compliance
with its obligations described in Sections 4.10(a) and 4.13, the Aggregate
Value shall increase automatically and without any further action on the part
of the Company, the Stockholders or Harbor as follows: (i) if the Closing
occurs during the month

 

2

 

of January 2007,
the Aggregate Value shall increase by $500,000, (ii) if the Closing occurs
during the month of February 2007, the Aggregate Value shall increase by $1,000,000,
(iii) if the Closing occurs during the month of March 2007, the
Aggregate Value shall increase by $1,500,000, (iv) if the Closing occurs during
the month of April 2007, the Aggregate Value shall increase by $1,875,000,
(v) if the Closing occurs during the month of May 2007, the Aggregate
Value shall increase by $2,250,000, (vi) if the Closing occurs during the
month of June 2007, the Aggregate Value shall increase by $2,625,000, and (vi) if
the Closing occurs on or after July 1, 2007, the Aggregate Value shall
increase by $3,000,000. The “Net Equity Value”
is equal to the Aggregate Value minus the aggregate amount of Net Company
Debt (as defined in Section 9.12) outstanding as of the Closing. The “Closing Consideration” is equal to
the Net Equity Value minus the Contingent Payment Amount (as defined in Section 1.5(d)).
The “Cash Purchase Price” is equal to
the Closing Consideration multiplied by a fraction equal to (A) the total
number of Company Shares (other than the Rollover Shares and the Retained Shares)
plus the number of shares of Company Common Stock issuable upon exercise of the
Company Warrants, in each case outstanding immediately prior to the Closing,
divided by (B) the total number of shares of Company Common Stock
outstanding on a fully diluted basis immediately prior to the Closing. The “Rollover Stockholder Value” is
equal to the Closing Consideration multiplied by a fraction equal to (I) the
total number of Rollover Shares outstanding immediately prior to the Closing,
divided by (II) the total number of shares of Company Common Stock outstanding
on a fully diluted basis immediately prior to the Closing. The “Continuing Stockholder Value” is
equal to the Closing Consideration multiplied by a fraction equal to (I) the
total number of Retained Shares outstanding immediately prior to the Closing,
divided by (II) the total number of shares of Company Common Stock outstanding
on a fully diluted basis immediately prior to the Closing.

 

1.3                               Rollover
Stockholders; Continuing Stockholders; Put Right.

 

(a)                                  In
consideration of the transfer by certain Stockholders (the “Rollover Stockholders”) to Harbor of
a certain number of Company Shares (as set forth opposite each Rollover Stockholder’s
name on Schedule A-2
hereto) (the “Rollover Shares”), and in
reliance upon the representations and warranties of the Company and the Stockholders
contained herein and in the several letter agreements between Harbor and the Rollover
Stockholders to be delivered to Harbor at the Closing in the form attached to
this Agreement as Exhibit H (the “Rollover
Stockholder Letter Agreements”), and subject to the satisfaction
or waiver of all of the conditions contained herein, Harbor agrees to issue to each
Rollover Stockholder a number of shares of Harbor Common Stock equal to the
quotient obtained by dividing (i) the Rollover Stockholder Value
attributable to such Rollover Stockholder by (ii) $6.00. As a condition to
the issuance of the Rollover Shares, each Rollover Stockholder shall execute and
deliver to Harbor at the Closing a Rollover Stockholder Letter Agreement.

 

(b)                                 In
consideration of the Stock Sale, and in reliance upon the mutual representations
and warranties of Harbor, the Company and the Stockholders contained herein and
in the letter agreements referred to in this Section 1.3(b), and subject
to the satisfaction or waiver of all of the conditions contained herein,
certain Stockholders (the “Continuing Stockholders”)
agree to continue to hold a certain number of Company Shares (as set forth
opposite each Continuing Stockholder’s name on Schedule A-2 hereto) (the “Retained
Shares”)

 

3

 

and each
Continuing Stockholder shall
have the right (the “Put Right”),
at any time and from time to time after the sixth month anniversary of the Closing
Date (as defined in Section 1.7), to exchange a number of Retained Shares (as
designated by such Continuing Stockholder pursuant to a written notice to Harbor
(a “Put Notice”)) for that that
number of shares of Harbor Common Stock equal to the quotient obtained by dividing
(i) the Continuing Stockholder Value attributable to the Retained Shares
so designated by the Continuing Stockholder by (ii) $6.00 (the “Put Right Exchange Ratio”). Each Continuing
Stockholder agrees that he, she or it shall not sell, transfer, assign or
pledge his, her or its Retained Shares (other than pursuant to the Put Right)
without the prior written consent of Harbor other than the following which
shall not require Harbor’s consent: (A) a delivery of any such Retained
Shares to Harbor in connection with the exercise of Put Right, (B) a
transfer of such Retained Shares to a family member, trust or family limited
partnership, provided the transferee or transferees thereof agree in writing to
be bound by this restriction in advance of such transfer, (C) a transfer
of such Retained Shares to a transferee or transferees as a bona fide gift or gifts, provided the
transferee or transferees thereof agree in writing to be bound by this
restriction in advance of such transfer, and (D) a distribution of such
Retained Shares by a limited partnership to its partners that does not violate
the Act, provided this restriction is communicated to such partners and they
are informed that the Retained Shares are bound by such restriction. It shall
be a prerequisite to the effectiveness of a transfer which does not require
Harbor’s consent for the transferor and transferee to deliver executed
instruments evidencing such transfer and compliance with the Securities Act, in
such form as may be reasonably requested by Harbor.

 

1.4                               Discretionary
Bonuses. Immediately prior to the Closing, the Company may pay cash
bonuses to certain employees of the Company pursuant to the Company Bonus Plan in
an amount that shall not exceed $2,600,000 in the aggregate, inclusive of Taxes
(as defined in Section 2.9(b)) required to be withheld by the Company (the
“Discretionary Bonuses”).

 

1.5                               Contingent
Payment. As additional consideration for the transactions contemplated
by this Agreement, Harbor agrees to make additional payments (if any) to the
Stockholders at the times, on the basis and subject to the limitations provided
in this Section 1.5 (each a “Contingent Payment”):

 

(a)                                  With
respect to the First Measurement Period, the Contingent Payment shall be an
amount equal to (i) the Contingent Payment Amount multiplied by one-half
(1/2) if 2007 EBITDA is equal to $18,000,000 or (ii) the full Contingent
Payment Amount if 2007 EBITDA is equal to or greater than $21,000,000. In the
event that 2007 EBITDA is greater than $18,000,000 but less than $21,000,000,
the Contingent Payment shall be an amount equal to (A) $14,000,000 plus (B) $14,000,000
multiplied by a fraction (which shall not be greater than 1) (I) the numerator
of which is 2007 EBITDA minus $18,000,000, and (II) the denominator of which is
$3,000,000; provided that in no event will the Contingent Payment with respect
to the First Measurement Period exceed the Contingent Payment Amount.

 

(b)                                 In
the event that the Contingent Payment Amount has been paid in full pursuant to Section 1.5(a) hereto,
this Section 1.5(b) shall not be applicable. With respect to the
Second Measurement Period, the Contingent Payment shall be an amount equal to (i) the
2007 Contingent Payment Shortfall multiplied by one-half (1/2) if 2007/2008
EBITDA is equal to

 

4

 

$37,000,000
or (ii) the full 2007 Contingent Payment Shortfall if 2007/2008 EBITDA is
equal to or greater than $39,000,000. In the event that 2007/2008 EBITDA is
greater than $37,000,000 but less than $39,000,000, the Contingent Payment shall
be an amount equal to (A) one-half of the 2007 Contingent Payment
Shortfall plus (B) one-half of the 2007 Contingent Payment Shortfall multiplied
by a fraction (which shall not be greater than 1) (I) the numerator of which is
2007/2008 EBITDA minus $37,000,000, and (II) the denominator of which is $2,000,000;
provided that in no event will the Contingent Payment with respect to the Second
Measurement Period exceed the 2007 Contingent Payment Shortfall. Notwithstanding
the foregoing provisions of this Section 1.5(b), no Contingent Payment
shall be made pursuant to this Section 1.5(b) unless 2008 EBITDA
exceeds 2007 EBITDA by at least five percent (5%).

 

(c)                                  Contingent
Payments shall be payable within ten (10) business days following the respective
dates on which the amount of such Contingent Payments are determined in
accordance with this Section 1.5 and shall consist of sixty percent (60%)
in cash and forty percent (40%) in Harbor Common Stock. The number of shares of
Harbor Common Stock payable in respect of a Contingent Payment shall be an
amount equal to (A) forty percent (40%) of the amount of the applicable Contingent
Payment divided by (B) the average closing price of a share of Harbor
Common Stock on the American Stock Exchange (the “AMEX”)
(or such other exchange or automated quotation system on which Harbor Common
Stock is then listed or quoted) for the twenty (20) trading days immediately
preceding the date on which the Contingent Payment is payable (as reported in
the Wall Street Journal, or if not reported
therein, in another authoritative source). In the event that Harbor is
prohibited by its lenders or other financing sources from making the cash
portion of any Contingent Payment when due, then Harbor shall promptly issue a
promissory note (the “Contingent Payment Note”)
to the Stockholders’ Representative, on behalf of the Stockholders, in an
aggregate principal amount equal to the unpaid cash portion of the Contingent
Payment, which provides for interest thereon from the date such Contingent
Payment was originally due until such amount is paid at an interest rate per
annum equal to the then prime rate reported in the Wall Street
Journal. The Contingent Payment Note shall mature on the first
business day following the date on which Harbor is no longer prohibited by its
lenders or other financing sources from making such payment and Harbor shall
promptly pay the aggregate principal amount of the Contingent Payment Note
(plus interest thereon) to the Stockholders’ Representative, and the
Stockholders’ Representative shall distribute to each Stockholder an amount
equal to its pro rata share (as set forth opposite such Stockholder’s name on Schedule A-2 hereto) of such
amount.

 

(d)                                 For
purposes of this Section 1.5:

 

(i)                                     “Contingent Payment Amount” means $28,000,000.

 

(ii)                                  “Company EBITDA” means, in the event
that the Closing occurs after December 31, 2006, for the period from January 1,
2007 up to and including the Closing Date, an amount equal to the sum of

 

(A) the net
income (or deficit) of the Company as reported in the Company’s financial
statements for such period after deduction of all expenses, Taxes (as defined
in Section 2.9(b)(i)), and other proper charges, determined in accordance
with GAAP, but
excluding, in each case to the extent included in the determination of net
income, gain or loss resulting from sales of assets outside of

 

5

 

the ordinary course or
from the extinguishment of debt, gain or loss resulting from changes in fair
value of interest rate swaps or from changes in the value of derivative
securities, effects of changes in accounting principles and gain or loss from
extraordinary items, plus

 

(B) in each
case to the extent deducted in the calculation of net income for such period
and without duplication, (I) Taxes on income for such period, (II)
depreciation for such period, (III) amortization for such period, and (IV)
interest expense for such period.

 

In the event that the
Closing occurs in 2007 and (x) the Management Equity Transfers occur in 2007,
and/or (y) the Discretionary Bonuses are paid in 2007, Company EBITDA shall be
determined without giving effect to the Management Equity Transfers and
Discretionary Bonuses, as applicable.

 

(iii)                               “First Measurement Period” means the
twelve (12) month period ending on December 31, 2007;

 

(iv)                              “Harbor EBITDA” means, for any
period, an amount equal to the sum of

 

(A) the net
income (or deficit) of Harbor and its subsidiaries on a consolidated basis as
reported in Harbor’s audited financial statements for such period after
deduction of all expenses, Taxes (as defined in Section 2.9(b)(i)), and
other proper charges, determined in accordance with GAAP, but excluding, in each case to
the extent included in the determination of net income, gain or loss resulting
from sales of assets outside of the ordinary course or from the extinguishment
of debt, gain or loss resulting from changes in fair value of interest rate
swaps or from changes in the value of derivative securities, effects of changes
in accounting principles and gain or loss from extraordinary items, plus

 

(B) in each
case to the extent deducted in the calculation of net income for such period
and without duplication, (I) Taxes on income for such period, (II) depreciation
for such period, (III) amortization for such period, (IV) interest expense
for such period and (V) any Public Company Expenses for such period.

 

In the event that Harbor
consummates one or more business combinations or other acquisitions during the
Measurement Period, the expenses related to any such business combination or
other acquisition and the operations of any such business acquired shall be
excluded from the calculation of Harbor EBITDA.

 

(v)                                 “Measurement Period” means the First
Measurement Period and/or the Second Measurement Period;

 

(vi)                              “Public Company Expenses” means any
and all expenses attributable to Harbor’s operations as a public company that
would not otherwise have been incurred in the event that neither Harbor nor the
Company was a public company,

 

6

 

including incremental
audit costs associated with the audit of the Company’s internal controls,
consulting and other professional fees incurred in connection with public
company compliance with the Sarbanes-Oxley Act of 2002, any fees paid to stock
exchanges, and legal and accounting fees associated with preparation of reports
(that are incremental to ordinary audit costs) filed under the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder
(the “Exchange Act”). Public
Company Expenses shall not to exceed $600,000 for each Measurement Period;

 

(vii)                           “Second Measurement Period” means the
twenty-four (24) month period ending on December 31, 2008;

 

(viii)                        “2007 Contingent Payment Shortfall”
means an amount equal to (A) the Contingent Payment Amount minus (B) the
amount of the Contingent Payment payable in respect of the First Measurement
Period;

 

(ix)                                “2007  EBITDA”
means (A) in the event that the Closing occurs after December 31,
2006, the sum of (I) Company EBITDA and (II) Harbor EBITDA for the period
beginning on the first day following the Closing Date up to and including December 31,
2007, and (B) in the event the Closing occurs on or prior to December 31,
2006, Harbor EBITDA for the First Measurement Period; and

 

(x)                                   “2007/2008  EBITDA”
means (A) in the event that the Closing occurs after December 31,
2006, the sum of (I) Company EBITDA, (II) Harbor EBITDA for the period
beginning on the first day following the Closing Date up to and including December 31,
2007, and (III) Harbor EBITDA for the twelve (12) month period ending on December 31,
2008, and (B) in the event the Closing occurs on or prior to December 31,
2006, Harbor EBITDA for the Second Measurement Period.

 

(xi)                                “2008 EBITDA” means Harbor EBITDA
for the calendar year ending December 31, 2008.

 

(e)                                  On
or before the date that is thirty (30) days following the delivery by Harbor’s
auditors of their audit report on Harbor’s financial statements for the period
ending on the last day of the applicable Measurement Period, Harbor shall
prepare and deliver to the Stockholders’ Representative (as defined in Section 1.9(a))
a report (a “Contingent Payment Report”)
setting forth (i) 2007 EBITDA or 2007/2008 EBITDA, as applicable, and the
amount of the Contingent Payment, if any, and (ii) Harbor’s reasonably
detailed computation of 2007 EBITDA or 2007/2008 EBITDA, as applicable. Following
each Measurement Period, the Stockholders’ Representative and/or a firm of
independent public accountants designated by the Stockholders’ Representative
(the “Stockholders’ Representative Accountant”),
at the Stockholders’ expense, will be entitled to reasonable access during
normal business hours to the records and working papers relevant to the
preparation of the Contingent Payment Report and to such personnel of Harbor as
the Stockholders’ Representative may reasonably request; provided that such
access is scheduled in advance. The parties may agree to schedule such
access at other times in order to minimize the disruption to Harbor’s
operations. The Contingent Payment Report will be deemed to be accepted by and
shall be conclusive for purposes of determining any Contingent Payment except
to the extent, if any, that the Stockholders’ Representative, or the

 

7

 

Stockholders’
Representative Accountant on behalf of the Stockholders’ Representative, shall
have delivered within thirty (30) days after the date on which the Contingent
Payment Report is delivered to the Stockholders’ Representative, a written
notice to Harbor stating each and every item to which the Stockholders’
Representative takes exception, specifying in reasonable detail the nature and
extent of each such exception (it being understood that any amounts relating to
Contingent Payments not disputed shall be paid promptly). If a change proposed
by the Stockholders’ Representative is disputed by Harbor, then the
Stockholders’ Representative and Harbor shall negotiate in good faith to
resolve such dispute. If, after a period of twenty (20) days following the date
on which the Stockholders’ Representative gives Harbor notice of any such
proposed change, Harbor and the Stockholders’ Representative cannot agree on any
such proposed change, Harbor and the Stockholders’ Representative shall select
an independent accounting firm mutually satisfactory to Harbor and the
Stockholders’ Representative to resolve such dispute (the “Neutral Auditor”).
The Neutral Auditor shall review the calculations of the Contingent Payment and,
within sixty (60) days of its appointment, shall make any adjustments necessary
thereto, and, upon completion of such review, the determination of the Neutral
Auditor shall be binding upon the parties. The fees and expenses associated
with such a review shall be borne equally by Harbor and the Stockholders.

 

1.6                               Working Capital Adjustment
to Purchase Price.(a)           Prior
to the Closing Date, the Company shall in good faith prepare, with the
assistance of Harbor, an estimated balance sheet of the Company as of the
Closing Date (the “Estimated
Closing Date Balance Sheet”). The Estimated Closing Date Balance Sheet shall be prepared in
accordance with GAAP (as defined in Section 9.12) consistently applied,
and otherwise consistent with the methodology described in Section 1.6
of the Disclosure Schedule. Not later than five (5) business days
prior to the Closing Date, the Company shall deliver to Harbor the Estimated
Closing Date Balance Sheet, together with worksheets and data that support the
Estimated Closing Date Balance Sheet and any other information that Harbor may
reasonably request in order to verify the amounts reflected on the Estimated
Closing Date Balance Sheet. As provided in Section 1.2(b) hereof, the
Aggregate Value shall be adjusted, dollar for dollar, up or down, as
appropriate, to the extent that the Working Capital set forth on the Estimated
Closing Date Balance Sheet (the “Estimated
Closing Working Capital”) exceeds or is less than the Base
Working Capital, as applicable. “Base Working Capital”
shall equal (i) $12,303,000 minus (ii) an
amount equal to the lesser of (A) $3,100,000 and (B) the sum of (x)
the Discretionary Bonuses actually paid, plus (y) the Employer Payroll Taxes on
the Management Equity Transfers and the Discretionary Bonuses.

 

(b)                                 As
soon as practical after the Closing Date, at the election of Harbor, either (i) Berry,
Dunn, McNeil & Parker, (ii) Vitale, Caturano & Company,
or (iii) with the prior consent of the Stockholders’ Representative, which
consent shall not be unreasonably withheld, such other nationally or regionally
recognized independent accounting firm (the “Accountant”) shall audit the Company’s books and records
and also shall review the Estimated Closing Date Balance Sheet in accordance
with GAAP consistently applied and otherwise consistent with the methodology
used to prepare the Base Balance Sheet (as defined in Section 2.5(a)(ii)) and
make any adjustments necessary thereto (the “Post-Closing Audited Balance Sheet”)
consistent with the provisions of this Section 1.6. All fees and expenses
of the Accountant shall be paid by Harbor. Harbor shall, within sixty (60) days
of the Closing Date, deliver the Post-Closing Audited Balance Sheet and the calculation
of Working Capital (as defined in Section 1.6(e)) at the Closing reflected
thereon, to the Stockholders’ Representative, together with worksheets

 

8

 

which
detail any adjustments and the basis thereof. The Stockholders’ Representative
shall have twenty-one (21) days from the date of receipt of the Post-Closing
Audited Balance Sheet and the calculation of Working Capital at the Closing
reflected thereon, to raise any objections thereto by delivery of a written
notice to Harbor setting forth such objections in reasonable detail, including
any specific amounts that the Stockholders’ Representative asserts are incorrect
in the calculation of Working Capital. In the event that the Stockholders’
Representative fails to raise any objections to the Post-Closing Audited
Balance Sheet and the calculation of Working Capital at the Closing reflected
thereon within such 21-day period, then the Post-Closing Audited Balance Sheet
and the calculation of Working Capital reflected thereon delivered by Harbor shall
be deemed final and binding on the parties for purposes of this Section 1.6.
If the Stockholders’ Representative does not agree with the Post-Closing Audited
Balance Sheet and the calculation of Working Capital at the Closing reflected thereon,
and Harbor and the Stockholders’ Representative cannot mutually agree on the
same, then within fifteen (15) days following receipt by Harbor of the written
objection of the Stockholders’ Representative, Harbor and the Stockholders’
Representative shall select a Neutral Auditor to resolve such dispute. The
Neutral Auditor shall review the Post-Closing Audited Balance Sheet and, within
sixty (60) days of its appointment, shall make any adjustments necessary
thereto, and, upon completion of such review, such Post-Closing Audited Balance
Sheet and the calculation of Working Capital at the Closing reflected thereon as
determined by the Neutral Auditor shall be binding upon the parties. The fees
and expenses associated with such a review by the Neutral Auditor shall be
borne equally by Harbor and the Stockholders. The “Closing
Working Capital” shall be the Working Capital at the Closing
reflected on the Post-Closing Audited Balance Sheet as finally determined in
accordance with this Section 1.6(b).

 

(c)                                  Within
three (3) business days following determination of the Closing Working
Capital in accordance with Section 1.6(b), (i) in the event the
Closing Working Capital is less than the Estimated Closing Working Capital, Harbor
shall recover an amount equal to the difference between such amounts from the Escrow
Fund (as defined in Section 7.6(b)), and (ii) in the event the
Closing Working Capital is greater than the Estimated Closing Working Capital, Harbor
shall pay to the Stockholders’ Representative, on behalf of the Stockholders,
the difference between such amounts, in each case by wire transfer of
immediately available funds or bank certified check and the Stockholders’
Representative shall distribute to each Stockholder an amount equal to its pro
rata share (as set forth opposite such Stockholder’s name on Schedule A-2 hereto) of such
amount. The difference between the Base Working Capital and the Closing Working
Capital is referred to as the “Net
Working Capital Adjustment Amount.”

 

(d)                                 As
used in this Section 1.6 “Working
Capital” shall be computed as described in Section 1.6
of the Disclosure Schedule.

 

1.7                               Closing. The
closing of the transactions contemplated herein (the “Closing”) shall take
place at a mutually agreeable location within two (2) business days of the
satisfaction or, if permitted, waiver of the conditions set forth in Section 6
hereof (the “Closing
Date”). At the Closing, in addition to the other documents described
in Sections 6.4 and 6.5, (a) the Stockholders shall deliver or cause
to be delivered to Harbor (i) stock certificates representing all of the
Company Shares (other than the Retained Shares), and (ii) certificates, if
any, representing the Company Warrants, in each case free and clear of any and
all Encumbrances, and (b) Harbor shall deliver the Cash Purchase Price and
shares of Harbor Common Stock in respect of the

 

9

 

Rollover Shares. All cash payments hereunder shall be
made by wire transfer of same day available funds.

 

1.8                               Transfer Taxes. All
transfer taxes, fees and duties under applicable law incurred in connection
with the sale and transfer of the Company Shares under this Agreement will be
borne and paid by the Stockholders, provided, however, that any state, city or
local real estate transfer taxes payable as a result of the transactions
contemplated by this Agreement shall be borne and paid by Harbor.

 

1.9                               Stockholders’
Representative.

 

(a)                                  By
the execution and delivery of this Agreement, each Stockholder hereby
irrevocably constitutes and appoints Knute C. Albrecht as his, her or its true
and lawful agent and attorney-in-fact (together, the “Stockholders’ Representative”), with full
power of substitution to act in such Stockholder’s name, place and stead with
respect to all transactions contemplated by and all terms and provisions of
this Agreement and the Escrow Agreement (as defined in Section 1.10), and
to act on such Stockholder’s behalf in any dispute, litigation or arbitration
involving this Agreement, and to do or refrain from doing all such further acts
and things, and execute all such documents as the Stockholders’ Representative
shall deem necessary or appropriate in connection with the transactions
contemplated by this Agreement and the Escrow Agreement, including, without
limitation, the power:

 

(i)                                     to
waive any condition to the obligations of such Stockholder to consummate the
transactions contemplated by this Agreement;

 

(ii)                                  to
make any and all decisions entitled to be made thereby under the Escrow
Agreement, including without limitation, any and all decisions about
distribution of any amounts out of the Escrow Fund;

 

(iii)                               to
execute and deliver all ancillary agreements, certificates and documents, and
to make representations and warranties therein, on behalf of such Stockholder
which the Stockholders’ Representative deems necessary or appropriate in
connection with the consummation of the transactions contemplated by this
Agreement and the Escrow Agreement; and

 

(iv)                              to
do or refrain from doing any further act or deed on behalf of such Stockholder
which the Stockholders’ Representative deems necessary or appropriate in its
sole discretion relating to the subject matter of this Agreement and the Escrow
Agreement, as fully and completely as such Stockholder could do if personally
present.

 

(b)                                 The
appointment of the Stockholders’ Representative shall be deemed coupled with an
interest and shall be irrevocable, and Harbor, its affiliates and any other
Person (as defined in Section 9.12) may conclusively and absolutely rely,
without inquiry, upon any action of the Stockholders’ Representative on behalf
of the Stockholders in all matters referred to herein. All notices delivered by
Harbor or the Company (following the Closing) to the Stockholders’
Representative (whether pursuant hereto or otherwise) for the benefit of the

 

10

 

Stockholders
shall constitute notice to the Stockholders. The Stockholders’ Representative
shall act for the Stockholders on all of the matters set forth in this
Agreement in the manner the Stockholders’ Representative believes to be in the
best interests of the Stockholders and consistent with his obligations under
this Agreement, but the Stockholders’ Representative shall not be responsible
to the Stockholders for any loss or damages they may suffer by reason of the
performance by the Stockholders’ Representative of his duties under this
Agreement, other than loss or damage arising from willful violation of the law.

 

(c)                                  Each
Stockholder agrees to indemnify and hold harmless the Stockholders’
Representative from any loss, damage or expense arising from the performance of
its duties as the Stockholders’ Representative hereunder, including, without
limitation, the cost of legal counsel retained by the Stockholders’
Representative on behalf of the Stockholders, but excluding any loss or damage
arising from willful violation of the law.

 

(d)                                 All
actions, decisions and instructions of the Stockholders’ Representative taken,
made or given pursuant to the authority granted to the Stockholders’
Representative pursuant to this Section 1.9 shall be conclusive and
binding upon each Stockholder, and no Stockholder shall have the right to
object, dissent, protest or otherwise contest the same. In all questions
arising under this Agreement or the Escrow Agreement, the Stockholders’
Representative may rely on the advice of counsel, and the Stockholders’
Representative will not be liable to anyone for anything done, omitted or
suffered in good faith by the Stockholders’ Representative based on such
advice.

 

(e)                                  The
provisions of this Section 1.9 are independent and severable, shall
constitute an irrevocable power of attorney, coupled with an interest and
surviving death or dissolutions, granted by the Stockholders to the
Stockholders’ Representative and shall be binding upon the executors, heirs,
legal representatives, successors and assigns of each Stockholder.

 

(f)                                    Harbor
shall be entitled to rely on any written communication delivered to Harbor from
the Stockholders’ Representative which it reasonably believes to be genuine. The
Stockholders shall indemnify and hold Harbor harmless from any act or failure
to act based upon such reliance.

 

1.10                        Escrow. At the Closing,
the Company, the Stockholders, Harbor and Mellon Trust of New England, N.A.
(the “Escrow Agent”), as escrow
agent, will execute an Escrow Agreement, substantially in the form of Exhibit E
hereto (the “Escrow Agreement”), in accordance
with which Harbor will deposit in escrow with the Escrow Agent an aggregate
amount equal to five percent (5%) of the Net Equity Value (the “Escrow Amount”). In the event a
Contingent Payment is made pursuant to Section 1.5(a) or 1.5(b) of
this Agreement, an amount equal to five percent (5%) of such Contingent Payment
shall be released from the escrow. Sixty percent (60%) of the Escrow Amount,
following the release (if applicable) from the escrow actually made pursuant to
the prior sentence, shall be released on the date which is eighteen (18) months
from the Closing Date (the “First Escrow Release Date”).
One hundred percent (100%) of the remaining Escrow Amount shall be released on
the date that is twenty four (24) months from the Closing Date (the “Second Escrow Release Date”), as
more fully set forth in (and subject to the terms of) the Escrow Agreement. Except
as set forth in Section 7.3, the Escrow

 

11

 

Amount shall be the sole and exclusive remedy for any
claims by Harbor for indemnification under Section 7, and, except for
written claims for breach that are made prior to the First Escrow Release Date or
Second Escrow Release Date, as applicable, in accordance with Section 7.1,
shall be subject to release immediately following the First Escrow Release Date
or Second Escrow Release Date, as applicable, in accordance with the procedures
specified in the Escrow Agreement. Releases from escrow shall be subject to any
prior claim made pursuant to Section 7 hereof.

 

1.11                        Rule 145. In
addition to the resale restrictions set forth in Section 1.3(b) hereof
and the Rollover Stockholder Letter Agreements, all shares of Harbor Common
Stock issued or to be issued pursuant to this Agreement to the Stockholders
will be subject to certain resale restrictions under Rule 145 under the
Securities Act of 1933, as amended, and the rules and regulations
thereunder (the “Securities Act”), and all
certificates representing such shares shall bear an appropriate restrictive
legend. At the Closing, Harbor and certain of the Stockholders shall execute
and deliver the Registration Rights Agreement, covering all shares of Harbor
Common Stock issued to such Stockholders or to be issued pursuant to this
Agreement (including shares of Harbor Common Stock issuable upon exercise of
the Put Right pursuant to Section 1.3) that would otherwise be restricted
as to resale thereof.

 

1.12                        Tax Treatment; Tax Matters.

 

(a)                                  The
Stockholders’ right to the Contingent Payments and the Escrow Amount
and shall be treated as deferred contingent purchase price eligible for
installment sale treatment under Section 453 of the Internal Revenue Code
of 1986, as amended (the “Code”) and
any corresponding provision of foreign, state or local law, as appropriate. Any income earned with respect to the Escrow
Amount shall be included in the gross income of Harbor for income tax purposes.
Neither Harbor nor the Company shall take a position in any Tax Return
or examination or other administrative or judicial proceeding (including any
ruling request) relating to any Tax that is inconsistent with such treatment.

 

(b)                                 In
the event that for federal tax purposes Harbor elects to include the Company in
an “affiliated group” as defined in Code Section 1504, or if the tax year
of the Company ends as of the Closing Date pursuant to Treasury Regulations, Section 1.1502-76,
or otherwise, the Stockholders shall cooperate with Harbor and shall provide to
Harbor such information and records as are reasonably necessary to allow Harbor
to timely and properly file (or to cause the Company to file) with the
appropriate tax authorities (i) a short-year income tax return for the Company
for the tax period ending on the Closing Date, (ii) consolidated federal
income tax return for the affiliated group including the Company for the tax
period immediately after the Closing Date, and (iii) corresponding state
and local income tax returns, as required by law.

 

Section 2.                                          Representations
and Warranties of the Company and the Stockholders.

 

In order to induce Harbor to enter into this Agreement
and consummate the transactions contemplated hereby, the Company and the
Stockholders hereby make to Harbor the representations and warranties contained
in this Section 2. Notwithstanding the foregoing, the

 

12

 

representations and
warranties set forth in Sections 2.2(b) and 2.3(b) are made solely by
the Stockholders, and in each case such representations and warranties are made
solely by each individual Stockholder as to himself, herself or itself. The
representations and warranties contained in this Section 2 are subject to
the qualifications and exceptions set forth in the disclosure schedule delivered
to Harbor pursuant to this Agreement (the “Disclosure Schedule”). For purposes hereof,
unless otherwise indicated, all references to the Company shall include the
Company Subsidiary (as defined in Section 2.4). References to the
knowledge or awareness of the Company are deemed to mean the actual knowledge
of the executive officers of the Company assuming reasonable inquiry.

 

2.1                               Organization and
Corporate Power of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and is duly qualified or registered to do business as a foreign
corporation (a) in each jurisdiction listed in Section 2.1 of the
Disclosure Schedule and (b) in each jurisdiction in which the
failure to be so duly qualified or registered has had, or is reasonably likely
to have, a Material
Adverse Effect on the Company. The Company has all required corporate
power and authority to carry on its business as presently conducted, to enter
into and perform this Agreement and the agreements contemplated hereby to which
it is a party and to carry out the transactions contemplated hereby and thereby.
Copies of the Company’s Certificate of Incorporation, as amended through the
date hereof (the “Company Charter”), and the bylaws
of the Company, as amended through the date hereof (the “Company
Bylaws”), have been furnished to Harbor by the Company, are
correct and complete as of the date of this Agreement, and the Company is not
in violation of any term of the Company Charter or Company Bylaws.

 

2.2                               Authorization and
Non-Contravention.

 

(a)                                  This
Agreement and all agreements, documents and instruments executed and delivered
by the Company pursuant hereto are valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ rights
generally. The execution, delivery and performance of this Agreement and all
agreements, documents and instruments executed and delivered by the Company
pursuant hereto have been duly authorized by all necessary corporate or other
action of the Company. Except for filings, permits, authorizations, consents
and approvals that may be required under the HSR Act (as defined in Section 4.4(a)),
the Securities Act or any state securities laws, the execution and delivery of
this Agreement and all agreements, documents and instruments executed and
delivered by the Company pursuant hereto and the performance of the
transactions contemplated by this Agreement and such other agreements,
documents and instruments, do not and will not: (i) violate or result in a
violation of, conflict with or constitute or result in a violation of any
provision of the Company Charter or Company Bylaws; (ii) violate, conflict
with or result in a violation of, or constitute a default (whether after the
giving of notice, lapse of time or both) under, any provision of any law,
regulation or rule, or any order of, or any restriction imposed by, any court
or governmental agency applicable to the Company; (iii) require from the
Company any notice to, declaration or filing with, or consent or approval of
any governmental authority or other third party (that has not already been
obtained); (iv) except as set forth in Section 2.2 of the
Disclosure Schedule (which, in each case, would not individually

 

13

 

or in
the aggregate, have a Material Adverse Effect on the Company), violate or
result in a violation of, or constitute a default (whether after the giving of
notice, lapse of time or both) under, accelerate any obligation under, or give
rise to a right of termination of, any contract, agreement, permit, license or
authorization to which the Company is a party or by which the Company is bound;
or (v) result in the creation or imposition of any Encumbrances upon any
of the properties or assets of the Company or any Company Shares.

 

(b)                                 This
Agreement and all agreements, documents and instruments executed and delivered
by any Stockholder pursuant hereto are valid and binding obligations of such
Stockholder enforceable in accordance with their respective terms. Each
Stockholder has full right, authority, power and capacity to enter into this
Agreement and all agreements, documents and instruments executed and delivered
by such Stockholder pursuant hereto and to carry out the transactions
contemplated hereby and thereby. The execution, delivery and performance by
each Stockholder of this Agreement and all agreements, documents and
instruments executed and delivered by such Stockholder pursuant hereto and the
performance of the transactions contemplated by this Agreement and such other
agreements, documents and instruments do not and will not:  (i) violate or result in a violation of,
conflict with or constitute or result in a violation of any provision of such
Stockholder’s organizational documents, if applicable; (ii) violate or
result in a violation of, or constitute a default (whether after the giving of
notice, lapse of time or both) under, any provision of any law, regulation or
rule, or any order of, or any restriction imposed by, any court or governmental
agency applicable to such Stockholder; (iii) require from such Stockholder
any notice to, declaration or filing with, or consent or approval of, any
governmental authority or other third party (that has not already been obtained);
(iv) violate or result in a violation of, or constitute a default (whether
after the giving of notice, lapse of time or both) under, accelerate any obligation
under, or give rise to a right of termination of, any agreement, permit,
license or authorization to which such Stockholder is a party or by which such
Stockholder is bound; or (v) result in the creation or imposition of any Encumbrance
upon any of the Company Shares owned by such Stockholder.

 

2.3                               Capitalization.

 

(a)                                  As
of the date of this Agreement, the authorized, issued and outstanding capital
stock of the Company is set forth in Section 2.3 of the Disclosure
Schedule. All of the issued and outstanding shares of capital stock of the
Company are duly authorized, validly issued, fully paid and nonassessable. As
of the date of this Agreement and except as set forth in Section 2.3 of
the Disclosure Schedule, there are no outstanding options, warrants or
other rights of any kind to acquire any additional shares of capital stock of
the Company or securities convertible into or exchangeable for, or which
otherwise confer on the holder thereof any right to acquire, any such
additional shares, nor is the Company committed to issue any such option,
warrant, right or security. Except as set forth in Section 2.3 of the
Disclosure Schedule, there are no agreements or understandings to which the
Company is a party with respect to the voting of any shares of capital stock of
the Company or which restrict the transfer of any such shares. Except as set
forth in Section 2.3 of the Disclosure Schedule, there are no
outstanding contractual obligations of the Company to repurchase, redeem or
otherwise acquire any shares of capital stock, other equity interests or any
other securities of the Company. Except as set forth in Section 2.3 of
the Disclosure Schedule, the Company is not under any obligation by reason
of

 

14

 

any
agreement to register the offer and sale or resale of any of its securities
under the Securities Act. At the Closing, all of the Company Shares (other than
the Retained Shares) and the Company Warrants sold or exchanged in connection
with the transactions contemplated by this Agreement shall represent all of the
outstanding capital stock of the Company (other than the Retained Shares) and
all outstanding options, warrants and other rights to acquire capital stock of
the Company. Except for the Company Warrants to be transferred to Harbor at the
Closing, at the Closing there shall be no outstanding options, warrants or
other rights of any kind to acquire any additional shares of capital stock of
the Company or securities convertible into or exchangeable for shares of
capital stock of the Company or such options, warrants or rights.

 

(b)                                 Immediately
prior to the Closing, each Stockholder will be the sole record and beneficial
owner of the Company Shares set forth opposite his, her or its name on Schedule A-2 hereto, free and
clear of any Encumbrances.
At the Closing, each Stockholder shall deliver the Company Shares (other than
the Retained Shares) set forth opposite his, her or its name on Schedule A-2 hereto to Harbor
free and clear of any Encumbrances.

 

2.4                               Subsidiaries;
Investments. The Company does not own or control, directly or
indirectly, any interest in any subsidiary other than Elmet Energy Services, LLC,
a Maine limited liability company (the “Company Subsidiary”).
The Company has not made any investment and does not hold any interest in or
have any outstanding loan or advance to or from, any person, including, without
limitation, any officer, director or stockholder of the Company, except as set
forth in Section 2.4 of the Disclosure Schedule. The Company Subsidiary
is wholly-owned directly by the Company and there are no outstanding
subscriptions, options, warrants, commitments, preemptive rights, agreements,
arrangements or commitments of any kind relating to the issuance or sale of, or
outstanding securities convertible into or exercisable or exchangeable for, any
shares of capital stock of any class or other equity interests of the Company Subsidiary.
The Company Subsidiary does not have any assets or liabilities.

 

2.5                               Financial Statements.

 

(a)                                  The
Company has delivered to Harbor the following financial statements, copies of
which are included in Section 2.5 of the Disclosure Schedule (collectively,
the “Financial Statements”):

 

(i)                                     Audited
balance sheet of the Company as of December 31, 2005 and 2004, and
statements of income and retained earnings and statements of cash flows for
each of the years then ended;

 

(ii)                                  Unaudited
adjusted balance sheet of the Company as of the end of the fiscal period ended July 31,
2006 (the “Base Balance Sheet”); and

 

(iii)                               Unaudited
adjusted statement of income of the Company through the end of the fiscal
period ended July 31, 2006.

 

Subject to the absence of footnotes and year-end audit
adjustments with respect to any unaudited Financial Statements, the Financial
Statements have been prepared in accordance with

 

15

 

GAAP consistently
applied, and present fairly in all material respects the financial condition and
results of operations of the Company.

 

(b)                                 As
of the date of this Agreement, all liabilities and obligations of the Company of
a type that would be required to be shown on the Financial Statements in
accordance with GAAP have been (i) stated or adequately reserved against
on the Base Balance Sheet or the notes thereto, (ii) reflected in Section 2.5
of the Disclosure Schedule, or (iii) incurred after the date of the
Base Balance Sheet in the ordinary course of business consistent with past
practices, except for liabilities and obligations which are not reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on the
Company.

 

2.6                               Absence of Certain Developments. Since the date of the
Base Balance Sheet and through the date of this Agreement, the Company has
conducted its business only in the ordinary course consistent with past
practice and, except as set forth in Section 2.6 of the Disclosure
Schedule, there has not been:

 

(a)                                  any
change in the assets, liabilities, financial condition, properties, business or
operations of the Company, which change by itself or in conjunction with all
other such changes, whether or not arising in the ordinary course of business,
has had or could be reasonably likely to have a Material Adverse Effect on the
Company;

 

(b)                                 any
mortgage, lien or other encumbrance placed on any of the properties of the
Company, other than purchase money liens and liens for taxes not yet due and
payable;

 

(c)                                  any
purchase, sale or other disposition, or any agreement or other arrangement for
the purchase, sale or other disposition, of any properties or assets (other
than raw material and goods for resale) by the Company, including any of its
Intellectual Property Rights (as defined in Section 2.11), involving the
payment or receipt of more than $50,000;

 

(d)                                 any
damage, destruction or loss, whether or not covered by insurance, that has had
or could be reasonably likely to have a Material Adverse Effect on the Company;

 

(e)                                  any
declaration, setting aside or payment of any dividend by the Company, or the
making of any other distribution in respect of the capital stock of the
Company, or any direct or indirect redemption, purchase or other acquisition by
the Company of its own capital stock;

 

(f)                                    any
resignation, termination or removal of any officer of the Company;

 

(g)                                 any
material change in accounting methods or practices, collection policies,
pricing policies or payment policies of the Company other than such changes
required by GAAP that have been disclosed to Harbor;

 

(h)                                 any
amendment or termination of any material contract or agreement to which the
Company is a party or by which it is bound;

 

(i)                                     any
amendment to the Company Charter or Company Bylaws;

 

16

 

(j)                                     any
write-off as uncollectible of any notes or accounts receivable, except for
write-offs in the ordinary course of business and consistent with past
practice;

 

(k)                                  except
for the transactions contemplated by this Agreement, any material change in the
rate of compensation of any officers or employees (including any such change pursuant
to any bonus, pension, profit-sharing or other plan or commitment) or any agreement
to change the compensation payable or to become payable to any officer or
employee;

 

(l)                                     any
cancellation of any debts or any waiver or lapse of any claims or rights of
substantial value; or

 

(m)                               any
agreement or understanding whether in writing or otherwise, for the Company to
take any of the actions specified in paragraphs (a) through (l) above.

 

2.7                               Transactions with
Affiliates. Except as set forth in Section 2.7 of the
Disclosure Schedule, there are no loans, leases or other agreements or
transactions between the Company or any stockholder, director, officer or
employee of the Company, or to the knowledge of the Company any member of such
officer’s, director’s, employee’s or stockholder’s immediate family, or any
person controlled by such officer, director, employee or stockholder or his or
her immediate family. No stockholder, director, officer or employee of the
Company, or to the knowledge of the Company any of their respective spouses or
family members, owns directly or indirectly, on an individual or joint basis,
any interest in, or serves as an officer or director or in another similar
capacity of, any competitor, customer or supplier of the Company.

 

2.8                               Real Property.

 

(a)                                  Section 2.8
of the Disclosure Schedule sets forth a list and description of all
real property owned by the Company or the Company Subsidiary and all real
property leased by the Company or the Company Subsidiary (the “Real Property”). All leases
relating to Real Property are identified in Section 2.8 of the
Disclosure Schedule (the “Leases”)
and true and complete copies thereof have been made available to Harbor. Except
as set forth in Section 2.8 of the Disclosure Schedule or as
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company, the Company has good and marketable title to all of the owned Real
Property. With respect to each Lease listed in Section 2.8 of the
Disclosure Schedule:

 

(i)                                     the
Company has good, valid and enforceable leasehold interests to the leasehold
estate in the leased Real Property granted to the Company pursuant to each
pertinent Lease, subject to applicable bankruptcy, insolvency, moratorium or
other similar laws relating to creditors’ rights and general principles of
equity;

 

(ii)                                  each
of said Leases has been duly authorized and executed by the Company and is in
full force and effect; and

 

(iii)                               the
Company is not in default under any material term of said Leases, nor, to the
Company’s knowledge, has any event occurred which, with notice or the passage
of time, or both, would give rise to such a default by the Company.

 

17

 

(b)                                 To
the Company’s knowledge, except as set forth in Section 2.8 of the
Disclosure Schedule or as specifically disclosed in the Base Balance
Sheet, and except with respect to leased personal property, the Company has good,
marketable title to all of its tangible personal property and assets shown on
the Base Balance Sheet or acquired after the date of the Base Balance Sheet,
free and clear of any Encumbrances, except for (i) inventory and obsolete assets that
have been disposed of to nonaffiliated third parties since the date of the Base
Balance Sheet in the ordinary course of business, (ii) Encumbrances
reflected in the Base Balance Sheet, (iii) Encumbrances of record or imperfections
of title which are not, individually or in the aggregate, material in
character, amount or extent and which do not materially detract from the value
or materially interfere with the present or presently contemplated use of the
assets subject thereto or affected thereby, and (iv) Encumbrances
for current Taxes (as defined in Section 2.9(b)) not yet due and payable.

 

2.9                               Tax Matters.

 

(a)                                  Except
as set forth in Section 2.9 of the Disclosure Schedule:

 

(i)                                     the
Company has filed with the appropriate governmental agencies all Federal,
state, local and foreign Tax Returns (as defined in Section 2.9(b)) required
to be filed by it, has paid in full or made adequate provision for the payment
of all Taxes (as defined in Section 2.9(b)), together with interest,
penalties, assessments and deficiencies owed by it (whether or not shown on any
Tax Returns), and all such Tax Returns were correct and complete in all
material respects;

 

(ii)                                  the
Company is not currently the beneficiary of any extension of time within which
to file any Tax Returns;

 

(iii)                               the
Company has previously provided Harbor with true and complete copies of all
such Tax Returns for the Company filed since its inception;

 

(iv)                              there
are no existing Tax liens (other than for Taxes not yet due and payable) upon
any property or assets of the Company;

 

(v)                                 the
Company has not waived any statute of limitations in respect of Taxes or
executed or filed with any governmental authority any agreement extending the
period for the assessment or collection of any Taxes, and it is not a party to
any pending or, to the Company’s knowledge, threatened action or proceeding by
any governmental authority for the assessment or collection of Taxes;

 

(vi)                              there
is no unresolved written claim by a Governmental Authority in any jurisdiction
where the Company does not file Tax Returns that the Company is or may be
subject to taxation by such jurisdiction;

 

(vii)                           there
has been no examination or audit by any Governmental Authority with respect to
Taxes with respect to any period;

 

(viii)                        neither
the Internal Revenue Service (the “IRS”) nor any other tax authority has, by written notice to the
Company, or to the Company’s knowledge,

 

18

 

proposed or threatened to
examine or audit the Returns of the Company, or to assert any deficiency or
claim for any additional Taxes;

 

(ix)                                the
Company has withheld and paid to the appropriate governmental authority all
Taxes required to have been withheld and paid in connection with all amounts
paid or owing to any employee, independent contractor, creditor, the
Stockholders or other third party;

 

(x)                                   the
unpaid Taxes of the Company did not, as of the date of the Base Balance Sheet,
exceed the reserve for tax liability set forth on the face of the Base Balance
Sheet (rather than any notes thereto);

 

(xi)                                the
Company has not filed a consent under Section 341(f) of the Code concerning
collapsible corporations. The Company has disclosed on its Federal income tax
returns all positions taken therein that could give rise to a substantial
understatement of Federal income tax within the meaning of Code Section 6662;

 

(xii)                             the
Company has not been a member of an affiliated group filing a consolidated
Federal income tax return;

 

(xiii)                          the
Company has not accrued or made any payment, is not obligated to make any
payment, and is not a party to any agreement that could obligate it to make any
payment (including without limitation any payments or transfers made in
connection with the Management Equity Transfers and the Discretionary Bonuses),
that is or will not be deductible under Code Section 280G; and

 

(xiv)                         the
Company has adopted the accrual method of accounting for income tax purposes,
and has not adopted or consented to any change in methods of accounting
requiring adjustments under Code Section 481 (or any comparable provisions
of state and local income tax laws).

 

(b)                                 For
the purposes of this Agreement:

 

(i)                                     “Taxes” shall mean any and all taxes
of every nature, including but not limited to income, sales, franchise, excise
and withholding taxes, as well as all, charges, fees, levies or other
assessments, imposed by the IRS or any taxing authority, and such term shall
include any interest whether paid or received, fines, penalties, assessments,
deficiencies or additional amounts attributable to, or imposed upon, or with
respect to, any such taxes, charges, fees, levies or other assessments; and

 

(ii)                                  “Tax Returns” shall mean any report,
return, document or other filing required to be supplied to any taxing
authority or jurisdiction (foreign or domestic) with respect to Taxes.

 

(c)                                  The
taxable year of the Company for federal and state income tax purposes is the
fiscal year ended December 31.

 

19

 

(d)                                 If any Management Equity Transfers and
Discretionary Bonuses are made, then the difference between (i) the
Company’s cumulative federal and state income tax liability (for all
taxable years of the Company beginning on or before December 31, 2007) not
taking into account the deductions for the Management Equity Transfers,
Discretionary Bonuses, and Employer Payroll Taxes related thereto, and (ii) the
Company’s actual cumulative federal and state income tax liability (for all
taxable years of the Company beginning on or before December 31, 2007),
shall be at least equal to the amount that the Base Working Capital is reduced
by clause (ii) of the last sentence of Section 1.6(a). The foregoing
determination shall be calculated by including the federal and state income tax
liability of all members of any “affiliated group” within the meaning of section 1504(a) of
the Code of which the Company is a member and which group files a consolidated
Federal income tax return.  The representation contained in this Section 2.9(d) is
expressly conditioned on the assumption that (i) no election to forgo
carrybacks of net operating losses under Section 172(b)(3) of the
Code will be made, and (ii) the Management Equity Transfers, the
Discretionary Bonuses and the
Employer Payroll Taxes related thereto will be deducted on the Tax Returns
(including any amended Tax Returns) of the Company for the taxable year of the
Company beginning on January 1, 2007, except to the extent the claiming of
such deductions are not permitted by law. “Employer
Payroll Taxes” means FICA, Medicaid, FUTA and SUTA taxes, and any
state counterparts, imposed on and paid by the Company.

 

(e)                                  The
representations and warranties set forth in this Section 2.9 shall
constitute the only representations and warranties by the Company with respect
to Taxes.

 

2.10                        Certain Contracts and
Arrangements. Except as set forth in Section 2.10 of the
Disclosure Schedule, the Company is not a party or subject to or bound by:

 

(a)                                  any
contract or agreement involving a potential commitment or payment by the
Company in excess of $50,000;

 

(b)                                 any
contract containing covenants directly or explicitly limiting in any respect
the freedom of the Company to compete in any line of business or with any
person or entity;

 

(c)                                  any
indenture, mortgage, promissory note, loan agreement, guaranty or other
agreement or commitment for borrowing or any pledge or security arrangement;

 

(d)                                 any
stock redemption or purchase agreements or other agreements affecting or
relating to the capital stock of the Company;

 

(e)                                  any
pension, profit sharing, retirement or stock option plans;

 

(f)                                    any
acquisition, merger or similar agreement;

 

(g)                                 any
collective bargaining agreement or other agreement with any labor union or
other employee representative of a group of employees;

 

20

 

(h)                                 any
contract with a sole-source supplier of significant goods or services (other
than utilities and commodity gases); or

 

(i)                                     any
other material contract, which involves consideration in excess of $50,000.

 

Neither the Company nor, to the knowledge of the
Company, any other party is in default in complying with any provisions of any
such contract, agreement, lease or instrument, or any other contract,
agreement, lease or instrument, the breach of which could reasonably be
expected to have a Material Adverse Effect on the Company, and no condition or
event or fact exists which, with notice, lapse of time or both, could
constitute a default thereunder on the part of the Company, except for any such
default, condition, event or fact that, individually or in the aggregate, that
could not reasonably be expected to have a Material Adverse Effect on the Company.

 

2.11                        Intellectual
Property.

 

(a)                                  Except
as set forth in Section 2.11 of the Disclosure Schedule, the
Company is the owner of, or has the right to use, all Intellectual Property Rights (as defined below) as are relevant to
the Company’s business as currently conducted, without payment to any third
party (except with respect to commercially available third-party software),
except where the failure to own or have the right to use such Intellectual
Property Rights would not, individually or in the aggregate, have a Material
Adverse Effect on the Company. Section 2.11 of the Disclosure Schedule contains
a list of all issued patents, patent applications, registered trademarks and
registered copyrights owned or purported to be owned by the Company. To the
Company’s knowledge, operation of the Company’s business as currently conducted
or proposed to be conducted does not or would not infringe or conflict with the
rights of others under any Intellectual Property Rights. The execution,
delivery and performance of this Agreement by the Company and the consummation
of the transactions contemplated hereby will not breach, violate or conflict
with any instrument or agreement concerning any material Intellectual Property
Right or cause the Company to infringe or conflict with the rights of others
under any Intellectual Property Right.

 

(b)                                 The
Company has paid in full all license fees, royalties and other payments that
are due and payable with respect to any Intellectual Property Rights and the
Company is not in default under any agreement relating to any of the
Intellectual Property Assets, except as would not result in a Material Adverse
Effect on the Company. To the knowledge of the Company, no employee of the
Company has entered into any agreement that restricts or limits in any way the
scope or type of work in which the employee may be engaged that is related to
the business of the Company or requires the employee to transfer, assign, or
disclose information concerning his work to anyone other than the Company.

 

(c)                                  The
Company has taken all reasonable precautions to protect the secrecy,
confidentiality, and value of its Trade Secrets. The Company has good title and
valid rights to use the Trade Secrets without compensation to, or consent from,
any third party. To the Company’s knowledge, the Trade Secrets have not been
used, divulged, or appropriated either for the benefit of any Person (other
than the Company) or to the detriment of the Company. The

 

21

 

Company has not received
written notice to the effect that any of its Trade Secrets is subject to any
adverse claim or has been challenged or threatened in any way.

 

(d)                                 For
purposes of this Agreement, “Intellectual Property
Right” includes:  (i) the
Company’s name and variations thereof, all fictional business names, trading
names, registered and unregistered trademarks, service marks, and applications;
(ii) all patents, patent applications, and inventions and discoveries that may
be patentable; (iii) all copyrights (whether registered or unregistered) in
both published works and unpublished works; and (iv) all know-how, trade
secrets, confidential information, customer lists, software, technical
information, formulae, data, process technology, plans, drawings, and
blueprints (collectively, “Trade Secrets”),
owned, used, or licensed by the Company as licensee or licensor.

 

2.12                        Litigation.
Except as set forth in Section 2.12 of the Disclosure Schedule, there is
no litigation or governmental or administrative proceeding or investigation
pending as of the date of this Agreement
or, to the knowledge of the Company, threatened in writing as of the
date of this Agreement against the Company or affecting the properties or
assets of the Company, or, as to matters related to the Company, against any
officer or director of the Company in their respective capacities in such
positions. Section 2.12 of the Disclosure Schedule includes a description
of all litigation, claims or proceedings (except for collections or similar
actions for amounts of less than $50,000) involving the Company or any of its
officers or directors in connection with the business of the Company occurring,
arising or existing since January 1, 2004.

 

2.13                        Labor
Matters. The Company employs fifty
(50) exempt employees and one
hundred and seventy-eight (178) non-exempt employees as of the date hereof. The Company is not delinquent in
payments to any of its employees for any wages, salaries, commissions, bonuses
or other direct compensation for any services performed for the Company as of
the date of this Agreement or amounts required to be reimbursed to such
employees. The Company is in compliance in all material respects with all of
its collective bargaining agreements and all applicable laws and regulations
respecting labor, employment, fair employment practices, immigration, terms and
conditions of employment, occupational safety and health, and wages and hours,
including youth employment laws. There are no charges of employment
discrimination or unfair labor practices or strikes or stoppages of work,
workers compensation claims or government inspections, audits or investigations
existing, pending or, to the knowledge of the Company, threatened against or
involving the Company as of the date of this Agreement. There are no changes
pending or, to the knowledge of the Company, threatened with respect to
(including, without limitation, the resignation of) any executive officer of
the Company nor has the Company received any notice or information concerning any
prospective change with respect to any such executive officer. The Company has
not implemented any plant closing or mass layoff of employees as those terms
are defined in the Worker Adjustment Retraining and Notification Act of 1988, as
amended (“WARN”), or any similar state
or local law or regulation since January 1, 2004, and no layoffs that could
implicate such laws or regulations are currently contemplated.

 

2.14                        Compliance
with Laws. Except as set forth in Section 2.14 of the Disclosure
Schedule, the Company is in compliance in all material respects with all
applicable statutes,

 

22

 

ordinances, orders, rules and regulations promulgated
by any U.S. federal, state, municipal or other governmental authority, which
apply to the conduct of its business. The Company is not subject to any
judgment, consent decree, compliance order or administrative order with respect
to any aspect of the business, affairs, properties or assets of the Company and
as of the date of this Agreement has not received any written notice, demand
letter, administrative inquiry or formal complaint or claim from any regulatory
agency with respect to the business, affairs, properties or assets of the
Company. Notwithstanding the foregoing, this Section 2.14 shall not constitute
a representation or warranty as to Tax, Labor, Employee Benefit or
Environmental Matters which are limited to those representations and warranties
set forth in Sections 2.9, 2.13, 2.15 and 2.18 hereof, respectively, as
contemplated by Sections 2.9(e), 2.15(b) and 2.18(g) hereof, respectively. A
list of all permits, approvals, licenses, certificates, franchises,
authorizations, consents and orders necessary to the operation of the business
of the Company in the manner in which it is presently conducted (“Permits”) is set forth on Section
2.14 of the Disclosure Schedule. All such Permits are valid and in full
force and effect. To the Company’s knowledge, the Company has not engaged in
any activity that would cause revocation or suspension of any such Permits and
no action or proceeding is currently pending, or to the knowledge of the
Company threatened, contemplating the revocation or suspension of any thereof.

 

2.15                        Employee
Benefit Plans.

 

(a)                                  With
respect to all the employee benefit plans, programs and arrangements maintained
for the benefit of any current or former employee, officer or director of the
Company as of the date of this Agreement (the “Benefit Plans”), except as set forth in Section 2.15
of the Disclosure Schedule, each Benefit Plan has been operated in all
material respects in accordance with the terms and requirements of applicable
law. Except as set forth in Section 2.15 of the Disclosure Schedule, (i)
no Benefit Plan is subject to Title IV of the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”), or
is a multiemployer plan within the meaning of Section 3(37) of ERISA and (ii)
each Benefit Plan and any related trust intended to be qualified under Sections
401(a) and 501(a) of the Code has received a favorable determination letter
from the IRS that it is so qualified. To the Company’s knowledge, no
transaction prohibited by Section 406 of ERISA and no prohibited transaction
under Section 4975(c) of the Code has occurred with respect to any of the
Benefit Plans. No liability exists from the Company to the IRS with respect to
the any of the Benefit Plans. Except as set forth in Section 2.15 of the
Disclosure Schedule, all filings required by ERISA and the Code as to each
Benefit Plan have been timely filed and all notices and disclosures to
participants required by ERISA or the Code have been timely provided. To the
Company’s knowledge, no event has occurred or circumstance exists that could
result in a material increase in premium cost of those Benefit Plans that are
insured, or a material increase in benefit costs of those Benefit plans that
are self-insured. To the Company’s knowledge, other than claims for benefits
submitted by participants or beneficiaries, no claims against, or legal
proceedings involving, any Benefit Plan is pending or threatened. No event has
occurred or circumstance exists that is reasonably likely to cause the hourly
or salary 401(k) plan or their trusts to lose their qualification or tax-exempt
status, respectively.

 

23

 

(b)                                 The
representations and warranties set forth in this Section 2.15 shall
constitute the only representations and warranties by the Company with respect
to any Benefit Plans.

 

2.16                        Insurance
Coverage.  Section 2.16 of the Disclosure Schedule contains a
summary of the insurance policies maintained by the Company as of the date of
this Agreement. There are no claims pending against the Company as of the date
of this Agreement under any such insurance policies covering the property,
business or employees of the Company, and all premiums due and payable with
respect to the policies maintained by the Company have been paid to date. To
the Company’s knowledge, such policies have coverage that is reasonable for the
size and nature of the Company’s business and there is no threatened
termination of any such policies or arrangements.

 

2.17                        Investment
Banking; Brokerage. Except as set forth in Section 2.17 of the
Disclosure Schedule, there are no claims for investment banking fees,
brokerage commissions, broker’s or finder’s fees or similar compensation in
connection with the transactions contemplated by this Agreement payable by the
Company or based on any arrangement or agreement made by or on behalf of the
Company. All of the fees and costs payable pursuant to any agreement listed in Section
2.17 of the Disclosure Schedule shall be paid by the Company at or prior to
the Closing, and shall be included in the definition of Selling Expenses.

 

2.18                        Environmental
Matters. Except as set forth in Section 2.18 of the Disclosure
Schedule, or as would not be reasonably likely to have a Material Adverse
Effect on the Company:

 

(a)                                  the
Company is in compliance in all material respects with all Environmental Laws
(as defined below) applicable to its operation and use of the Real Property;

 

(b)                                 the
Company has not generated, transported, treated, stored, or disposed of or
arranged, by contract, agreement or otherwise, for the treatment or disposal of
any Hazardous Materials (as defined below) except in compliance with all
applicable Environmental Laws;

 

(c)                                  the
Company has not (i) received notice under the citizen suit provisions of any
Environmental Law; (ii) received any written request for information, notice,
demand letter, administrative inquiry or written complaint or claim under any
Environmental Law or relating to any permit under Environmental Law or (iii)
been subject to or, to the Company’s knowledge, threatened with any
governmental or citizen enforcement action with respect to any Environmental
Law;

 

(d)                                 the
Company has, and as of the date of this Agreement there are in full force and
effect, all Permits required under any Environmental Law for the Company’s
activities and operations at the Real Property, which Permits are listed in Section
2.18 of the Disclosure Schedule, and the Company is in compliance in all
material respects with such Permits and has not engaged in any activity that
would cause revocation or suspension of any such Permits and no action or
proceeding looking to or contemplating the revocation or suspension of any
thereof is pending or, to the knowledge of the Company, threatened; and

 

24

 

(e)                                  to
the knowledge of the Company, all written information the Company has furnished
to Harbor concerning the environmental conditions of the Real Property, prior
uses of the Real Property, and the operations of the Company related to
compliance with Environmental Laws is materially accurate.

 

(f)                                    For
purposes of this Agreement:

 

(i)                                     “Environment” means soil, surface
waters, groundwater, land, stream sediments, surface or subsurface strata and
ambient air and biota living in or on such media.

 

(ii)                                  “Environmental Laws” means all Laws
relating to protection of the Environment, including, without limitation, the
federal Comprehensive Environmental Response, Compensation and Liability Act,
the Resource Conservation and Recovery Act, the Clean Air Act, the Clean Water
Act, the Toxic Substances Control Act, the Endangered Species Act and similar
federal, state and local Laws.

 

(iii)                               “Hazardous Material” means any toxic
substance, hazardous waste, hazardous material, hazardous substance, pollutant,
contaminant, petroleum or petroleum-containing materials, radiation and radioactive
materials, polychlorinated biphenyls and asbestos and asbestos-containing
material as defined in, or listed under, any Environmental Law.

 

(g)                                 The
representations and warranties set forth in this Section 2.18 shall
constitute the only representations and warranties by the Company with respect
to Environmental Matters.

 

2.19                        Customers
and Distributors.  Section 2.19 of the Disclosure Schedule sets
forth the name of each customer and distributor of the Company who accounted
for more than ten percent (10%) of the revenues of the Company for each of the
fiscal years ended December 31, 2004 and December 31, 2005 and/or for the six
(6) months ended June 30, 2006 (the “Customers” and “Distributors”, respectively). No
Customer or Distributor of the Company has canceled or otherwise terminated its
relationship with the Company or has materially decreased its usage or purchase
of the services or products of the Company.

 

2.20                        Suppliers.
Within the last twelve (12) months, no supplier that the Company has paid or is
under contract to pay $50,000 or
more has canceled, materially modified, or otherwise terminated its
relationship with the Company, or materially decreased its services, supplies
or materials to the Company.

 

2.21                        Bank
Accounts; Credit Cards; Corporate Accounts; Powers of Attorney.  Section
2.21 of the Disclosure Schedule contains a complete and accurate list of
(a) the name of each bank in which the Company has an account or safe deposit
box and the name(s) of all persons authorized to draw thereon or have access
thereto, (b) the name of each credit card issuer with whom the Company has an
account and the name(s) of all persons authorized to use such accounts or have
access thereto, and (c) the name(s) of all persons, if any, holding powers of
attorney from the Company.

 

25

 

2.22                        Books and
Records. All of the accounts, books, ledgers and other records material
to the Company’s business and operations have been properly and accurately kept
and are complete in all material respects, and there are no material
inaccuracies or discrepancies of any kind contained or reflected therein. The
Company maintains a system of internal accounting controls sufficient to
provide reasonable assurances that: (i) the Company’s material transactions are
executed in accordance with management’s general or specific authorization;
(ii) the Company’s transactions are recorded as necessary to permit the
preparation of the financial statements in conformity with GAAP and to maintain
accountability for assets; (iii) access to the Company’s assets is permitted
only in accordance with management’s general or specific authorization; and (iv)
the recorded accountability for the Company’s assets is compared with the
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

 

2.23                        Investor Status; Investment
Intent

 

(a)                                  Each
of the Stockholders as of the date of this Agreement (as listed on Schedule A-1
hereto) is an “accredited investor” (as that term is defined in Rule 501(a) of
Regulation D under the Securities Act). Each such Stockholder has undertaken
such investigation, and has been provided with and has evaluated such documents
and information including, without limitation, the Harbor SEC Reports (as
defined in Section 3.4(a)), as it or he has deemed appropriate to enable such
Stockholder to make an informed and intelligent decision with respect to the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby including, in the case of all such Stockholders, the
potential future receipt of shares of Harbor Common Stock pursuant to the
Contingent Payment and, in the case of the Continuing Stockholders, the
potential future receipt of shares of Harbor Common Stock upon exercise of the
Put Right. Each such Stockholder also acknowledges that it or he has received
all materials relating to the business of Harbor as such Stockholder has
requested and has been afforded the opportunity to obtain any additional
information necessary to verify the accuracy of any such information or of any
representation or warranty made by Harbor hereunder or to otherwise evaluate
the merits of the transactions contemplated hereby. Without limiting the
generality of the foregoing, each such Stockholder acknowledges that Harbor
makes no representation or warranty with respect to (i) any projections,
estimates or budgets delivered to or made available to the Company or the
Stockholders of future revenues, future results of operations (or any component
thereof), future cash flows or future financial condition (or any component
thereof) of Harbor or the future business and operations of Harbor or (ii) any
other information or documents made available to the Company, the Stockholders
or their counsel, accountants or advisors with respect to Harbor or any of its
business, assets, liabilities or operations, except as expressly set forth in
this Agreement.

 

(b)                                 Each
of the Rollover Stockholders (as now listed, or will be listed prior to the
Closing, on Schedule A-2 hereto) shall, in connection with the placement of
shares of Harbor Common Stock with such Stockholder in exchange for the Company
Shares which such Rollover Stockholder may receive from the Company immediately
prior to the Closing in connection with the Management Equity Transfers,
confirm through the Rollover Stockholder Letter Agreement which such
Stockholder shall deliver to Harbor in connection with the Closing, such
Rollover Stockholder’s investor status and receipt of information relating to
Harbor.

 

26

 

(c)                                  Each
of the Stockholders as of the date of this Agreement hereby represents and
warrants, and each of the Rollover Stockholders will represent and warrant
through their Rollover Stockholder Letter Agreements, that all shares of Harbor
Common Stock which they may receive pursuant to this Agreement and the
transactions described herein, whether (i) pursuant to the Contingent Payment
(in the case of all Stockholders), (ii) exercise of the Put Right (in the case
of the Continuing Stockholders), or (iii) at the Closing in exchange for
Rollover Shares (in the case of the Rollover Stockholders), will be acquired
for investment and without a view to any future sale or other transfer except
as may be registered under the Securities Act and any applicable state
securities laws or pursuant to an exemption from the registration requirements
under the Securities Act and any applicable state securities laws.

 

2.24                        Disclosure.
To the Company’s knowledge, the representations, warranties and
statements contained in this Agreement and the Disclosure Schedule delivered by
the Company to Harbor pursuant to this Agreement do not contain any untrue
statement of a material fact and do not omit to state a material fact required
to be stated herein or therein to make such representations, warranties or
statements not misleading in any material respect in light of the circumstances
under which they were made.

 

2.25                        Disclaimer
of Other Representations and Warranties.

 

(a)                                  NONE
OF THE COMPANY, ITS REPRESENTATIVES OR THE STOCKHOLDERS HAVE MADE ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, OF ANY NATURE WHATSOEVER
RELATING TO THE COMPANY OR THE BUSINESS OF THE COMPANY OR OTHERWISE IN
CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY, OTHER THAN THOSE
REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN THE TRANSACTION DOCUMENTS.

 

(b)                                 Without limiting the
generality of the foregoing, none of the Company, such representatives of the
Company or the Stockholders has made, and shall not be deemed to have made, any
representations or warranties in the materials relating to the business of the
Company and its Subsidiaries made available to Harbor or in any presentation of
the business of the Company and its Subsidiaries in connection with the
transactions contemplated hereby, and no statement contained in any of such
materials or made in any such presentation shall be deemed a representation or
warranty hereunder or otherwise. It is understood that any cost estimates,
projections or other predictions, any data, any financial information or any
memoranda or offering materials or presentations, including but not limited to,
the Confidential Descriptive Memorandum made available by the Company and its
representatives are not and shall not be deemed to be or to include
representations or warranties of the Company.

 

Section 3.                                          Representations
and Warranties of Harbor. In order to induce the Company and the
Stockholders to enter into this Agreement and consummate the transactions
contemplated hereby, Harbor hereby makes to the Company and the Stockholders
the representations and warranties contained in this Section 3. The
representations and warranties contained in this Section 3 are subject to the
qualifications and exceptions set forth in the Disclosure Schedule

 

27

 

delivered to the Company and the Stockholders pursuant
to this Agreement. References to the knowledge or awareness of Harbor are
deemed to mean the actual knowledge of the executive officers of Harbor
assuming reasonable inquiry.

 

3.1                               Existence;
Good Standing. Harbor is a corporation, validly existing and in good
standing under the laws of the State of Delaware. Harbor is duly licensed or
qualified to do business as a foreign corporation under the laws of any other
jurisdiction in which the character of its properties or in which the
transaction of its business makes such qualification necessary, except where
the failure to be so licensed or qualified would not, individually or in the
aggregate, have a material adverse effect on the ability of Harbor to perform
its obligations under this Agreement. Harbor has all requisite corporate power
and authority to own, operate, lease and encumber its properties and carry on
its business as currently conducted.

 

3.2                               Authorization
and Non-Contravention. Harbor has full right, authority and power under
its respective organizational documents, including Harbor’s Certificate of
Incorporation, as amended through the date hereof (the “Harbor
Charter”) and Harbor’s bylaws, as amended through the date
hereof (the “Harbor Bylaws”), to enter
into this Agreement and all agreements, documents and instruments executed by Harbor
pursuant hereto and to carry out the transactions contemplated hereby and
thereby. This Agreement and all agreements, documents and instruments executed
by Harbor pursuant hereto are valid and binding obligations of Harbor
enforceable in accordance with their respective terms. Except for filings,
permits, authorizations, consents and approvals that may be required under the
HSR Act (as defined in Section 4.4(a)), the Securities Act or any state
securities laws, and except for the Harbor Stockholder Approval (as defined in
Section 4.10(d)), the execution, delivery and performance of this Agreement and
all agreements, documents and instruments executed by Harbor pursuant hereto
have been duly authorized by all necessary action under the Harbor Charter and Harbor
Bylaws. The execution, delivery and performance by Harbor of this Agreement and
all agreements, documents and instruments to be executed and delivered by Harbor
pursuant hereto do not and will not: (a) violate or result in a violation of,
conflict with or constitute or result in a violation of any provision of the Harbor
Charter or Harbor Bylaws; (b) violate or result in a violation of, or
constitute a default (whether after the giving of notice, lapse of time or
both) under, any provision of any law, regulation or rule, or any order of, or
any restriction imposed by, any court or governmental agency applicable to Harbor;
(c) require from Harbor any notice to, declaration or filing with, or consent
or approval of, any governmental authority or other third party (that has not
already been made or obtained or may be required in the future under the Proxy
Statement, the Escrow Agreement, the Registration Rights Agreement or in
connection with the Contingent Payment); or (d) violate or result in a
violation of, or constitute a default (whether after the giving of notice, lapse
of time or both) under, accelerate any obligation under, or give rise to a
right of termination of, any contract, agreement, permit, license or
authorization to which Harbor is a party or by which Harbor is bound, except in
each case, as would not individually or in the aggregate, have a Material Adverse
Effect on Harbor.

 

3.3                               Capitalization.
As of the date of this Agreement, the authorized, issued and outstanding
capital stock of Harbor is set forth in the Harbor SEC Reports (as defined in
Section 3.4(a)). All of the issued and outstanding shares of capital stock of Harbor
are duly authorized, validly issued, fully paid and nonassessable. As of the
date of this Agreement and except as set

 

28

 

forth in the Harbor SEC Reports, there are no
outstanding options, warrants or other rights of any kind to acquire any
additional shares of capital stock of Harbor or securities convertible into or
exchangeable for, or which otherwise confer on the holder thereof any right to
acquire, any such additional shares, nor is Harbor committed to issue any such
option, warrant, right or security. Except as set forth in the Harbor SEC
Reports, there are no agreements or understandings to which Harbor is a party
with respect to the voting of any shares of capital stock of Harbor or which
restrict the transfer of any such shares. Except as set forth in the Harbor SEC
Reports, there are no outstanding contractual obligations of Harbor to
repurchase, redeem or otherwise acquire any shares of capital stock, other
equity interests or any other securities of Harbor. Except as set forth in the Harbor
SEC Reports, Harbor is not under any obligation by reason of any agreement to
register the offer and sale or resale of any of its securities under the
Securities Act.

 

3.4                               SEC
Filings; Financial Statements; Liabilities.

 

(a)                                  Harbor
has made available to the Company and the Stockholders’ Representative a
correct and complete copy of each report, registration statement and definitive
proxy statement filed by Harbor with the Securities and Exchange Commission
(the “Harbor SEC Reports”),
which are all the forms, reports and documents required to be filed by Harbor
with the Securities and Exchange Commission (the “SEC”)
prior to the date of this Agreement. As of their respective dates the Harbor
SEC Reports:  (i) were prepared in
accordance and complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Harbor SEC Reports, and
(ii) did not at the time they were filed (and if amended or superseded by a
filing prior to the date of this Agreement then on the date of such filing and
as so amended or superseded) contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. Except to the extent set forth in the preceding
sentence, Harbor makes no representation or warranty whatsoever concerning the Harbor
SEC Reports as of any time other than the time they were filed.

 

(b)                                 Each
set of financial statements (including, in each case, any related notes
thereto) contained in the Harbor SEC Reports, including each Harbor SEC Report
filed after the date hereof until the Closing, complied or will comply as to
form in all material respects with the published rules and regulations of the
SEC with respect thereto, was or will be prepared in accordance with GAAP
applied on a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto or, in the case of unaudited statements, do not
contain footnotes as permitted by Form 10-Q under the Exchange Act) and each
fairly presents or will fairly present in all material respects the financial
position of Harbor at the respective dates thereof and the results of its
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or will be are subject to normal adjustments
which were not or are not expected to have a Material Adverse Effect on Harbor
taken as a whole.

 

(c)                                  As
of the date of this Agreement, all liabilities of Harbor of a type that would
be required to be shown on the financial statements included in the Harbor SEC
Reports have been (i) stated or adequately reserved against in the financial
statements included in the

 

29

 

Harbor SEC Reports, (ii)
reflected in Section 3.4 of the Disclosure Schedule, or (iii) incurred
after June 30, 2006 in the ordinary course of business consistent with past
practices, except for liabilities which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Harbor.

 

3.5                               [Intentionally
Omitted].

 

3.6                               Subsidiaries;
Investments. Harbor does not own or control, directly or indirectly,
any interest in any Subsidiary, except as set forth in the Harbor SEC Reports. Harbor
has not made any investment and does not hold any interest in or have any
outstanding loan or advance to or from, any person, including, without
limitation, any officer, director or stockholder of Harbor, except for advances
that may be made by management for business expenses in the ordinary course. Except
as set forth in Harbor SEC Reports, any Subsidiary of Harbor is wholly-owned,
directly or indirectly, by Harbor and there are no outstanding subscriptions,
options, warrants, commitments, preemptive rights, agreements, arrangements or
commitments of any kind relating to the issuance or sale of, or outstanding
securities convertible into or exercisable or exchangeable for, any shares of
capital stock of any class or other equity interests of any such Subsidiary.

 

3.7                               Litigation.
There is no litigation, action, suit, proceeding, claim, arbitration or
investigation pending or, to Harbor’s knowledge, threatened in writing, against
Harbor, as to which there is a reasonable likelihood of an adverse
determination and which, if adversely determined (a) would delay, hinder or
prevent the consummation of the transactions contemplated by this Agreement, or
(b) would have in the aggregate a material adverse effect on the ability of Harbor
to perform its obligations under this Agreement.

 

3.8                               Investment
Banking; Brokerage Fees. Harbor has not incurred or become liable for
any investment banking fees, brokerage commissions, broker’s or finder’s fees
or similar compensation (exclusive of professional fees to lawyers and accountants
and payments relating to the fairness opinion described in Section 3.11(c))
in connection with the transactions contemplated by this Agreement.

 

3.9                               Financing.
Harbor heretofore furnished the Company and the Stockholders with true and
complete copies of balance sheets of Harbor and a financing commitment from Harbor’s
third party financing sources, representing evidence of Harbor’s ability to
purchase the Company Shares (other than the Rollover Shares and the Retained
Shares) and the Company Warrants on the terms and conditions contemplated by
this Agreement.

 

3.10                        American
Stock Exchange Listing. Harbor Common Stock is listed on the AMEX. There
is no action or proceeding pending or, to Harbor’s knowledge, threatened
against Harbor by AMEX or NASD, Inc. (the “NASD”) with
respect to any intention by such entities to delist Harbor Common Stock from
the AMEX.

 

30

 

3.11                        Board
Approval; Stockholder Approval; Fairness Opinion.

 

(a)                                  The
board of directors of Harbor (including any required committee or subgroup of
the board of directors of Harbor) (the “Harbor Board”)
has, as of the date of this Agreement, unanimously (i) declared the
advisability of the transactions contemplated by this Agreement and approved
this Agreement and the transactions contemplated hereby and (ii) determined
that the transactions contemplated by this Agreement is in the best interests
of the stockholders of Harbor.

 

(b)                                 The Harbor Board, by resolutions duly adopted
unanimously at a meeting duly called and held, has duly (i) determined
that this Agreement and the respective transactions contemplated by this
Agreement are advisable, fair to and in the best interests of Harbor and Harbor
stockholders, (ii) approved this Agreement and the respective transactions
contemplated by this Agreement and declared their advisability, and
(iii) recommended that the Harbor stockholders adopt this Agreement and
directed that this Agreement be submitted for consideration by the Harbor
stockholders at the Harbor Stockholder Meeting (as defined in Section 4.10(d)).
The affirmative vote of the holders of a majority in voting power of shares of
outstanding Harbor Common Stock is the only vote of the holders of any class or
series of capital stock of Harbor necessary to adopt or approve this Agreement and
the Equity Incentive Plan and the respective transactions contemplated by this
Agreement, provided that, in addition to such affirmative vote, holders
of not more than nineteen and ninety-nine one hundredths percent (19.99%) of
the shares of Harbor Common Stock issued in Harbor’s initial public offering of
securities and outstanding immediately before the Closing shall have exercised
their rights to convert their shares into a pro rata share of the Trust Fund in
accordance with the Harbor Charter for
the transactions contemplated hereby to proceed.

 

(c)                                  Harbor has received the written opinion of
Houlihan Smith & Company Inc. (the “Harbor
Financial Advisor”) to the effect that, as of the date of the
opinion, the consideration payable by Harbor in connection with the
transactions contemplated by this Agreement is fair to the Harbor stockholders from
a financial point of view. Harbor has made available to the Company and the
Stockholders’ Representative an executed copy of such opinion. Harbor has
obtained the authorization of the Harbor Financial Advisor to include a copy of
such opinion in the Proxy Statement (as defined in Section 4.10(a)).

 

3.12                        Trust Fund.

 

(a)                                  As
of the date hereof and at the Closing Date, Harbor has and will have no less
than $69,200,000 invested in government securities or in money market funds
meeting certain conditions under Rule 2a-7 promulgated under the Investment
Company Act of 1940, as amended (the “Investment Company Act”),
in a trust account (the “Trust Fund”)
administered by Continental Stock Transfer & Trust Company (the “Trustee”), less such amounts, if
any, as Harbor is required to pay to stockholders who elect to have their
shares converted into cash in accordance with the provisions of the Harbor
Charter.

 

(b)                                 Upon
consummation of the transactions contemplated by this Agreement and notice
thereof to the Trustee, the Trust Fund will terminate and the Trustee shall
thereupon be obligated to release as promptly as practicable to Harbor the
funds and government securities held in the Trust Fund, which funds and
government securities will be free of any Encumbrances whatsoever and, after
taking into account any funds paid to holders of Harbor Common Stock

 

31

 

who elect to have their
shares converted into cash in accordance with the provisions of the Harbor
Charter, will be available for use in the businesses of Harbor and the Company.

 

(c)                                  Effective
as of the Closing, the obligations of Harbor to dissolve or liquidate within a
specified time period contained in the Harbor Charter will terminate, and
effective as of the Closing Harbor shall have no obligation whatsoever to
dissolve and liquidate the assets of Harbor by reason of the consummation of
the transactions contemplated by this Agreement, and following the Closing no Harbor
stockholder shall be entitled to receive funds from the Trust Fund except to
the extent such stockholder votes against the approval of transactions
contemplated by this Agreement and elects, contemporaneous with such vote, to
have his, her or its shares converted into cash in accordance with the
provisions of the Harbor Charter.

 

3.13                        Investment
Company Act. Harbor is not, and will not be after the Closing, an “investment
company” or a person directly or indirectly “controlled” by or acting on behalf
of an “investment company,” in each case within the meaning of the Investment
Company Act.

 

3.14                        Business
Activities. Since its organization, Harbor has not conducted any business
activities other than activities directed toward the accomplishment of a
business combination. Except as set forth in the Harbor Charter, there is no
agreement, commitment, judgment, injunction, order or decree binding upon Harbor
or to which Harbor is a party which has or could reasonably be expected to have
the effect of prohibiting or materially impairing any business practice of Harbor,
any acquisition of property by Harbor or the conduct of business by Harbor as
currently conducted.

 

3.15                        Inspection.
Harbor is an informed and sophisticated purchaser, and has engaged expert
advisors, experienced in the evaluation and purchase of securities, including
securities issued by companies such as the Company as contemplated hereunder. Harbor
has undertaken such investigation and has been provided with and has evaluated
such documents and information as it has deemed necessary to enable it to make
an informed and intelligent decision with respect to the execution, delivery
and performance of this Agreement and the transactions contemplated hereby. Harbor
has received all materials relating to
the business of the Company which it has requested and has been afforded the
opportunity to obtain any additional information necessary to verify the
accuracy of any such information or of any representation or warranty made by
the Company and the Stockholders hereunder or to otherwise evaluate the merits
of the transactions contemplated hereby. Without limiting the generality
of the foregoing, Harbor acknowledges that the Company makes no representation
or warranty with respect to (i) any projections, estimates or budgets delivered
to or made available to Harbor of future revenues, future results of operations
(or any component thereof), future cash flows or future financial condition (or
any component thereof) of the Company or the future business and operations of
the Company or (ii) any other information or documents made available to Harbor
or its counsel, accountants or advisors with respect to the Company or any of its
respective businesses, assets, liabilities or operations, except as expressly
set forth in this Agreement.

 

3.16                        Disclosure.
To Harbor’s knowledge, the representations, warranties and statements contained
in this Agreement and the Disclosure Schedule delivered by Harbor to the

 

32

 

Company pursuant to this Agreement do not contain any
untrue statement of a material fact and do not omit to state a material fact
required to be stated herein or therein to make such representations, warranties
or statements not misleading in any material respect in light of the
circumstances under which they were made.

 

3.17                        Disclaimer
of Other Representations and Warranties. NONE OF HARBOR, ITS OFFICERS,
DIRECTORS OR REPRESENTATIVES, HAVE MADE ANY REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, OF ANY NATURE WHATSOEVER RELATING TO THE HARBOR OR THE
BUSINESS OF HARBOR OR OTHERWISE IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED HEREBY, OTHER THAN THOSE REPRESENTATIONS AND WARRANTIES EXPRESSLY
SET FORTH IN THE TRANSACTION DOCUMENTS.

 

Section
4.                                          Certain
Covenants of the Company and Harbor.

 

4.1                               Conduct
of Business Prior to Closing. Except as described in Section 4.1 of
the Disclosure Schedule or as otherwise contemplated by this Agreement,
during the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement pursuant to its terms or the
Closing, each of the Company and Harbor shall, except to the extent that the
other party shall otherwise consent in writing, carry on its business in the
usual, regular and ordinary course consistent with past practices, in
substantially the same manner as heretofore conducted and in compliance with
all applicable laws and regulations. In addition, except as required or
permitted by the terms of this Agreement, without the prior written consent of Harbor,
during the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement pursuant to its terms or the
Closing, the Company shall refrain from:

 

(a)                                  changing
or introducing any method of management or operations except in the ordinary
course of business and consistent with prior practices;

 

(b)                                 making
any change to the Company Charter or Company Bylaws or the organizational
documents of the Company Subsidiary, or changing the authorized or issued
capital stock or equity interests of the Company or the Company Subsidiary;

 

(c)                                  (i)
declaring, setting aside or paying any dividend, making any other distribution
in respect of its capital stock, shares or ownership interests, (ii) making any
direct or indirect redemption, purchase or other acquisition of its stock or
ownership interests or (iii) issuing, granting, awarding, selling, pledging,
disposing of or encumbering or authorizing the issuance, grant, award, sale,
pledge, disposition or encumbrance of any shares of, or securities convertible
or exchangeable for, or options, warrants, calls, commitments or rights of any
kind to acquire, any shares of its capital stock of any class thereof;

 

(d)                                 (i)
prepaying any loans (if any) from its stockholders, officers or directors or
any Person affiliated with any of the foregoing, (ii) making any change in its
borrowing arrangements, (iii) modifying, amending or terminating any of
its material contracts except as

 

33

 

specifically provided in
this Agreement or in the ordinary course of business, or (iv) waiving,
releasing or assigning any material rights or claims, other than in the
ordinary course of business;

 

(e)                                  materially
changing accounting policies or procedures, except as may be required by GAAP;

 

(f)                                    increasing
the rates of direct compensation or bonus compensation payable or to become
payable to any officer, employee, agent or consultant of the Company or the
Company Subsidiary, except in the ordinary course of business or in accordance
with the existing terms of contracts entered into prior to the date of this
Agreement;

 

(g)                                 making
any capital expenditure other than in the ordinary course of business;

 

(h)                                 acquiring
or agreeing to acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any equity
interest in or business of any corporation, partnership, joint venture,
association or other business organization or division thereof;

 

(i)                                     entering
into any agreement, arrangement, transaction or indebtedness in which the
Company or its directors, officers, stockholders or Affiliates, or any of their
respective Affiliates or immediate family members have a direct or indirect
financial interest;

 

(j)                                     agreeing
to sell, transfer, deliver, lease, license, sublicense, mortgage, pledge,
encumber or otherwise dispose of (in whole or in part), or create, incur, assume
or allow security interest, lien or encumbrance on, any of its properties or
assets (including any Company Intellectual Property) other than (i) in the
ordinary course of business, but in no event shall such dispositions exceed
$50,000 individually or $100,000 in the aggregate for the Company, or (ii) as
required pursuant to the terms of any material contract set forth in the
Disclosure Schedule;

 

(k)                                  except
with respect to the Management Equity Transfers (as defined below) and the Company
Bonus Plan, (i) establishing, adopting, entering into or amending, modifying or
terminating any Benefit Plans, including any bonus, profit sharing,
compensation, stock option, warrant, pension, retirement, deferred
compensation, employment, severance, termination, change in control,
indemnification, retention bonus or other employee benefit plan, agreement,
trust fund or arrangement for the benefit or welfare of any officer, director,
shareholder, employee, consultant or other individual performing services for
the Company or the Company Subsidiary, except to the extent necessary to comply
with applicable law, (ii) agreeing to any increase in the compensation or
benefits, including cash, equity, and other forms of compensation payable or to
become payable to, or any increase in the contractual term of employment of,
any officer, director, Stockholder or consultant or salaried employee (other
than for non-management employees in the ordinary course of business), (iii)
paying any benefit not required by any Benefit Plan or other plan or agreement,
(iv) amending in any respect its collective bargaining agreement, or any other
agreement or commitment to or relating to any labor union or adopting or
establishing any new collective bargaining agreement, or (v) making any determinations
under any collective bargaining agreement;

 

(l)                                     granting
any irrevocable power of attorney; or

 

34

 

(m)                               entering
into any executory agreement, commitment or undertaking to do any of the
activities prohibited by the foregoing provisions.

 

Notwithstanding
the foregoing, prior to the Closing the Company shall be permitted to (i) pay
down existing indebtednesses in the ordinary course of business; (ii) subject
to Step 1 of Section 4.1 of the Disclosure Schedules, effect a transfer of
capital stock (or the value represented thereby) from the Stockholder
identified on Schedule A-2
hereto as the “Contributing Stockholder” to
members of the Company’s management and certain other employees of the Company by
(A) accepting a contribution of up to 1,730,740 shares of Company Common Stock
from the Contributing Stockholder, and (B) issuing up to 1,730,740 shares of
Company Common Stock (but not more than the shares contributed by the
Contributing Stockholder) to the Persons (who will thereafter become
Stockholders) identified on Schedule
A-2 hereto (the “Management Equity
Transfers”); (iii) pay all unpaid dividends that were declared
prior to the date of this Agreement; and (iv) pay the Discretionary Bonuses. The
transactions contemplated by clauses (ii) and (iv) of the preceding sentence
are more fully described in Section 4.1 of the Disclosure Schedule.

 

4.2                               Access
to Information.

 

(a)                                  Without
undue disruption of its business, between the date of this Agreement and the
Closing Date, the Company shall give Harbor and its representatives reasonable
access upon reasonable notice and during times mutually convenient to Harbor
and to the executive officers of the Company to the facilities, properties,
employees, books, and records of the Company and the Company Subsidiary as from
time to time may be reasonably requested.

 

(b)                                 Any
such investigation by Harbor shall not unreasonably interfere with any of the
businesses or operations of the Company and the Company Subsidiary. Harbor shall
not, prior to the Closing Date, have any contact whatsoever with respect to the
Company or the Company Subsidiary or with respect to the transactions
contemplated by this Agreement with any partner, lender, ground lessor, vendor,
supplier, employee or consultant of the Company or the Company Subsidiary,
except in consultation with the Company and then only with the express prior
approval of the Company, which shall not unreasonably be withheld. Harbor shall
not be permitted to conduct any invasive tests on any Real Property without the
prior written consent of the Company.

 

4.3                               Confidentiality.
The parties shall continue to be bound by the terms and conditions of that
certain Confidentiality, Non-Disclosure and Non-Solicitation Agreement, dated May
24, 2006 by and between the Company and Harbor until the Closing Date (the “Confidentiality Agreement”).

 

4.4                               Regulatory
and Other Authorizations; Consents.

 

(a)                                  The
Company and Harbor shall use their good faith commercially reasonable efforts
to obtain the authorizations, consents, orders and approvals necessary for
their execution and delivery of, and the performance of their obligations
pursuant to, this Agreement. If required by the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the

 

35

 

“HSR Act”) and if the appropriate filing of a Pre-Merger
Notification and Report Form pursuant to the HSR Act has not been filed prior
to the date of this Agreement, each party hereto agrees to make an appropriate
filing of a Pre-Merger Notification and Report Form with respect to the
transactions contemplated by this Agreement within five (5) business days after the date of this
Agreement and to supply promptly any additional information and documentary
material that may be requested pursuant to the HSR Act. The parties hereto will
not take any action that will have the effect of delaying, impairing or
impeding the receipt of any required approvals and shall promptly respond to
any requests for additional information from any Governmental Authority (as
defined in Section 9.12) or filings in respect thereof. Harbor shall pay all
filing and related fees in connection with any such filings which must be made
by any of the parties under the HSR Act. Harbor hereby covenants and agrees to
use its reasonable best efforts to secure early termination of any waiting
periods under the HSR Act, including without limitation, if necessary, promptly
offering to sell any of its assets or business as may be necessary to secure
such termination.

 

(b)                                 Harbor
and the Company shall use their good faith commercially reasonable efforts to obtain
the consents of third parties listed in Section 2.2 of the Disclosure
Schedule, including (i) providing to such third parties such financial
statements and other financial information as such third parties may reasonably
request, (ii) agreeing to commercially reasonable adjustments to the terms of
the agreements with such third
parties (provided that neither party hereto shall be required to agree to any
increase in the amount payable with respect thereto) and (iii) executing
agreements to effect the assumption of such agreements on or before the Closing
Date.

 

4.5                               Further
Action. Each of the parties hereto shall use its respective commercially
reasonable efforts to take or cause to be taken all appropriate action, do or
cause to be done all things necessary, proper or advisable, and execute and
deliver all such documents and other papers, as may be required to carry out
the provisions of this Agreement and consummate and make effective the
transactions contemplated by this Agreement.

 

4.6                               Public
Announcements.

 

(a)                                  Harbor,
on the one hand, and the Company, on the other hand, shall consult with each
other before issuing, and provide each other the opportunity to comment upon
and approve or disapprove in writing, any press release or other public
statements with respect to the initial public announcement of the transactions
contemplated by this Agreement, and shall not issue any such press release or
make any such public statement prior to such written approval, which shall not
be unreasonably withheld or delayed.

 

(b)                                 Subject
to Section 4.6(a), the Company and the Stockholders acknowledge that, (i) upon
execution of this Agreement, Harbor will be required to issue a press release
and file with the SEC a Current Report on Form 8-K pursuant to the Exchange Act
reporting the execution of this Agreement and (ii) upon the Closing, Harbor will
be required to file with the SEC a Current Report on Form 8-K pursuant to the
Exchange Act reporting the Closing of the transactions contemplated by this
Agreement. In connection with the preparation of the Form 8-K reports, Harbor
on the one hand, and the Company, on the other hand, shall, upon the request

 

36

 

by the other, furnish the
other with all information as may be reasonably necessary or required to prepare
the Form 8-K report. Each party represents and warrants to the other party that
with respect to the information that such party provides, all such information
shall be true and correct in all material respects and will not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements contained therein, in
light of the circumstances under which they were made, not misleading.

 

(c)                                  Following
the initial public announcement of the transactions contemplated by this
Agreement, the parties hereto will, and will cause each of their Affiliates and
representatives to, maintain the confidentiality of this Agreement and will
not, and will cause each of their Affiliates not to, issue or cause the
publication of any press release or other public announcement with respect to
this Agreement or the transactions contemplated hereby without the prior
written consent of the other parties hereto, which consent shall not be
unreasonably withheld or delayed; provided, however, that a party may, without
the prior consent of the other parties hereto, issue or cause publication of
any such press release or public announcement as and to the extent that such
party reasonably determines, after consultation with outside legal counsel,
such action to be required by law or by the rules of any applicable self-regulatory
organization, in which event such party will use its commercially reasonable
efforts to allow the other parties hereto reasonable time to comment on such
press release or public announcement in advance of its issuance.

 

4.7                               No
Solicitation.

 

(a)                                  From
and after the date hereof, unless and until this Agreement shall have been
terminated in accordance with its terms, the Company and the Stockholders
shall, and shall cause their respective directors, officers, Affiliates,
employees, attorneys, accountants, representatives, consultants and other
agents (collectively, the “Seller Representatives”)
to: (i) immediately cease any existing discussions or negotiations with any
Person conducted heretofore, directly or indirectly, with respect to any merger,
reverse merger, stock sale, asset sale, recapitalization or similar transaction
involving or with respect to the Stockholders, the Company or any Subsidiary (a
“Business Combination”); (ii) not
directly or indirectly solicit, initiate, encourage or facilitate the
submission of proposals or offers from any Person other than Harbor relating to
any Business Combination involving or with respect to the Company or any
Subsidiary, or (iii) not directly or indirectly participate in any discussions
or negotiations regarding, or furnish any information to any Person other than
Harbor or its representatives in connection with any proposed or actual
Business Combination involving any Person other than Harbor. The Company and
the Stockholders shall promptly notify Harbor regarding any contact with any
other Person regarding any proposed Business Combination.

 

(b)                                 From
the date of this Agreement until the earlier of the Closing or one year from
the date of this Agreement, Harbor shall not, and shall ensure that its directors,
officers, employees, partners, agents, Affiliates, advisors or representatives
shall not, directly or indirectly, (i) solicit for employment or employ any
officer or employee of the Company, (ii) encourage, induce or attempt to induce
any officer or employee of the Company to terminate his or her employment
relationship with the Company, (iii) interfere with the business or operations
of the Company, or (iv) take or fail to take any actions which could reasonably
be expected to adversely affect the Company’s business relationships with its
customers and suppliers or

 

37

 

goodwill; provided,
however, that Harbor shall not be in violation of clauses (iii) or (iv) as a
result of Harbor’s acquisition of any Person that is a competitor of the
Company.

 

(c)                                  Unless
and until this Agreement shall have been terminated in accordance with its
terms, Harbor agrees and covenants that Harbor shall not execute any binding or
non-binding letter of intent or definitive agreement with any Person with
respect to a merger, reverse merger, stock sale, asset sale, recapitalization
or similar transaction.

 

4.8                               Notice
of Claims, Notice of Certain Facts.

 

(a)                                  Promptly
after obtaining knowledge of the commencement of, or upon receipt of a writing
threatening the commencement of, of any claim, action, investigation or
proceeding against or with respect to the Company by any Person or Governmental
Authority, the Company shall provide Harbor with written notice thereof. In
addition, from the date of this Agreement until the Closing, the Company and
each Stockholder shall promptly notify and inform Harbor of any material
variance or incorrect statement in the representations and warranties contained
in Section 2 of this Agreement discovered by the Company, any Stockholders or
their representatives or agents.

 

(b)                                 From
the date of this Agreement until the Closing, Harbor shall promptly notify and
inform the Company and the Stockholders’ Representative of any material
variance or incorrect statement in the representations and warranties contained
in Section 3 of this Agreement discovered by Harbor or its representatives or
agents.

 

4.9                               Management
Equity Transfers; Estimated Tax Payments.

 

(a)                                  Subject
to Step 1 of Section 4.1 of the Disclosure Schedules, prior to the Closing, the
Company may effect the Management Equity Transfers, provided that such
Management Equity Transfers must be effected through a transaction that is, or
transactions that are, exempt from the registration requirements of the Securities
Act and in compliance with any applicable state securities laws, rules and
regulations.

 

(b)                                 The
Company will make all estimated tax payments up to the Closing Date, consistent
with past practice and as required by applicable law, and calculated without
taking into account any deductions with respect to the Management Equity
Transfers or the Discretionary Bonuses.

 

4.10                        Proxy
Statement; Harbor Stockholder Meeting.

 

(a)                                  As
soon as reasonably practicable following the date of this Agreement, Harbor
shall prepare and file with the SEC a proxy statement and other proxy
solicitation materials of Harbor constituting a part thereof (the “Proxy Statement”), and each of the
Company and Harbor shall use its reasonable best efforts to respond as promptly
as practicable to any comments of the SEC with respect thereto.  The
Company shall use its reasonable best efforts to provide Harbor with all
information relating to the Company and its management that is required to be
included in the Proxy Statement pursuant to Regulation 14A of the Exchange

 

38

 

Act, and to cooperate
with Harbor in connection with the preparation of the Proxy Statement and any
amendments thereto. Harbor will use its reasonable best efforts to (i) prepare
and file with the SEC one or more amendments to the Proxy Statement, as
necessary, and (ii) cause the definitive Proxy Statement to be mailed to Harbor’s
stockholders as promptly as practicable after the date of this Agreement. 
  Harbor shall also take all reasonable
action required under any applicable state securities laws in connection with
the issuance of Harbor Common Stock under this Agreement. The parties shall
notify each other promptly of the receipt of any comments from the SEC or its
staff and of any request by the SEC or its staff for amendments or supplements
to the Proxy Statement or for additional information and shall supply each
other with copies of all correspondence between such or any of its
representatives, on the one hand, and the SEC or its staff, on the other hand,
with respect to the Proxy Statement or the transactions contemplated by this
Agreement.

 

(b)                                 If
prior to the Closing, any event occurs with respect to the Company or the
Stockholders, or any change occurs with respect to other information supplied
by the Company or the Stockholders for inclusion in the Proxy Statement, which
is required to be described in an amendment of, or a supplement to, the Proxy
Statement, the Company and/or the Stockholders shall promptly notify Harbor of
such event, and the Company, the Stockholders and Harbor shall cooperate in the
prompt filing with the SEC of any necessary amendment or supplement to the Proxy
Statement and, as required by law, in disseminating the information contained
in such amendment or supplement to Harbor’s stockholders.

 

(c)                                  If
prior to the Closing, any event occurs with respect to Harbor, or any change
occurs with respect to other information supplied by Harbor for inclusion in
the Proxy Statement, which is required to be described in an amendment of, or a
supplement to, the Proxy Statement, Harbor shall promptly notify the Company
and the Stockholders’ Representative of such event, and Harbor, the Company and
the Stockholders’ Representative shall cooperate in the prompt filing with the
SEC of any necessary amendment or supplement to the Proxy Statement and, as
required by law, in disseminating the information contained in such amendment
or supplement to Harbor’s stockholders.

 

(d)                                 Harbor
shall, as soon as reasonably practicable following the date of this Agreement,
duly call, give notice of, convene and hold a meeting of its stockholders (the “Harbor Stockholder Meeting”) for the
purpose of seeking the approval of Harbor stockholders for (i) the transactions
contemplated by this Agreement (the “Harbor Stockholder
Approval”) and (ii) the change of Harbor’s name to Elmet
Technologies Holdings, Inc. or such other name as Harbor and the Company’s
Chief Executive Officer mutually agree upon (the “Name
Change Proposal”).  Harbor shall use its reasonable best
efforts to cause the Proxy Statement to be mailed to Harbor’s stockholders as
promptly as practicable after the date of this Agreement. Harbor shall, through
the Harbor Board, recommend to its stockholders that they give the Harbor
Stockholder Approval and that they approve the Name Change Proposal.

 

39

 

4.11                        Directors
and Officers of Harbor On Closing Date. Harbor, the Company and the
Stockholders shall take all necessary action so that as of the Closing (a) the
persons listed on Exhibit F hereto are elected to the positions of
officers and directors, respectively, of Harbor, as set forth therein, to serve
in such positions effective on the Closing Date and (b) the persons listed on Exhibit
G shall have resigned from all of their positions and offices with Harbor.

 

4.12                        AMEX
Matters. Harbor shall promptly prepare and submit to the AMEX all
reports, applications and other documents that may be required to enable all of
the shares of Harbor Common Stock that will be outstanding or will be reserved
for issuance at the Closing to be listed for trading on the AMEX.

 

4.13                        Reasonable
Efforts. Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use its commercially reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate the transactions contemplated by
this Agreement in the most expeditious manner practicable, including using
commercially reasonable efforts to accomplish the following: (a) the taking of
all reasonable acts necessary to cause the conditions precedent set forth in Section 6
to be satisfied, (ii) the obtaining of all necessary actions, waivers,
consents, approvals, orders and authorizations from Governmental Authorities
and the making of all necessary registrations, declarations and filings
(including registrations, declarations and filings with Governmental Authorities,
if any) and the taking of all reasonable steps as may be necessary to avoid any
suit, claim, action, investigation or proceeding by any Governmental Authority,
(iii) the obtaining of all consents, approvals or waivers from third parties
required as a result of the transactions contemplated in this Agreement, (iv)
the defending of any suits, claims, actions, investigations or proceedings,
whether judicial or administrative, challenging this Agreement or the
consummation of the transactions contemplated hereby, including seeking to have
any stay or temporary restraining order entered by any court or other
Governmental Authority vacated or reversed, and (v) the execution or delivery
of any additional instruments reasonably necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement.

 

4.14                        Harbor
Common Stock Issuable. On or before the Closing Date, Harbor shall
reserve for issuance the shares of Harbor Common Stock issuable (a) in exchange
for the Rollover Shares, (b) upon exercise of the Put Right, and (c) in
connection with the payment of the Contingent Payment, if any, and such shares
in each case, when issued, will be duly authorized, validly issued, fully paid,
non-assessable and issued in compliance with applicable federal and state
securities laws.

 

4.15                        No Claim
Against Trust Fund. The Company and the Stockholders acknowledge that, in
the event that the transactions contemplated by this Agreement are not
consummated, Harbor may be required to return to its stockholders the amounts
being held in the Trust Fund. Accordingly, notwithstanding anything to the
contrary contained herein or in any other Transaction Document, the Company and
the Stockholders agree, on behalf of themselves and any and all of their
officers, directors, stockholders, members and Affiliates, that unless and
until the Closing occurs or the Trust Fund is otherwise released to Harbor, the
Company and the

 

40

 

Stockholders shall
have no right to, and shall not under any circumstances assert any claim
against, the Trust Fund or otherwise in any manner seek to recover against the
Trust Fund for any losses related to this Agreement.

 

4.16                        Rule 144 Holding Period.

 

(a)                                  Each
of Harbor, the Company and the Stockholders hereby acknowledges and agrees that
the “holding period” under Rule 144 of the Securities Act (“Rule 144”) shall commence at
the Closing with respect to all of the shares of Harbor Common Stock that are
issuable in connection with the Contingent Payment (the “Contingent
Payment Shares”).

 

(b)                                 Harbor
covenants that it will file such reports required to be filed by it under the
Securities Act and the Exchange Act and that it will take such further action
as required by Rule 144 to the extent required from time to time to enable the
Stockholders to sell the Contingent Payment Shares without registration under
the Securities Act within the limitation of the exemptions provided by Rule
144.

 

Section 5.                                          Employee
Matters.

 

5.1                               Employees;
Benefits. (a)            Harbor shall,
and shall cause the Company to, ensure that all persons who were employed by
the Company immediately preceding the Closing Date, including those on
vacation, leave of absence or disability (the “Company Employees”), will remain employed in a
comparable position on and immediately after the Closing Date, at not less than
the same base rate of pay. Harbor shall not, and shall cause the Company to not,
at any time prior to one hundred eighty (180) days
after the Closing Date, effectuate a “mass layoff” as that term is defined in WARN
or comparable conduct under any applicable state law, affecting in whole or in
part any facility, site of employment, operating unit or employee of the
Company without complying fully with the requirements of WARN or such
applicable state law.

 

(b)                                 Harbor acknowledges that consummation of the
transactions contemplated by this Agreement may constitute a change in control
of the Company (to the extent such concept is applicable) for purposes of the
Benefit Plans. From and after the Closing, Harbor and the Company will honor in
accordance with their terms all cash bonus plans, employment agreements,
consulting agreements, change-of-control agreements, and severance agreements
or plans between the Company and any officer, director or employee of the
Company in effect prior to the Closing Date and specifically disclosed on the
face of Section 5.1 of the Disclosure Schedule.

 

(c)                                  From
and after the Closing Date and through the first anniversary of the Closing
Date, Harbor and the Company shall provide the Company Employees with benefits
(including, without limitation, retirement and welfare benefits) that are
substantially comparable, in the aggregate, to the benefits provided under the
Benefit Plans as in effect immediately prior to the Closing Date.

 

41

 

5.2                               Books
and Records; Insurance. Harbor shall, and shall cause the Company to,
until the sixth anniversary of the Closing Date, retain all books, records and
other documents pertaining to the business of the Company in existence on the
Closing Date and to make the same available for inspection and copying by the
Stockholders or any representative of the Stockholders at the expense of the
Stockholders during the normal business hours of the Company, upon reasonable
request and upon reasonable notice.

 

5.3                               Officers’
and Directors’ Indemnification. The Company, the Stockholders and Harbor
agree that all rights to exculpation and indemnification existing in favor of,
and all limitations on the personal liability of, the directors, officers and
employees of the Company and the Company Subsidiary (“Indemnified Persons”) provided for in the Company
Charter and the Company Bylaws and the organizational documents of the Company
Subsidiary, as applicable, as in effect as of the date of this Agreement with
respect to matters occurring prior to and through the Closing, and specifically
including the transactions contemplated hereby, shall continue in full force
and effect for a period of six (6) years from the Closing; provided, however,
that all rights to indemnification in respect of any claims (each a “Claim”) asserted or made
within such period shall continue until the disposition of such Claim, provided
that this Section 5.3 shall not limit Harbor’s rights to modify such rights as
long as they provide substantially equivalent or greater protection from Claims
as is now set forth in the Company Charter and Company Bylaws and the
organizational documents of the Company Subsidiary, as applicable; provided
further, that this Section 5.3 shall not limit Harbor’s right to merge the
Company or the Company Subsidiary into another entity that contains
substantially similar protection from Claims as is set forth in the Company
Charter and Company Bylaws. Following the Closing, Harbor shall not, and shall
not permit the Company or the Company Subsidiary to, amend or modify the Company
Charter or the Company Bylaws or other organizational documents, as applicable,
except as required by applicable law, if the effect of such amendment or
modification would be to lessen or otherwise adversely affect the
indemnification rights of such Indemnified Persons as provided therein in any
material respect. Prior to the Closing, the Company, in its sole discretion,
may elect to purchase an extended reporting period endorsement under the
Company’s existing directors’ and officers’ liability insurance coverage for
the Company’s and its Subsidiaries’ directors and officers in a form acceptable
to the Company which shall provide such directors and officers with coverage
for six (6) years following the Closing of not less than the existing coverage
under, and have other terms not materially less favorable to, the insured
persons than the directors’ and officers’ liability insurance coverage
presently maintained by the Company; provided that the cost of any such
insurance coverage shall be fully accrued as a liability on the Post-Closing
Audited Balance Sheet. This Section 5.3 is intended to benefit each of the
Indemnified Parties, each of whom shall be entitled to enforce the provisions
hereof. For the avoidance of doubt, (a) nothing in this Section 5.3 shall limit
or restrict the rights of any Harbor Indemnified Party (as defined in Section
7.2(a)) to seek or obtain indemnification from any Stockholder pursuant to Section 7
hereof, and (b) no Stockholder shall be entitled to rely on the provisions of, or
seek indemnification under, the Company Charter or Company Bylaws for any claim
by a Harbor Indemnified Party against such Stockholder.

 

42

 

Section 6.                                          Closing
Conditions and Deliveries.

 

6.1                               Conditions
to Each Party’s Obligations to Effect the Closing. The respective obligations
of the parties to effect the Closing shall be subject to the fulfillment or waiver
on or before the Closing of the following conditions:

 

(a)                                  Harbor’s stockholders shall have approved the
Equity Incentive Plan pursuant to which Harbor will have reserved for
issuance no fewer than 840,000 shares of Harbor Common Stock;

 

(b)                                 The
Company and Harbor shall have made all filings with and notifications of
governmental authorities and regulatory agencies required to be made in
connection with the execution and delivery of this Agreement, the performance
of the transactions contemplated hereby and the continued operation of the
business of the Company subsequent to the Closing. Any waiting period (and any
extension thereof) under the HSR Act applicable to the transactions to be
consummated at the Closing shall have expired or been terminated. Harbor shall
have received copies of all material authorizations, waivers, consents and
permits, including any and all material notices, consents and waivers required
from applicable governmental authorities and regulatory agencies required to
permit the continuation of the business of the Company and the consummation of
the transactions contemplated by this Agreement;

 

(c)                                  No
statute, rule or regulation shall have been enacted or promulgated by any
Governmental Authority which directly prohibits the consummation of the
Closing;

 

(d)                                 There
shall be no order or injunction of a court of competent jurisdiction in effect
expressly precluding consummation of the transactions contemplated hereby,
provided that the parties shall use their commercially reasonable efforts to
have any such order or injunction vacated or lifted;

 

(e)                                  The
Company indebtedness set forth in Section 6.1 of the Disclosure Schedule
shall be paid in full and the Company shall be released from any obligations
with respect to such indebtedness;

 

(f)                                    Harbor
shall have received the Harbor Stockholder Approval; and

 

(g)                                 Holders
of not more than nineteen and ninety-nine one hundredths percent (19.99%) of
the shares of Harbor Common Stock issued in Harbor’s initial public offering of
securities and outstanding immediately before the Closing shall have exercised
their rights to convert their shares into a pro rata share of the Trust Fund in
accordance with Harbor Charter.

 

6.2                               Conditions
to Obligations of Harbor to Effect the Closing.

 

(a)                                  Each
of the representations and warranties of the Company and the Stockholders
contained in Section 2 shall be true and correct in all material respects
(except for such representations and warranties that are qualified by their
terms as to materiality, which

 

43

 

representations and
warranties as so qualified shall be true in all respects), in each case, as of
the date of this Agreement and as of the Closing Date (as though made on and as
of the Closing Date); except for representations or warranties that were made
as of a specific date, which representations and warranties shall have been
true as of such date; and the Company and the Stockholders shall have
delivered, or caused to be delivered on their behalf, to Harbor a certificate
of the Company’s President and Chief Financial Officer and of the Stockholders’
Representative on behalf of the Stockholders to such effect dated as of the
Closing Date and signed by such persons.

 

(b)                                 All
covenants contained in this Agreement to be complied with by the Company and
the Stockholders on or before the Closing shall have been complied with in all material
respects, and Harbor shall have received a certificate of the Company to such
effect dated as of the Closing Date and signed by a duly authorized officer of
the Company.

 

(c)                                  The
Company shall have obtained all material consents, waivers, approvals and
authorizations set forth in Section 2.2 of the Disclosure Schedule,
except for such consents, waivers, approvals and authorizations the failure of
which to obtain would not be reasonably expected to have a Material Adverse
Effect on the Company.

 

(d)                                 There
shall have been no Material Adverse Effect on the Company since the date of
this Agreement.

 

(e)                                  All
agreements listed on Section 2.2(a) and Section 2.2(b) of the Disclosure
Schedule shall have been terminated and have no further force or effect
other than those agreements that are not marked on Section 2.2(a) and
Section 2.2(b) of the Disclosure Schedules as being terminated concurrently
with the Closing, with respect to which consent shall have been obtained
pursuant to Section 6.2(c).

 

(f)                                    Each
Rollover Stockholder shall have executed and delivered a Letter Agreement in
the form of Exhibit H attached hereto and an Award Agreement reasonably
satisfactory to Harbor.

 

(g)                                 Each
of the Stockholders identified in Section 6.2(h) of the Disclosure Schedule
shall have executed a Non-Compete and Non-Solicitation Agreement in the form
attached hereto as Exhibit I.

 

(h)                                 Each
of the Stockholders shall have executed a Stockholder Release in the form
attached hereto as Exhibit B (the “Stockholder Releases”).

 

(i)                                     Harbor
shall have received an opinion of counsel from Goodwin Procter LLP in the form
attached hereto as Exhibit J.

 

(j)                                     The
Employment Agreement, dated as of December 31, 2003, by and between the Company
and John S. Jensen, shall have been extended for one (1) additional year,
through December 31, 2008.

 

44

 

6.3                               Conditions
to Obligations of the Company and the Stockholders to Effect the Closing.

 

(a)                                  Each
of the representations and warranties of Harbor contained in Section 3 shall be
true and correct in all material respects (except for such representations and
warranties that are qualified by their terms as to materiality, which
representations and warranties as so qualified shall be true in all respects),
in each case, as of the date of this Agreement and as of the Closing Date (as
though made on and as of the Closing Date); except as would not, delay, hinder
or prevent the consummation of the transactions contemplated by this Agreement
by Harbor; and Harbor shall have delivered to the Company and the Stockholders
a certificate of Harbor’s Chief Executive Officer and Chief Financial Officer
to such effect dated as of the Closing Date and signed by such officers.

 

(b)                                 All
covenants contained in this Agreement to be complied with by Harbor on or
before the Closing shall have been complied with in all material respects, and
the Company and the Stockholders shall have received a certificate from Harbor
to such effect dated as of the Closing Date and signed by a duly authorized
officer of Harbor.

 

(c)                                  Immediately
prior to the Closing, Harbor shall be in compliance with the reporting
requirements under the Exchange Act and all of the shares of Harbor Common
Stock issued or issuable pursuant to the terms of this Agreement shall be
listed for trading on the AMEX.

 

(d)                                 The
Company and the Stockholders shall have received an opinion of counsel from
Davis, Malm & D’Agostine, P.C. in the form attached hereto as Exhibit K.

 

6.4                               Deliveries
by Harbor to the Company and the Stockholders. At the Closing, Harbor
shall have delivered, or shall have caused to be delivered, to the Company and
the Stockholders, as the case may be, all in form and substance reasonably
satisfactory to the Company and the Stockholders’ Representative, the
following:

 

(a)                                  A
wire transfer of immediately available funds by Harbor to the Stockholders in an
aggregate amount equal to the portion of the Cash Purchase Price payable at the
Closing (allocated among the Stockholders and the Warrant Holders as set forth
on Schedule A-2 attached
hereto);

 

(b)                                 A
wire transfer of immediately available funds by Harbor to the Escrow Agent on
behalf of the Stockholders in respect of their escrow obligations pursuant to
Section 1.10 equal to the Escrow Amount;

 

(c)                                  A
wire transfer or transfers of immediately available funds by Harbor or the
Company for all of the Selling Expenses to the extent not paid prior to the
Closing Date;

 

(d)                                 Stock
certificates evidencing the Harbor Common Stock issued to the Rollover
Stockholders in exchange for the Rollover Shares;

 

(e)                                  The
Registration Rights Agreement executed by Harbor;

 

45

 

(f)                                    The
Escrow Agreement executed by Harbor and the Escrow Agent;

 

(g)                                 Certificates
issued by the Secretary of State of the State of Delaware certifying that (i) Harbor
has legal existence and is in good standing, and (ii) the copy of the
Harbor Charter attached thereto is true and correct;

 

(h)                                 A
certificate executed by the Secretary of Harbor certifying (i) the names
of the officers of Harbor authorized to sign this Agreement and the other
agreements, documents and instruments executed by Harbor pursuant hereto,
together with the true signatures of such officers and (ii) copies of consent
actions taken by the Harbor Board authorizing the appropriate officers of Harbor
to execute and deliver this Agreement and all agreements, documents and
instruments executed by Harbor pursuant hereto, and to consummate the
transactions contemplated hereby and thereby, including, without
limitation:  (A) the approval of the Put
Right; and (B) upon exercise of the Put Right, the issuance of Harbor Common
Stock into which the Retained Shares are exchangeable;

 

(i)                                     The
opinion of counsel of Davis, Malm & D’Agostine, P.C.; and

 

(j)                                     Such
other supporting documents and certificates as are required pursuant to the
terms of this Agreement.

 

6.5                               Deliveries
by the Company and the Stockholders to Harbor. At the Closing, the
Company and the Stockholders, as the case may be, shall have delivered, or
shall have caused to be delivered, to Harbor, all in form and substance
reasonably satisfactory to Harbor, the following:

 

(a)                                  The
Registration Rights Agreement executed by those Stockholders who are either (i)
Continuing Stockholders or (ii) any recipient of one percent (1%) or more of the
Company’s outstanding Common Stock pursuant to the Management Equity Transfers,
should they occur, and any other recipient of shares of Common Stock of Elmet
pursuant to the Management Equity Transfers who is an Affiliate of Harbor immediately
following the Closing Date;

 

(b)                                 The
Escrow Agreement executed by the Company, the Stockholders’ Representative and
the Escrow Agent;

 

(c)                                  Stock
certificates evidencing the Company Shares (other than the Retained Shares) and
certificates, if any, representing the Company Warrants, in each case duly
endorsed or presented with stock powers or other documents complying with
Section 1.1;

 

(d)                                 Certificates
issued by the Secretary of State of the State of Delaware certifying that (i) the
Company has legal existence and is in good standing, and (ii) the copy of the
Company Charter attached thereto is true and correct;

 

(e)                                  A
certificate executed by the Secretary of the Company certifying (i) the
names of the officers of the Company authorized to sign this Agreement and the
other agreements, documents and instruments executed by the Company pursuant
hereto, together with

 

46

 

the true signatures of
such officers and (ii) copies of consent actions taken by the board of directors
of the Company authorizing the appropriate officers of the Company to execute
and deliver this Agreement and all agreements, documents and instruments executed
by the Company pursuant hereto, and to consummate the transactions contemplated
hereby and thereby;

 

(f)                                    The
Rollover Stockholder Letter Agreements and the Award Agreements;

 

(g)                                 The
Stockholder Releases;

 

(h)                                 The
opinion of counsel of Goodwin Procter LLP;

 

(i)                                     Resignations
of each of the directors of the Company, other than John S. Jensen;

 

(j)                                     Originals
of all minute books, stock transfer books and other corporate records of the
Company; and

 

(k)                                  Such
other supporting documents and certificates as are required pursuant to the
terms of this Agreement.

 

Section 7.                                          Survival
of Representations and Warranties; Transaction-Related Indemnification.

 

7.1                               Survival of
Representations, Warranties and Covenants; Stockholders’ Agreement Concerning
Releases from Escrow Fund.

 

(a)                                  All
representations, warranties, covenants, and agreements of the Company, the
Stockholders and Harbor made in this Agreement, in the Disclosure Schedule and
all agreements, documents and instruments executed and delivered in connection
herewith (i) shall be deemed to have been relied upon by the party or parties
to whom they are made, and shall survive the Closing and (ii) shall bind the
parties’ successors and assigns (including, without limitation, any successor
to the Company by way of acquisition, merger or otherwise), whether so
expressed or not, and, except as otherwise provided in this Agreement, all such
representations, warranties, covenants and agreements shall inure to the
benefit of the parties (subject to Section 9.10 below) and their respective
successors and assigns, whether so expressed or not.

 

(b)                                 The
representations and warranties contained in Section 2 and Section 3 hereof (except
for the representations and warranties under Section 2.15 and 2.18) shall
expire and terminate and be of no further force and effect after the First Escrow
Release Date, except that any written claim for breach thereof made prior to
such expiration date and delivered to the party against whom such
indemnification is sought shall survive thereafter and, as to any such claim,
such applicable expiration will not effect the rights to indemnification of the
party making such claim; provided, however, that (i) the
representations and warranties of the Stockholders and the Company contained in
Section 2.1 (Organization and Corporate Power of the Company), Section 2.2
(Authorization and Non-Contravention), and Section 2.3 (Capitalization) shall
survive indefinitely and (ii) any claim by Harbor with respect to a breach of
the representations

 

47

 

and warranties of the
Stockholders or the Company may, with respect to a breach of the
representations or warranties contained in Section 2.1, Section 2.2, Section 2.3
or with respect to fraud, intentional misrepresentation or a deliberate or
willful breach by the Company or the Stockholders, be given at any time.

 

(c)                                  The
representations and warranties contained in Sections 2.15 and 2.18 shall expire
and terminate and be of no further force and effect after the Second Escrow
Release Date, except that any written claim for breach thereof made prior to
such expiration date and delivered to the party against whom such
indemnification is sought shall survive thereafter and, as to any such claim,
such applicable expiration will not effect the rights to indemnification of the
party making such claim.

 

7.2                               Transaction-Related Indemnification.

 

(a)                                  The
Stockholders agree to severally, in accordance with their pro rata
participation as set forth on Schedule A-2 hereto, on their own behalf
and on behalf of their successors, executors, administrators, estate, heirs and
assigns (collectively, for the purposes of this Section 7.2, the “Seller Indemnifying Parties”, and each
individually, a “Seller Indemnifying Party”) defend, indemnify
and hold Harbor and its officers, directors, stockholders and agents
(collectively, the “Harbor Indemnified Parties” and,
individually, an “Harbor Indemnified Party”) harmless
from and against any and all damages, liabilities, losses, claims, diminution
in value, obligations, liens, assessments, judgments, fines, penalties,
reasonable costs and expenses (including, without limitation, reasonable fees
of a single law firm representing the Harbor Indemnified Parties), as the same
are incurred, of any kind or nature whatsoever (whether or not arising out of
third-party claims and including all amounts paid in investigation, defense or
settlement of the foregoing and consequential damages; provided that
consequential damages shall not include any punitive, speculative or remote
damages)) (“Losses”)
which may be sustained or suffered by any such Harbor Indemnified Party based
upon, arising out of, or by reason of any breach of (i) any representation or
warranty made by the Company or the Stockholders in this Agreement or in any
certificate delivered by the Company or the Stockholders pursuant to the terms
of this Agreement and (ii) any covenant or agreement made by the Company or the
Stockholders contained in this Agreement, but only to the extent in each case
that amounts are available in the Escrow Fund (as defined in Section 7.6(b)) to
pay for such Losses. Notwithstanding the several nature of the obligations of
the Stockholders set forth in the preceding sentence, a Harbor Indemnified
Party may make a claim against the Escrow Fund up to the full amount then
available in the Escrow Fund for any Losses referred to in the foregoing
sentence irrespective of whether such Losses are based upon, arise out of or by
reason of any breach of a representation, warranty, covenant or agreement of
the Company or any Stockholder and a Harbor Indemnified Party shall not be
limited in any such claim against the Escrow Fund to any such Stockholder’s pro
rata participation in the Escrow Fund. For purposes of the indemnity provided
by the Stockholders in this Section 7, the disclosures set forth in Section
2.18 of the Disclosure Schedule shall be disregarded.

 

(b)                                 Harbor,
on its own behalf and on behalf of its successors and assigns (collectively,
for the purposes of this Section 7.2, the “Harbor Indemnifying
Parties”, and each individually, a “Harbor
Indemnifying
Party,” and together with the Seller Indemnifying Parties, the “Indemnifying Parties”) agree to
defend, indemnify and hold the Stockholders and their

 

48

 

respective officers and
directors (collectively, the “Seller Indemnified
Parties” and, individually, a “Seller
Indemnified
Party,” and together with Harbor Indemnified Parties, the “Indemnified Parties”) harmless from
and against any and all Losses which may be sustained or suffered by any such Seller
Indemnified Party based upon, arising out of, or by reason of any breach of (i)
any representation or warranty made by Harbor in Section 3 of this Agreement or
in any certificate delivered by Harbor pursuant to the terms of this Agreement
and (ii) any covenant or agreement made by Harbor (and the Company following
the Closing) in this Agreement.

 

7.3                               Limitations on Transaction-Related Indemnification.  Notwithstanding
anything in Section 7.2 to the contrary:

 

(a)                                  The
Seller Indemnifying Parties shall not be obligated to provide indemnification
for Losses in respect of claims made by any Indemnified Party for
indemnification under Section 7.2 above until the aggregate amount of all
Losses in respect of claims made by the Indemnified Parties for indemnification
shall exceed $500,000 (the “Deductible”) in the aggregate, and
then only to the extent that such aggregate amount exceeds the Deductible.

 

(b)                                 Except
as described in Section 7.3(c), the maximum amount payable by the Seller Indemnifying
Parties to all Harbor Indemnified Parties for Losses in respect of claims made
by the Harbor Indemnified Parties for indemnification under Section 7.2
shall not exceed the Escrow Amount (the “Escrow Cap”).
The maximum amount payable by the Harbor Indemnifying Parties to all Seller
Indemnified Parties for Losses in respect of claims made by Seller Indemnified
Parties for indemnification under Section 7.2 shall not exceed $1,000,000 in
the aggregate.

 

(c)                                  The
Harbor Indemnified Parties shall not be subject to the Deductible or Escrow Cap,
and shall be entitled to dollar-for-dollar recovery from the Seller Indemnifying
Parties in respect of claims for indemnification from the Stockholders for Losses
in connection with (i) fraud, intentional misrepresentation or a
deliberate or willful breach by the Stockholders or the Company of any of their
representations and warranties under this Agreement or (ii) the breach by the
Company or the Stockholders of any of the representations or warranties
contained in Section 2.1 (Organization and Corporate Power), Section 2.2
(Authorization and Non-Contravention), and Section 2.3 (Capitalization) (collectively,
the “Carve-out Claims”); provided,
however, that with respect to a breach by any Stockholder of the representations
and warranties in Section 2.2(b) and Section 2.3(b), the Harbor Indemnified
Parties shall be entitled to seek indemnification (A) from the Escrow Fund as
contemplated by Section 7.2(a) (including the second sentence thereof), and (B)
in the event that the Escrow Fund is insufficient to satisfy any such claim for
Losses or that such Harbor Indemnified Party elects not to pursue a claim
against the Escrow Fund, from such Stockholder, but shall not be permitted to
pursue any such claim against any other Stockholder. The Harbor Indemnified
Parties shall not be subject to the Deductible, but shall be subject to the
Escrow Cap, in respect of claims for indemnification from the Stockholders for
Losses in connection with the breach by the Company or the Stockholders of any
of the representations or warranties contained in Section 2.18 (Environmental
Matters).

 

(d)                                 In
no event shall any Stockholder be obligated to indemnify a Harbor Indemnified
Party for any Losses pursuant to this Section 7 in excess of the aggregate

 

49

 

consideration received by
such Stockholder in respect of such Stockholder’s Company Shares and, if
applicable, Company Warrants under the terms of this Agreement. Except for
claims made against the Escrow Fund (which may be made by a Harbor Indemnified
Party without regard to a Stockholder’s pro rata portion of such Loss), in no
event shall any Stockholder be obligated to indemnify a Harbor Indemnified
Party for any Losses pursuant to this Section 7, (i) in excess of such
Stockholder’s pro rata portion of such Loss, which pro rata portion shall be
determined in accordance with such Stockholder’s pro rata participation set
forth on Schedule A-2, or (ii) attributable to a breach of Section
2.2(b), 2.3(b) or 2.23 of this Agreement by any other Stockholder.

 

(e)                                  Payments
by the Stockholders or Harbor pursuant to this Section 7 shall be limited to
the amount of any liability or damage that remains after deducting therefrom
any insurance proceeds and any indemnity, contribution or other similar payment
actually received by the respective Indemnified Parties from any third party
with respect thereto; provided, however, that no Indemnified Party shall be obligated
to pursue a claim under any insurance policy or right of contribution or
indemnity; provided further, however, that in the event that any such claim is
pursued, prior to receiving any indemnification payment hereunder, the
recipient shall assign the rights to any proceeds from such insurance claim, to
the Indemnifying Party as and to the extent of any payment made hereunder by
the Indemnifying Party.

 

(f)                                    No
Harbor Indemnified Party shall be entitled to indemnification hereunder for any
Loss arising from a breach of any representation, warranty or covenant set
forth herein (and the amount of any Loss incurred in respect of such breach
shall not be included in the calculation of any limitations on indemnification
set forth herein) to the extent that such liability is disclosed as a liability
on the Estimated Closing Date Base Balance and included in the calculation of
the Closing Working Capital.

 

(g)                                 For
purposes of determining whether there has been any breach of any representation
or warranty, or the amount of any Loss related to a breach of any
representation or warranty, the representations and warranties set forth in
this Agreement shall be considered without regard to any “material,” “Material
Adverse Effect” or similar qualifications.

 

(h)                                 The
right to indemnification for Losses or other remedy based on a breach of
representations, warranties, covenants, and obligations will not be affected by
any investigation conducted with respect to, or any knowledge acquired (or
capable of being acquired) at any time whether before or after the execution
and delivery of this Agreement or the Closing with respect to the accuracy or
inaccuracy of or compliance with any such representation, warranty, covenant,
or obligation.

 

7.4                               Notice; Payment of Losses; Defense of Claims.

 

(a)                                  An
Indemnified Party shall give written notice of a claim for indemnification
under Section 7.2 to an Indemnifying Party promptly after receipt of any
written claim by any third party and in any event not later than ten (10)
business days after receipt of any such written claim, specifying in reasonable
detail the amount, nature and source of the claim, and including therewith
copies of any notices or other documents received from third parties with
respect to such claim; provided, however, that failure to give
such notice shall not limit the

 

50

 

right of an Indemnified
Party to recover indemnity or reimbursement except to the extent that the Indemnifying
Party suffers any material prejudice or material harm with respect to such
claim as a result of such failure. The Indemnified Party shall also provide the
Indemnifying Party with such further information concerning any such claims as
the Indemnifying Party may reasonably request by written notice. In the event
that a claim for indemnification from a Seller Indemnifying Party under Section
7.2 is brought against more than one Seller Indemnifying Party, the actions to
be taken by, and the notices to be sent to, the Indemnifying Party under this
Section 7.4 may be taken by, and shall be sent to, the Stockholders’
Representative on behalf of the Seller Indemnifying Parties or the Seller
Indemnified Parties.

 

(b)                                 Within
ten (10) business days after receiving notice of a claim for indemnification or
reimbursement, the Indemnifying Party shall, by written notice to the
Indemnified Party, either (i) concede or deny liability for the claim in whole
or in part, or (ii) in the case of a claim asserted by a third party, advise
that the matters set forth in the notice are, or will be, subject to contest or
legal proceedings not yet finally resolved. If the Indemnifying Party does not
respond in writing within such ten (10) business-day period, the Indemnifying
Party shall be deemed to have conceded liability for the claim and shall have
no right to further contest the validity of such claim. If the Indemnifying
Party concedes liability in whole or in part, it shall, within twenty (20)
business days of such concession, pay the amount of the claim to the Indemnified
Party to the extent of the liability conceded. Any such payment shall be made
in immediately available funds equal to the amount of such claim so payable. If
the Indemnifying Party denies liability in whole or in part, the Indemnified
Party shall be free to pursue such remedies as may be available to it under
this Agreement or applicable law.

 

(c)                                  In
the case of any third party claim, if within five (5) business days after
receiving the notice described in the preceding paragraph (a), the Indemnifying
Party (i) gives written notice to the Indemnified Party stating that the Indemnifying
Party would be liable under the provisions hereof for indemnity in the amount
of such claim if such claim were valid and that the Indemnifying Party disputes
and intends to defend against such claim, liability or expense at the Indemnifying
Party’s own cost and expense and (ii) provides assurance reasonably acceptable
to such Indemnified Party that such indemnification will be paid fully and
promptly if required and such Indemnified Party will not incur cost or expense
during the proceeding, then counsel for the defense shall be selected by the Indemnifying
Party (subject to the consent of such Indemnified Party which consent shall not
be unreasonably withheld) and such Indemnifying Party shall not be required to
make any payment to the Indemnified Party with respect to such claim, liability
or expense as long as the Indemnifying Party is conducting a good faith and
diligent defense at its own expense; provided, however, that the
assumption of defense of any such matters by the Indemnifying Party shall
relate solely to the claim, liability or expense that is subject or potentially
subject to indemnification. If the Indemnifying Party assumes such defense in
accordance with the preceding sentence, it shall have the right, with the
consent of such Indemnified Party, which consent shall not be unreasonably
withheld, to settle all indemnifiable matters related to claims by third
parties which are susceptible to being settled provided the Indemnifying Party’s
obligation to indemnify such Indemnified Party therefor will be fully satisfied
only by payment of money by the Indemnifying Party pursuant to a settlement
which includes a complete general release of such Indemnified Party. The Indemnifying
Party shall keep such Indemnified Party apprised of the status of the claim,
liability or expense and any resulting suit, proceeding or enforcement action. Notwithstanding
anything herein stated, such

 

51

 

Indemnified Party shall
at all times have the right to fully participate in such defense at its own
expense directly or through counsel; provided, however, if the
named parties to the action or proceeding include both the Indemnifying Party
and the Indemnified Party and representation of both parties by the same
counsel would be inappropriate under applicable standards of professional
conduct, the reasonable expense of separate counsel for such Indemnified Party
shall be paid by the Indemnifying Party provided that such Indemnifying Party
shall be obligated to pay for only one counsel for the Indemnified Party in any
jurisdiction. If no such notice of intent to dispute and defend is given by the
Indemnifying Party, or if such diligent good faith defense is not being or
ceases to be conducted, such Indemnified Party may undertake the defense of
(with counsel selected by such Indemnified Party), and shall have the right to
compromise or settle, such claim, liability or expense (exercising reasonable
business judgment) with the consent of the Indemnifying Party, which consent
shall not be unreasonably withheld or delayed. If such claim, liability or
expense is one that by its nature cannot be defended solely by the Indemnifying
Party, then such Indemnified Party shall make available all information and
assistance that the Indemnifying Party may reasonably request and shall
cooperate with the Indemnifying Party in such defense.

 

7.5                               Treatment
of Indemnity Payments. All payments made by the Stockholders or Harbor,
as the case may be, to or for the benefit of the other parties pursuant to this
Section 7 shall be treated as adjustments to the Aggregate Value for tax
purposes, and such agreed treatment shall govern for purposes of this
Agreement.

 

7.6                               Exclusive Remedy; Setoff; Order of Application.

 

(a)                                  The
sole and exclusive remedy of the Indemnified Parties with respect to any and
all claims arising out of, in connection with or relating to the subject matter
of this Agreement will be pursuant to the indemnification provisions set forth
in this Section 7. Nothing in this Section 7.6(a) will prohibit claims for
equitable relief made by a Harbor Indemnified Party.

 

(b)                                 Notwithstanding
anything to the contrary herein (but subject to Section 7.6(a) and except as
provided below in this Section 7.6(b)), the sole recourse of each Harbor
Indemnified Party entitled to recover any indemnification payment for Losses
hereunder, subject to Section 7.3, will be by collecting such amounts from the
Escrow Amount deposited and held in escrow in accordance with Section 1.10 (the
“Escrow Fund”) in accordance with the
terms of the Escrow Agreement. If, at any time prior to the Second Escrow
Release Date, the Escrow Fund does not have sufficient funds to satisfy all or
a portion of any indemnification payment for Losses hereunder solely as a
result of a reduction of the Escrow Fund pursuant to Section 1.6(b) (the “Escrow Reduction Amount”), then each
Stockholder shall promptly contribute to the Escrow Fund an amount equal to his,
her or its pro rata share (as set forth opposite such Stockholder’s name on Schedule
A-2 hereto) of the Escrow Reduction Amount.

 

52

 

7.7                               Limitation
on Contribution and Certain Other Rights; Contribution Among Stockholders for
Certain Breaches

 

(a)                                  The
Stockholders hereby agree that if, following the Closing, any claim is made by
any Stockholder, or otherwise becomes due from any Stockholder, pursuant to
Section 7.2 in respect of any Losses (a “Loss Payment”), such Stockholders shall have
no rights against the Company, or any director, officer or employee thereof (in
their capacity as such), whether by reason of contribution, indemnification,
subrogation or otherwise, in respect of any such Loss Payment, and shall not
take any action against the Company or any such person with respect thereto.

 

(b)                                 The
Stockholders acknowledge and agree among themselves that a Harbor Indemnified
Party may have the right to make claims for Losses pursuant to Section 7.2(a)
against the Escrow Fund, including claims that may arise as a result of a
breach of a representation, warranty, covenant or agreement made by an
individual Stockholder. The Stockholders agree among themselves that in the
event a Harbor Indemnified Party receives amounts from the Escrow Fund as
indemnification for Losses arising from an individual Stockholder’s breach (the
“Indemnified Amount”), that such Indemnified Amount shall be deducted from any
amounts to be released to such breaching Stockholder pursuant to Section 1.10
of this Agreement and the Escrow Agreement. In the event the Indemnified Amount
exceeds the amount to be so released to such breaching Stockholder and, as a
result, the amounts to be released to the nonbreaching Stockholders are less
than the amounts that would otherwise have been released based upon the pro
rata participation of such nonbreaching Stockholders in the Escrow Fund, that
the breaching Stockholder shall promptly pay to the Stockholders’
Representative the full amount by which the Indemnified Amount reduced the
amounts that would have been released to the nonbreaching Stockholders and the
Stockholders’ Representative shall distribute such amounts to the nonbreaching
Stockholders. For example, in the event a breaching Stockholder’s pro rata
participation in an amount to be released from the Escrow Fund was $50,000, an
Indemnified Amount attributable to such breaching Stockholder’s breach was
$100,000 and, as a result, the $50,000 that the Indemnified Amount exceeded the
breaching Stockholder’s pro rata participation resulted in a reduction of the
amounts to be released to the nonbreaching Stockholders of $50,000, the
breaching Stockholder would be obligated to pay such $50,000 to the
Stockholders’ Representative for payment to the nonbreaching Stockholders.

 

Section 8.                                          Termination.

 

8.1                               Termination. This Agreement may be terminated:

 

(a)                                  at
any time, by the mutual written consent of the Company, the Stockholders’
Representative and Harbor;

 

(b)                                 by
the Company and the Stockholders’ Representative, if the Company and the
Stockholders are not then in material breach of any term of this Agreement,
upon written notice to Harbor, upon a material breach of any representation,
warranty or covenant of Harbor contained in this Agreement, provided that such
breach is not capable of being cured or has not been cured within thirty (30)
days after the giving of notice thereof by the Company and the Stockholders’
Representative to Harbor;

 

53

 

(c)                                  by
Harbor, if Harbor is not then in material breach of any term of this Agreement,
upon written notice to the Company and the Stockholders’ Representative, upon a
material breach of any representation, warranty or covenant of the Company or
the Stockholders contained in this Agreement, provided that such breach is not
capable of being cured or has not been cured within thirty (30) days after the
giving of notice thereof by Harbor to the Company and the Stockholders’
Representative;

 

(d)                                 by
the Company, the Stockholders’ Representative or Harbor at any time after June
30, 2007 if the Closing has not occurred as of such date and the party seeking
termination is not then in breach of any of the terms of this Agreement;
provided, however, that in the event that the Proxy Statement has been mailed
to the record owners of Harbor Common Stock prior to June 30, 2007, then such
parties shall not have the right to terminate until after fifteen (15) business
days following the date of the Harbor Stockholder Meeting set forth in the Proxy
Statement;

 

(e)                                  by
the Company and the Stockholders’ Representative if (i) the Harbor Board fails
to include a recommendation that Harbor stockholders approve the transactions
contemplated by this Agreement in the Proxy Statement, (ii) the Harbor Board withdraws
or modifies, in any manner adverse to the Company and the Stockholders, the Harbor
Board’s recommendation that Harbor stockholders approve the transactions
contemplated by this Agreement, or (iii) Harbor fails to obtain Harbor Stockholder
Approval at the Harbor Stockholder Meeting; and

 

(f)                                    by
Harbor if there is a Material Adverse Effect on the Company at any time between
the date of this Agreement and the Closing.

 

8.2                               Effect of Termination. In the event of termination of
this Agreement as provided in Section 8.1, this Agreement shall forthwith
become void and there shall be no further liability or obligations hereunder on
the part of any party hereto or their respective Affiliates except for the
obligations of the parties pursuant to this Section 8.2 and Sections 4.2(b)
(Access to Information), 4.3 (Confidentiality), 4.7(b) (No Solicitation), 8.3
(Termination Fee) and 9.11 (Expenses); provided, however, that
nothing herein shall relieve either party from liability for any willful breach
of this Agreement existing at the time of such termination.

 

8.3                               Termination Fee. If, subsequent to the termination of
this Agreement as provided in Section 8.1(e), Harbor completes a business
combination that results in the release of the proceeds held in the Trust Fund,
Harbor shall pay to the Company, concurrently with the consummation of such
business combination, a termination fee in the amount $3,000,000.

 

8.4                               Waiver. At any time prior to the Closing, the Company
and the Stockholders’ Representative, as one party, and Harbor, as the other
party, may (a) extend the time for the performance of any of the obligations or
other acts of the other party hereto, (b) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document delivered by the other party pursuant hereto or (c) waive compliance
with any of the agreements of the other party or conditions to its own
obligations contained herein. Any such extension or waiver shall be valid only
if set forth in an instrument in writing signed by the party

 

54

 

to be bound thereby. Waiver of any term or condition of this Agreement
by a party shall not be construed as a waiver of any subsequent breach or
waiver of the same term or condition by such party, or a waiver of any other
term or condition of this Agreement by such party.

 

Section 9.                                          General.

 

9.1                               Waivers and Consents; Amendments.

 

(a)                                  For
the purposes of this Agreement and all agreements, documents and instruments
executed pursuant hereto, no course of dealing between or among any of the
parties hereto and no delay on the part of any party hereto in exercising any
rights hereunder or thereunder shall operate as a waiver of the rights hereof
and thereof. No covenant or provision hereof may be waived otherwise than by a
written instrument signed by the party or parties so waiving such covenant or
other provision as contemplated herein.

 

(b)                                 This
Agreement may not be amended, waived or modified except by a writing duly and
validly executed by the Company, the Stockholders’ Representative and Harbor. Notwithstanding
the foregoing, Schedule A-2
of this Agreement may be amended by the Company from time to time prior to the
Closing to reflect the Management Equity Transfers with the prior written
consent of Harbor, which consent shall not be unreasonably withheld or delayed.

 

9.2                               Governing Law. This Agreement shall be deemed to be a
contract made under, and shall be construed in accordance with, the laws of the
State of Delaware, without giving effect to conflict of laws principles
thereof.

 

9.3                               Section Headings; Construction. The descriptive headings
in this Agreement have been inserted for convenience only and shall not be
deemed to limit or otherwise affect the construction of any provision thereof
or hereof. The use in this Agreement of the masculine pronoun in reference to a
party hereto shall be deemed to include the feminine or neuter, and vice versa,
as the context may require. The parties have participated jointly in the
negotiation and drafting of this Agreement and the other agreements, documents
and instruments executed and delivered in connection herewith with counsel
sophisticated in investment transactions. In the event an ambiguity or question
of intent or interpretation arises, this Agreement and the agreements,
documents and instruments executed and delivered in connection herewith shall
be construed as if drafted jointly by the parties and no presumption or burden
of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement and the agreements, documents
and instruments executed and delivered in connection herewith.

 

9.4                               Counterparts. This Agreement may be executed
simultaneously in any number of counterparts, each of which when so executed
and delivered shall be taken to be an original; but such counterparts shall
together constitute but one and the same document.

 

55

 

9.5                               Notices and Demands. Any notice or demand which is
required or provided to be given under this Agreement shall be deemed to have
been sufficiently given and received for all purposes when delivered in writing
by hand, or five (5) days after being sent by certified or registered mail, postage
and charges prepaid, return receipt requested, or two (2) days after being sent
by overnight delivery providing receipt of delivery, to the following
addresses:

 

if to the Company:

 

Elmet Technologies, Inc.

1560 Lisbon Street

Lewiston, ME  04240

Attn:  John S. Jensen

 

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

 

Goodwin Procter LLP

53 State Street

Boston, MA  02109

Attn:  Stuart M. Cable

 

if to the Stockholders’
Representative:

 

Argosy Investment
Partners II, L.P.

950 W. Valley Road, Suite
2900

Wayne, PA  19087

Attn:  Knute C. Albrecht

 

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

 

Goodwin Procter LLP

53 State Street

Boston, MA  02109

Attn:  Stuart M. Cable

 

if to Harbor:

 

Harbor Acquisition
Corporation

One Boston Place

Suite 3630

Boston, MA  02108

Attn:  Robert J. Hanks

 

56

 

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

 

Davis, Malm & D’Agostine P.C.

One Boston Place

Boston, MA  02108

Attn:  Andrew D. Myers

 

or to
such other address that may be designated in writing from time to time by the
Company, the Stockholders’ Representative or Harbor to the other parties hereto.

 

9.6                               Dispute Resolution.

 

(a)                                  All
disputes, claims, or controversies arising out of or relating to an indemnification
claim made under this Agreement, the Escrow Agreement and the Registration
Rights Agreement, or any other agreement executed and delivered pursuant to
this Agreement or the negotiation, breach, validity or performance hereof and
thereof or the transactions contemplated hereby and thereby, including, without
limitation, the Put Right, in each case that is not resolved by mutual
agreement shall be resolved by binding arbitration to be conducted before
J.A.M.S./Endispute, Inc. in Boston, Massachusetts before a panel of three (3) neutral
arbitrators (the “Arbitrators”).
The parties understand and agree that this arbitration shall apply equally to
claims of fraud or fraud in the inducement.

 

(b)                                 The
parties covenant and agree that the arbitration shall commence within ninety (90)
days of the date on which a written demand for arbitration is filed by any
party hereto (the “Filing
Date”). In connection with the arbitration proceeding, the
Arbitrators shall have the power to order the production of documents by each
party and any third-party witnesses. In addition, each party may take up to
three depositions as of right, and the Arbitrators may in their discretion
allow additional depositions upon good cause shown by the moving party. However,
the Arbitrators shall not have the power to order the answering of
interrogatories or the response to requests for admission. In connection with
any arbitration, each party shall provide to the other, no later than seven (7)
business days before the date of the arbitration, the identity of all persons
that may testify at the arbitration and a copy of all documents that may be
introduced at the arbitration or considered or used by a party’s witnesses or
experts. The Arbitrators’ decision and award shall be made and delivered within
thirty (30) days of the closing of the arbitration hearing. The Arbitrators’
decision shall set forth a reasoned basis for any award of damages or finding
of liability. The Arbitrators shall not have power to award damages in excess
of actual compensatory damages and shall not multiply actual damages or award
punitive damages or any other damages that are specifically excluded under this
Agreement, and each party hereby irrevocably waives any claim to such damages.

 

(c)                                  The
parties covenant and agree that they will participate in the arbitration in
good faith and that they will, except as provided in Section 7.2 of this
Agreement, (i) bear their own attorneys’ fees, costs and expenses in connection
with the arbitration, and (ii) share equally in the fees and expenses charged
by the Arbitrators. Any party unsuccessfully refusing to comply with an order
of the Arbitrators shall be liable for costs and expenses, including attorneys’
fees, incurred by the other party in enforcing the award. Notwithstanding anything
to

 

57

 

the contrary contained in
this Agreement, this Section 9.6 shall not apply to any request by any party to
this Agreement for temporary, preliminary or permanent injunctive relief or other
forms of equitable relief.

 

9.7                               Consent
to Jurisdiction. Except as provided in Sections 1.5(e), 1.6(b), 9.6(c)
and 9.8, each of the parties hereto irrevocably and unconditionally consents to
the jurisdiction of J.A.M.S./Endispute, Inc. to resolve all disputes, claims or
controversies arising out of or relating to (i) this Agreement, the Escrow
Agreement, the Registration Rights Agreement or any other agreement executed
and delivered pursuant to this Agreement or the negotiation, breach, validity
or performance hereof and thereof or the transactions contemplated hereby and
thereby, or (ii) the Put Right, and further consents to the sole and exclusive
jurisdiction of the courts of the Commonwealth of Massachusetts for the
purposes of enforcing the arbitration provisions of Section 9.6 of this
Agreement. Each party further irrevocably waives any objection to proceeding
before the Arbitrators based upon lack of personal jurisdiction or to the
laying of venue and further irrevocably and unconditionally waives and agrees
not to make a claim in any court that arbitration before the Arbitrator has
been brought in an inconvenient forum. Each of the parties hereto hereby
consents to service of process by registered mail at the address to which
notices are to be given. Each of the parties hereto agrees that its or his
submission to jurisdiction and its or his consent to service of process by mail
is made for the express benefit of the other parties hereto.

 

9.8                               Remedies; Severability. Notwithstanding Sections 9.6 and
9.7 above, it is specifically understood and agreed that any breach of the
provisions of this Agreement, the Escrow Agreement, the Registration Rights Agreement
or any other agreement executed and delivered pursuant to this Agreement, or any
other Transaction Document, by any Person subject hereto will result in
irreparable injury to the other parties hereto, that the remedy at law alone
will be an inadequate remedy for such breach, and that, in addition to any
other remedies which they may have, such other parties may enforce their
respective rights by actions for specific performance (to the extent permitted
by law). Whenever possible, each provision of this Agreement shall be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be deemed prohibited or invalid
under such applicable law, such provision shall be ineffective to the extent of
such prohibition or invalidity, and such prohibition or invalidity shall not
invalidate the remainder of such provision or the other provisions of this
Agreement.

 

9.9                               Integration. This Agreement, including the exhibits,
documents and instruments referred to herein or therein constitute the entire
agreement, and supersede all other prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof
and thereof, including, without limitation, (a) the provisions of the letter of
intent between the parties hereto in respect of the transactions contemplated
herein, which provisions of the letter of intent shall be completely superseded
by the representations, warranties, covenants and agreements contained herein,
and (b) the Waiver Letter by and between the Company and Harbor, dated May 31,
2006.

 

9.10                        Assignability; Binding Agreement. Harbor may assign any
or all of its rights hereunder to any transferee of its shares. This Agreement
may not otherwise be assigned by any

 

58

 

party hereto without the prior written consent of each
other party hereto. This Agreement (including, without limitation, the
provisions of Section 7) shall be binding upon and enforceable by, and shall
inure to the benefit of, the parties hereto and their respective successors,
heirs, executors, administrators and permitted assigns, and no others. Notwithstanding
the foregoing, and except as expressly provided in Sections 5.3, 7.2 and 7.3
hereof, nothing in this Agreement is intended to give any Person not named
herein the benefit of any legal or equitable right, remedy or claim under this
Agreement, except as expressly provided herein.

 

9.11                        Expenses.

 

(a)                                  All
costs and expenses incurred in connection with the consummation of the
transactions contemplated hereby by Harbor shall be borne by Harbor, and all
costs and expenses incurred in connection with the consummation of the
transactions contemplated hereby by the Company and the Stockholders shall be
borne by the Company; provided, however, that in the event that the
transactions contemplated hereby are consummated, the total amount of such
Company and Stockholder costs and expenses shall be borne by the Stockholders
in accordance with their pro rata share (as set forth opposite each Stockholder’s
name on Schedule A-2
hereto).

 

(b)                                 Notwithstanding
Section 9.11(a), in the event that the transactions contemplated hereby are
consummated, the accountable fees and expenses of the Company’s attorneys and independent
accountants incurred by the Company after August 23, 2006 that are related to
(i) the preparation and review of the Proxy Statement, including any amendments
thereto, (ii) the preparation of a nine-month audit of the Company, if required
by the SEC, and any adjustments required by the SEC to the Company’s 2004 or
2005 financial statements, (iii) the preparation and review of any other SEC
filings or correspondence in connection with the transactions contemplated by
this Agreement, (iv) the review and testing of the Company’s internal controls
and procedures, and the implementation of any changes thereto in connection
with the transactions contemplated by this Agreement (each as specifically
authorized in advance in writing by Harbor and as evidenced by written
documentation relating to such review, testing and implementation as shall be provided
to Harbor), and (v) the review and preparation of any other documents or
materials required solely as a direct result of the acquisition of the Company
by a public company shall, in each case, be borne by the Company up to a
maximum aggregate amount of $350,000, which amount shall be excluded from the
calculation of the Closing Working Capital. The fees and expenses of the
Company’s attorneys and independent accountants incurred by the Company before
or after the date of this Agreement that are related to the Management Equity
Transfers and the Company Bonus Plan shall be specifically excluded from
foregoing, without limitation.

 

9.12                        Certain Definitions. For purposes of this Agreement, the
term:

 

(a)                                  “Affiliate” of a
Person shall mean (i) with respect to a Person, any member of such Person’s
family (including any child, step-child, parent, step-parent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or
sister-in-law); (ii) with respect to an entity, any officer, director,
stockholder, partner or investor in such entity or of or in any affiliate of
such entity; and (iii) with respect to a Person or entity,

 

59

 

any Person or entity
which directly or indirectly controls, is controlled by, or is under common
control with such Person or entity.

 

(b)                                 “Company Debt” means, without
duplication, the aggregate amount (including the current portions thereof) of
all (i) indebtedness for borrowed money of the Company, (ii) indebtedness for
the deferred purchase price of property or services, (iii) any indebtedness of
the Company evidenced by any note, bond, debenture or other debt security; (iv)
obligations of the Company as lessee under leases which have been or should be,
in accordance with GAAP, recorded as capital leases; (v) all accrued and unpaid
interest on or any premiums, fees, penalties, expenses or other amounts due
with respect to any such Company Debt; (vi) all unpaid dividends that were
declared prior to the date of this Agreement; and (vii) any obligations of any
other Person or a type referred to in clauses (i) through (vi) to the extent
directly or indirectly guaranteed by the Company.

 

(c)                                  “Control” (including
the terms “controlled by” and “under common control with”) means the
possession, directly or indirectly, or as trustee or executor, of the power to
direct or cause the direction of the management policies of a Person, whether
through the ownership of stock, as trustee or executor, by contract or credit
arrangement or otherwise.

 

(d)                                 “GAAP” means United States generally
accepted accounting principles.

 

(e)                                  “Governmental Authority” means any
federal, state, local, or any foreign government, governmental, regulatory or
administrative authority, agency or commission or any court, tribunal, or
judicial or arbitral body.

 

(f)                                    “Material Adverse Effect” means a
material adverse effect on the financial condition or business of the Company
or Harbor, as applicable, except for any such effects resulting from (i)
this Agreement, the transactions contemplated hereby or the announcement
thereof, (ii) changes in general economic or political conditions or the
securities markets in general, (iii) changes, after the date of this Agreement,
in conditions generally applicable to businesses in the same industries as the
Company or Harbor, as applicable, including changes in laws generally
applicable to such businesses or industry; provided that such changes do not disproportionately
affect the Company or Harbor, as applicable; or (iv) changes in GAAP or its
application.

 

(g)                                 “Net Company Debt” means Company Debt
less, to the extent a positive number, cash on the Company’s balance sheet.

 

(h)                                 “Person” means an
individual, corporation, partnership, association, trust, any unincorporated
organization or any other entity.

 

(i)                                     “Selling Expenses” means all of the costs
and expenses incurred by the Company and the Stockholders in connection with
the consummation of the transactions contemplated hereby, including, without
limitation, fees and expenses of financial advisors, attorneys, accountants and
consultants, payable in accordance with Section 9.11 hereof and, solely with
respect to the expenses described in Section 9.11(b)(v) of this Agreement, a
reasonable accounting of such expenses shall have been provided to Harbor no
later than two (2) days prior to the Closing Date.

 

60

 

(j)                                     “Subsidiary” of a
Person means any corporation more than fifty (50%) percent of whose outstanding
voting securities, or any partnership, limited liability company joint venture
or other entity more than fifty percent (50%) of whose total equity interest,
is directly or indirectly owned by such Person.

 

(k)                                  “Transaction Documents” mean this
Agreement (including the Exhibits and the Disclosure Schedule), the Escrow
Agreement, the Registration Rights Agreement and the Rollover Stockholder
Letter Agreements.

 

9.13                        Terms Defined Elsewhere. The following terms are defined
elsewhere in this Agreement, as indicated below:

 

	
  Defined Term

  	
   

  	
  Section

  
	
  2007/2008 EBITDA

  	
   

  	
  1.5(d)

  
	
  2007 Contingent Payment Shortfall

  	
   

  	
  1.5(d)

  
	
  2007 EBITDA

  	
   

  	
  1.5(d)

  
	
  Accountant

  	
   

  	
  1.6(b)

  
	
  Affiliate

  	
   

  	
  9.12

  
	
  Aggregate Value

  	
   

  	
  1.2(b)

  
	
  Agreement

  	
   

  	
  Preamble

  
	
  AMEX

  	
   

  	
  1.5(c)

  
	
  Arbitrators

  	
   

  	
  9.6(a)

  
	
  Award Agreement

  	
   

  	
  Preamble

  
	
  Base Balance Sheet

  	
   

  	
  2.5(a)

  
	
  Base Working Capital

  	
   

  	
  1.6(a)

  
	
  Benefit Plans

  	
   

  	
  2.15(a)

  
	
  Business Combination

  	
   

  	
  4.7(a)

  
	
  Carve-Out Claims

  	
   

  	
  7.3(c)

  
	
  Cash Purchase Price

  	
   

  	
  1.2(b)

  
	
  Claim

  	
   

  	
  5.3

  
	
  Closing

  	
   

  	
  1.7

  
	
  Closing Consideration

  	
   

  	
  1.2(b)

  
	
  Closing Date

  	
   

  	
  1.7

  
	
  Closing Working Capital

  	
   

  	
  1.6(b)

  
	
  Code

  	
   

  	
  1.12

  
	
  Company

  	
   

  	
  Preamble

  

 

61

 

	
  Defined Term

  	
   

  	
  Section

  
	
  Company Bonus Plan

  	
   

  	
  Recitals

  
	
  Company Bylaws

  	
   

  	
  2.1

  
	
  Company Charter

  	
   

  	
  2.1

  
	
  Company Common Stock

  	
   

  	
  1.2(a)

  
	
  Company Debt

  	
   

  	
  9.12

  
	
  Company EBITDA

  	
   

  	
  1.5(d)

  
	
  Company Employees

  	
   

  	
  5.1(a)

  
	
  Company Shares

  	
   

  	
  Recitals

  
	
  Company Subsidiary

  	
   

  	
  2.4

  
	
  Company Warrants

  	
   

  	
  1.2(a)

  
	
  Confidentiality Agreement

  	
   

  	
  4.3

  
	
  Contingent Payment

  	
   

  	
  1.5

  
	
  Contingent Payment Amount

  	
   

  	
  1.5(d)

  
	
  Contingent Payment Note

  	
   

  	
  1.5(c)

  
	
  Contingent Payment Report

  	
   

  	
  1.5(e)

  
	
  Contingent Payment Shares

  	
   

  	
  4.16(a)

  
	
  Continuing Stockholders

  	
   

  	
  1.3(b)

  
	
  Continuing Stockholder Value

  	
   

  	
  1.2(b)

  
	
  Contributing Stockholder

  	
   

  	
  4.1

  
	
  Control

  	
   

  	
  9.12

  
	
  Customers

  	
   

  	
  2.19

  
	
  Deductible

  	
   

  	
  7.3(a)

  
	
  Disclosure Schedule

  	
   

  	
  2

  
	
  Discretionary Bonuses

  	
   

  	
  1.4

  
	
  Distributors

  	
   

  	
  2.19

  
	
  EBITDA

  	
   

  	
  1.5(d)

  
	
  Employer Payroll Taxes

  	
   

  	
  2.9(d)

  
	
  Encumbrances

  	
   

  	
  1.1

  
	
  Environment

  	
   

  	
  2.18(f)

  
	
  Environmental Laws

  	
   

  	
  2.18(f)

  
	
  Equity Incentive Plan

  	
   

  	
  Recitals

  

 

62

 

	
  Defined Term

  	
   

  	
  Section

  
	
  ERISA

  	
   

  	
  2.15(a)

  
	
  Escrow Agent

  	
   

  	
  1.10

  
	
  Escrow Agreement

  	
   

  	
  1.10

  
	
  Escrow Amount

  	
   

  	
  1.10

  
	
  Escrow Cap

  	
   

  	
  7.3(b)

  
	
  Escrow Fund

  	
   

  	
  7.6(b)

  
	
  Escrow Reduction Amount

  	
   

  	
  7.6(b)

  
	
  Estimated Closing Date Balance Sheet

  	
   

  	
  1.6(a)

  
	
  Estimated Closing Working Capital

  	
   

  	
  1.6(a)

  
	
  Exchange Act

  	
   

  	
  1.5(d)

  
	
  Filing Date

  	
   

  	
  9.6(b)

  
	
  Financial Statements

  	
   

  	
  2.5(a)

  
	
  First Escrow Release Date

  	
   

  	
  1.10

  
	
  First Measurement Period

  	
   

  	
  1.5(d)

  
	
  GAAP

  	
   

  	
  9.12

  
	
  Governmental Authority

  	
   

  	
  9.12

  
	
  Harbor

  	
   

  	
  Preamble

  
	
  Harbor Board

  	
   

  	
  3.11(a)

  
	
  Harbor Bylaws

  	
   

  	
  3.2

  
	
  Harbor Charter

  	
   

  	
  3.2

  
	
  Harbor Common Stock

  	
   

  	
  Recitals

  
	
  Harbor EBITDA

  	
   

  	
  1.5(d)

  
	
  Harbor Financial Advisor

  	
   

  	
  3.11(c)

  
	
  Harbor Indemnified Party/Parties

  	
   

  	
  7.2(a)

  
	
  Harbor Indemnifying Party/Parties

  	
   

  	
  7.2(b)

  
	
  Harbor Stockholder Approval

  	
   

  	
  4.10(d)

  
	
  Harbor Stockholder Meeting

  	
   

  	
  4.10(d)

  
	
  Harbor SEC Reports

  	
   

  	
  3.4(a)

  
	
  Hazardous Material

  	
   

  	
  2.18(f)

  
	
  HSR Act

  	
   

  	
  4.4(a)

  
	
  Indemnified Parties

  	
   

  	
  7.2(b)

  

 

63

 

	
  Defined Term

  	
   

  	
  Section

  
	
  Indemnified Persons

  	
   

  	
  5.3

  
	
  Indemnifying Parties

  	
   

  	
  7.2(b)

  
	
  Intellectual Property Rights

  	
   

  	
  2.11(d)

  
	
  Investment Company Act

  	
   

  	
  3.12(a)

  
	
  IRS

  	
   

  	
  2.9(a)

  
	
  Leases

  	
   

  	
  2.8(a)

  
	
  Loss Payment

  	
   

  	
  7.7

  
	
  Losses

  	
   

  	
  7.2(a)

  
	
  Management Equity Transfers

  	
   

  	
  4.1

  
	
  Material Adverse Effect

  	
   

  	
  9.12

  
	
  Measurement Period

  	
   

  	
  1.5(d)

  
	
  NASD

  	
   

  	
  3.10

  
	
  Net Company Debt

  	
   

  	
  9.12

  
	
  Net Equity Value

  	
   

  	
  1.2(b)

  
	
  Net Working Capital Adjustment Amount

  	
   

  	
  1.6(c)

  
	
  Neutral Auditor

  	
   

  	
  1.5(e)

  
	
  Permits

  	
   

  	
  2.14

  
	
  Person

  	
   

  	
  9.12

  
	
  Post-Closing Audited Balance Sheet

  	
   

  	
  1.6(b)

  
	
  Proxy Statement

  	
   

  	
  4.10(a)

  
	
  Public Company Expenses

  	
   

  	
  1.5(d)

  
	
  Put Right

  	
   

  	
  1.3(b)

  
	
  Put Right Exchange Ratio

  	
   

  	
  1.3(b)

  
	
  Put Notice

  	
   

  	
  1.3(b)

  
	
  Real Property

  	
   

  	
  2.8(a)

  
	
  Registration Rights Agreement

  	
   

  	
  Recitals

  
	
  Retained Shares

  	
   

  	
  1.3(b)

  
	
  Rollover Shares

  	
   

  	
  1.3(a)

  
	
  Rollover Stockholders

  	
   

  	
  1.3(a)

  
	
  Rollover Stockholder Letter Agreements

  	
   

  	
  1.3(a)

  
	
  Rollover Stockholder Value

  	
   

  	
  1.2(b)

  

 

64

 

	
  Defined Term

  	
   

  	
  Section

  
	
  SEC

  	
   

  	
  3.4(a)

  
	
  Second Escrow Release Date

  	
   

  	
  1.10

  
	
  Second Measurement Period

  	
   

  	
  1.5(d)

  
	
  Securities Act

  	
   

  	
  1.11

  
	
  Seller Indemnified Party/Parties

  	
   

  	
  7.2(b)

  
	
  Seller Indemnifying Party/Parties

  	
   

  	
  7.2(a)

  
	
  Selling Expenses

  	
   

  	
  9.12

  
	
  Stock Sale

  	
   

  	
  1.2(a)

  
	
  Stockholder Releases

  	
   

  	
  6.2(h)

  
	
  Stockholders

  	
   

  	
  Preamble

  
	
  Stockholders’ Representative

  	
   

  	
  1.9(a)

  
	
  Stockholders’ Representative Accountant

  	
   

  	
  1.5(e)

  
	
  Subsidiary

  	
   

  	
  9.12

  
	
  Tax Returns

  	
   

  	
  2.9(b)

  
	
  Taxes

  	
   

  	
  2.9(b)

  
	
  Trade Secrets

  	
   

  	
  2.11(d)

  
	
  Trustee

  	
   

  	
  3.12(a)

  
	
  Trust Fund

  	
   

  	
  3.12(a)

  
	
  WARN

  	
   

  	
  2.13

  
	
  Working Capital

  	
   

  	
  1.6(e)

  

 

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK]

 

65

 

IN WITNESS WHEREOF, the parties have executed this Stock
Purchase Agreement or have caused this Stock Purchase Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first set forth above.

 

 

	
  THE COMPANY:

  
	
   

  
	
  ELMET TECHNOLOGIES, INC.

  
	
   

  
	
   

  
	
   

  	
  By:

  	
  /s/  John S. Jensen

  	
   

  
	
   

  	
   

  	
  Name: John S. Jensen

  
	
   

  	
   

  	
  Title: President

  
	
   

  	
   

  	
   

  
	
  THE STOCKHOLDERS:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ John S.
  Jensen

  	
   

  
	
   

  	
  John S. Jensen

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ARGOSY INVESTMENT PARTNERS II,

  L.P.

  
	
   

  	
  By: Argosy Associates II, L.P., its general

  partner

  
	
   

  	
  By: Argosy Associates II, Inc., its general

  partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Knute C.
  Albrecht

  	
   

  
	
   

  	
  Name: Knute C. Albrecht

  
	
   

  	
  Title: President

  
	
   

  	
   

  
	
   

  	
  SEACOAST CAPITAL PARTNERS II,

  L.P.

  
	
   

  	
  By: Seacoast Advisors II, LLC, its general

  partner

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Thomas W.
  Gorman

  	
   

  
	
   

  	
  Name: Thomas W. Gorman

  
	
   

  	
  Title: Member

  

 

66

 

	
   

  	
  NEW ENGLAND PARTNERS CAPITAL,

  L.P.

  
	
   

  	
  By: NEP Capital, LLC, its general partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert J.
  Hanks

  	
   

  
	
   

  	
  Name: Robert J. Hanks

  
	
   

  	
  Title: General Partner

  
	
   

  	
   

  
	
   

  	
  HARBOR PARTNERS II, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert J.
  Hanks

  	
   

  
	
   

  	
  Name: Robert J. Hanks

  
	
   

  	
  Title: General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LATONA ASSOCIATES FUND I, L.L.C.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Timothy J.
  Durkin

  	
   

  
	
   

  	
  Name: Timothy J. Durkin

  
	
   

  	
  Title:

  	
  VP, Latona Associates Inc., for

  Latona Fund Manager LLC, Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  APPLEDORE INVESTMENT ADVISORS,

  LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Terence J.
  Conklin

  	
   

  
	
   

  	
  Name: Terence J. Conklin

  
	
   

  	
  Title: President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Edward
  Paslawski

  	
   

  
	
   

  	
  Edward Paslawski

  
	
   

  	
   

  
	
   

  	
  /s/ Ronald
  Popolizio

  	
   

  
	
   

  	
  Ronald Popolizio

  
	
   

  	
   

  
	
   

  	
  /s/ Robert
  Fraser

  	
   

  
	
   

  	
  Robert Fraser

  
					

 

67

 

	
   

  	
  HARBOR:

  
	
   

  	
   

  
	
   

  	
  HARBOR ACQUISITION

  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John Carson

  	
   

  
	
   

  	
  Name:

  	
  John Carson

  
	
   

  	
  Title:

  	
  Chairman of the Board

  
					

 

68

 

Exhibit A

 

Form of Counterpart
Signature Page

 

The
undersigned, desiring to become a “Stockholder” pursuant to that certain Stock
Purchase Agreement, dated as of October 17, 2006, as amended and in effect from
time to time, by and among Elmet Technologies, Inc., a Delaware
corporation, the Stockholders named therein, and Harbor Acquisition
Corporation, a Delaware corporation (the “Purchase Agreement”),
hereby becomes a party to the Purchase
Agreement, and agrees to be bound by the terms and conditions thereof as
if it were an original signatory thereto. The undersigned hereby agrees to all of
the provisions of the Purchase Agreement, and agrees that this counterpart
signature page may be attached to any counterpart copy of the Purchase
Agreement as evidence of the undersigned’s agreement to the terms thereof.

 

	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title

  
	
   

  	
   

  
	
   

  	
  Address
  for Notices:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Facsimile:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Date: 

  	
   

  	
   

  
							

 

A-1Exhibit
10.1

CONSTRUCTION LOAN AGREEMENT

This CONSTRUCTION LOAN AGREEMENT is entered into as of September 29,
2006 (“Closing Date”), by and between BEHRINGER HARVARD MOUNTAIN
VILLAGE, LLC, a Colorado limited liability company (“Borrower”), and
TEXANS COMMERCIAL CAPITAL, LLC, a Texas limited liability company (“Lender”).

W I  T
N  E  S  S  E  T  H:

WHEREAS, Borrower has requested that Lender make a loan to Borrower to
refinance the acquisition of the Land and to finance the construction of a
residential condominium development upon the Land, and for certain other
purposes related thereto, which loan is to be secured by, among other things, a
first lien deed of trust on the Property; and

WHEREAS, Lender is willing to make such loan to Borrower subject to and
upon the terms and conditions hereinafter set forth.

NOW, THEREFORE, for and in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged by the parties hereto, Borrower
and Lender agree as follows:

ARTICLE I

DEFINITIONS

1.01         Definitions.  For purposes of this Loan
Agreement, unless the context otherwise requires, the following terms shall
have the respective meanings assigned to them in this Article I or
in the sections and subsections referred to below:

“ADA” means the Americans with Disabilities Act of 1990, Pub. L.
No. 89-670, 104 Stat. 327 (1990), as amended, and all regulations promulgated
pursuant thereto.

“Account” means an account of Borrower established with Texans
Credit Union.

“Advance” means a disbursement by Lender of any of the proceeds of the Loan
and/or the Borrower’s Deposit, and “Advances” shall be the plural
thereof..

“Affiliate” of any Person means any other Person:

(a)           which directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, such Person; or

(b)           which, directly or indirectly, beneficially owns or holds 10% or more
of any class of stock or any other ownership interest in such Person; or

 1
 

 

 

(c)           10% or more of the direct or indirect ownership of which is
beneficially owned or held by such Person.

For purposes of this definition, the term “control” (and its
correlative meanings) means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of stock, by contract or otherwise.  In any event, each of Borrower and Guarantor,
and each of their respective Affiliates, shall be deemed to be an Affiliate of
each of the other of them.

“Anti-Terrorism
and Anti-Money Laundering Laws” means the USA Patriot Act of 2001, the Bank
Secrecy Act, as amended through the date hereof, Executive Order 13324 –
Blocking Property and Prohibiting Transactions with Persons Who Commit,
Threaten to Commit, or Support Terrorism, as amended through the date hereof,
and as they may be amended, and other federal laws and regulations and
executive orders administered by the United States Department of the Treasury,
Office of Foreign Assets Control (“OFAC”) which prohibit, among other things,
the engagement in transactions with, and the provision of services to, certain
foreign countries, territories, entities and individuals (such individuals
include specially designated nationals, specially designated narcotics
traffickers and other parties subject to OAFC sanction and embargo programs),
and such additional laws and programs administered by OFAC which prohibit
dealing with individuals or entities in certain countries regardless of whether
such individuals or entities appear on any of the OFAC lists.

“Applicable Interest Rate” has the meaning assigned in the Note.

“Application for Advance”
shall mean a written application submitted by the Borrower’s Architect and Borrower
on American Institute of Architects form G 702 and/or G 703, as
appropriate, or such other form as Lender may hereafter request which shall:
(a) request an Advance, (b) specify by name, current address and
amount owed, all parties to whom Borrower is obligated for labor, materials or
services actually furnished for the construction of the particular part of the
Improvements which are the subject matter of such application and all other
expenses incident to the Loan, (c) certify among other things that such
amounts represent payments due for services or labor actually rendered or
materials actually acquired or furnished in connection with construction of the
Improvements, and interest then payable under the Note, (d) state whether
the sum requested is within the Approved Budget and whether, in the opinion of
the Architect and Borrower, the unadvanced portion of the Loan is sufficient to
complete the Improvements pursuant to the Plans and to pay for all labor,
material, interest and other expenses in connection with the Loan and the
construction of the Improvements, (e) if requested by Lender, be
accompanied by copies of billing statements, vouchers or invoices from the
parties named therein, in form satisfactory to Lender, (f) refer to an
attached schedule, verified by the Architect, and the Inspecting
Architect/Engineer, identifying in a manner satisfactory to Lender all
materials not yet affixed or incorporated into the Improvements but which have
been covered by certificates submitted to date, including the current
certificate, (g) contain a statement, verified by the Architect and the
Inspecting Architect/Engineer, that all such materials not yet affixed or
incorporated into the Improvements have been stored upon the Land under
adequate safeguards to minimize the possibility of loss, damage or commingling
with other materials or projects, (h) be accompanied by appropriate
waivers of lien rights satisfactory to Lender executed by all contractors,
subcontractors, laborers, 

 2
 

 

 

and materialmen who have furnished labor or material to
the Property, (i) certify that all labor and material bills of every kind
and character incurred by Borrower to the date of such certificate in
connection with the Improvements have been paid in accordance with the payment provisions
of each contract except for the unpaid bills to be paid from the proceeds of
the current Advance requested and items to be retained hereunder, and
(j) certify that the Builder’s Risk Insurance contains sufficient coverage
for the construction of the Improvements.

“Appraisal” means a written appraisal report of the Property, as
that term is defined in the Code of Professional Ethics (the “Appraisal Code”)
of the American Institute of Appraisers, meeting the requirements of the
Federal Institutions Reform, Recovery and Enforcement Act of 1989, prepared by
a professional appraiser approved by Lender, who is a member of the Appraisal
Institute (“MAI”), addressed to Lender and in form, scope and substance
satisfactory to Lender, setting forth such appraiser’s determination of the
market value of the Property on the appraisal date and as projected upon
completion of construction of the Improvements.

“Approved Budget”
shall mean a budget or cost itemization prepared by Borrower and approved in
writing by Lender specifying the cost by item of (i) all labor, materials,
and services necessary for the construction of the Improvements in accordance
with the Plans and all Governmental Requirements, and (ii) all other
expenses anticipated by Borrower incident to the Loan, the Property and the
construction of the Improvements, including, without limitation, the Interest
Reserve.

“Architect”
shall mean BOKA Powell, LLC whose address is 8070 Park Lane, Suite 300, Dallas,
Texas 75231

“Assignment of Leases and Rents” means the
Assignment of Leases and Rents dated of even date herewith and executed by
Borrower, as it may from time to time be renewed, amended, supplemented or
restated.

“Assignment of Plans and Specifications”
shall mean the written agreement whereby Borrower assigns its rights in and to
the Plans to Lender in the form of Exhibit F attached hereto.

“Assignment of Rights Under
Construction Contract” shall mean the written agreement whereby Borrower
assigns its rights in the Construction Contract to Lender in the form of Exhibit
C attached hereto.

“Audited Financial Statements” means, for any Person, Financial
Statements of such Person in reasonable detail and accompanied by an opinion
thereon of independent public accountants of recognized standing reasonably
acceptable to Lender to the effect that such Financial Statements were prepared
in accordance with GAAP, and that the examination of such accounts in
connection with such Financial Statements has been made in accordance with
generally accepted auditing standards.

“Authorized Signatory” means Gerald J. Reihsen, III and any
other person authorized by Borrower by delivery of written authorization to
Lender, each of whom, without joinder of the 

 3
 

 

 

other,
is or will be authorized to execute any Request for Disbursement or any other
notice, request or document required or permitted hereunder to be submitted by
Borrower to Lender.

“Borrower” means BEHRINGER HARVARD MOUNTAIN VILLAGE, LLC, a
Colorado limited liability company.

“Borrower’s Deposit” means the deposit, if any, required of
Borrower pursuant to Section 4.22.

“Business Day” means a day other than a Saturday, Sunday or
other day on which commercial banks in Dallas, Texas are authorized or required
by law to close.

“Closing” means the Closing and funding of the Loan.

“Closing Date” means the date of this Loan Agreement.

“Code” means the Uniform Commercial Code as codified in the
State of Texas.

“Condemnation Proceeds” shall have the meaning assigned to such
term in Section 8.12 of this Loan Agreement.

“Condominium Declaration” means the Condominium Declaration for
the Esparanza to be executed and recorded by Borrower as Declarant, covering
the Property, or any other condominium declaration affecting the Property,
howsoever identified, to which Lender has subordinated the lien of the
Mortgage.

“Construction Commitment Termination Date” means April 1, 2008,
as may be extended by Lender in Lender’s reasonable discretion upon the written
request of Borrower.

“Construction Contract”
means all construction contracts executed by Borrower for the construction of
all or any part of the Improvements.

“Contractor” means RJM
Contractors, LP, whose address is 3629 Lovell Avenue, Fort Worth, Texas 76197
and each other person contracting with Borrower to supply labor or materials
for the construction of all or any part of the Improvements, each of whom must
be approved in writing by Lender.

“Contractor’s Affidavit and
Subordination” means an agreement in substantially the form of Exhibit E
attached hereto and incorporated herein by reference, executed by each
Contractor.

“Debtor Relief Laws” means any applicable relief,
liquidation, conservatorship, bankruptcy, moratorium, rearrangement,
insolvency, reorganization, or similar laws affecting the rights or remedies of
creditors generally, as in effect from time to time.

“Declarant Rights” means all rights reserved to Borrower as
Declarant under the Condominium Declaration.

 4
 

 

 

“Default Rate” means a per annum interest rate which shall from
day-to-day be equal to the Maximum Rate or, if no Maximum Rate exists, eighteen
percent.

“Disclosed Litigation” means the matters listed on Exhibit I
attached hereto.

“Distributions” means, with respect to any Person, the payment
of any return on income or proceeds on or with respect to any partner’s, shareholder’s,
member’s or other owner’s investment and/or capital or other contribution to or
account with respect to such Person (whether by cash or other property), or the
purchase of any ownership interest in such Person, or any income or proceeds
therefrom.

“Dividends” means dividends (whether by cash, property or
preferred stock) or other distributions of capital stock or partnership
interests, or the redemption or acquisition of stock or any partnership
interest unless made contemporaneously from the net proceeds of the sale of
such stock or partnership interest to an unaffiliated third party.

“Dollars” and the sign “$” means lawful currency of the
United States of America.

“Environmental Audit” means the Phase 1 environmental audit of
the Property commissioned by Lender, prepared by an environmental engineering
firm acceptable to Lender, in form, scope and substance acceptable to Lender.

“Environmental Indemnity Agreement” means the Environmental
Indemnity Agreement dated of even date herewith, and executed by Borrower and
Guarantors, as it may from time to time be amended, confirmed, supplemented or
restated.

“ERISA” means the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder by any
Governmental Authority, as from time to time in effect.

“ERISA Affiliate” means any organization, trade or business, or
other arrangement (whether or not incorporated) which is a member of a group of
which Borrower is also a member and which is treated as a single employer
within the meaning of IRC Section 414(b), (c), (m) or (o).

“ERISA Plan” means an employee benefit plan as defined in ERISA
Section 3(3) maintained or contributed to by Borrower or any ERISA Affiliate
for employees of Borrower or any ERISA Affiliate.

“Event(s) of Default” has the meaning set forth in Article VII
hereof.

“Financial Statements” means, with respect to any Person,
such balance sheets, statements of operations, statements of cash flow,
statements of changes in partners’ capital or shareholders’ equity and other
financial information with respect to such Person as shall be 

 5
 

 

 

reasonably
required by Lender, and which shall be prepared in accordance with GAAP,
consistently applied for all periods.

“Financing Statements” means financing statements to be
filed with the appropriate state and/or county offices for the perfection of a
security interest in any of the Property or any other collateral or security
for the Loan.

“Fiscal Year” means, for any Person, (a) the calendar year,
or (b) such other period as such Person may designate and Lender may
approve in writing.

“GAAP” means those generally accepted accounting principles and
practices which are recognized as such by the American Institute of Certified
Public Accountants or by the Financial Accounting Standards Board or through
appropriate boards or committees thereof after the date hereof, and which are
consistently applied for all periods, so as to properly reflect the financial
position of a Person, except that any accounting principle or practice required
or permitted to be changed by the Financial Accounting Standards Board (or
other appropriate board or committee of that Board) in order to continue as a
generally accepted accounting principle or practice may be so changed.

“Governmental Authority” means any federal, state, county,
municipal, parish, provincial, tribal or other government, or any department,
commission, board, court, agency (including, without limitation, the U. S.
Environmental Protection Agency), whether of the United States of America or
any other country, or any instrumentality of any of them, or any other
political subdivision thereof (a) in which any portion of the Property is
located, (b) in which any of Borrower, Guarantor or Lender, or any of
their Affiliates, is located or conducts business, or (c) exercising
jurisdiction over Borrower, Guarantor or Lender, or any of the Property, and
any entity exercising legislative, judicial, regulatory, or administrative
functions of, or pertaining to, government including, without limitation, any
arbitration panel, any court or any commission.

“Governmental Requirements” means all laws, ordinances, rules,
regulations, orders and directives of any Governmental Authority applicable to
any of Borrower, Guarantor, Lender or any of the Property, including, without
limitation, all applicable licenses, building codes, restrictive covenants,
zoning and subdivision ordinances, flood disaster, health and environmental
laws and regulations, and the ADA.

“Guarantors” means, collectively, Behringer Harvard Short Term
Opportunity Fund I LP, a Delaware limited partnership and any other Person at
any time guarantying all or any portion of the Obligation, and “Guarantor”
shall mean each of the Guarantors.

 “Guaranty” means,
collectively, those certain Guaranty Agreements of even date herewith by
Guarantors for the benefit of Lender and any other guaranty at any time
executed in connection with the Loan.

“Improvements” means the Residential Condominium and all of the
buildings, improvements, structures, equipment, and amenities which are or will
be constructed and/or installed in relation thereto.

 6
 

 

 

“Indebtedness” means, with respect to any Person, without
duplication, (a) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services (including, without limitation,
all obligations, contingent or otherwise, of such Person in connection with
letter of credit facilities, acceptance facilities or other similar facilities
and in connection with any agreement to purchase, redeem, exchange, convert or
otherwise acquire for value any capital stock of such Person or any warrants,
rights or options to acquire such capital stock, now or hereafter outstanding),
(b) all obligations of such Person evidenced by bonds, notes, debentures or
other similar instruments, (c) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession or
sale of such property), (d) all capital lease obligations of such Person, (e)
all obligations, contingent or otherwise, of such Person in connection with
indemnities, hold harmless agreements and similar arrangements and in
connection with interest rate exchange agreements and similar instruments
(provided that the obligations under such interest rate exchange agreements
shall be marked to market on a current basis), and (f) all Indebtedness of
another Person secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any lien, security
interest or other charge or encumbrance upon or in property (including, without
limitation, accounts and contract rights) owned by such Person, even though
such Person has not assumed or become liable for the payment of such
Indebtedness, but not in such event in excess of the value of such
property.  Notwithstanding the foregoing,
the term “Indebtedness” shall not include unearned deposits held by
Borrower for third parties not an Affiliate in the ordinary course of Borrower’s
business and which are returned to such third parties as required by the
applicable agreement with third parties.

“Initial Advance” means an Advance made on the Closing Date in
the amount set forth in a Borrower’s Statement prepared by the Title Company
and approved by Lender in Lender’s discretion.

“Initial Financial Statements” means the Financial Statements of
each Person delivered to Lender in connection with the application for the
Loan.

“Inspecting Architect/Engineer” means such architects and
engineers as Lender shall select to conduct inspections of the Improvements
from time to time.

“Inspecting Architect/Engineer Audit” means an audit and review
by the Inspecting Architect/Engineer of the final plans and working drawings
for all improvements to be constructed on the Property satisfactory to Lender
in Lender’s absolute and sole discretion.

“Insurance Policies” means satisfactory evidence (including
appropriate certificates and insurance digests summarizing policies) of
insurance and reinsurance policies (whether individual or blanket) issued by
(a) responsible and reputable insurance companies licensed to do business
in Texas having a Best’s rating of at least A-:VII or such other rating as
Lender may specifically approve, or (b) other insurers reasonably
acceptable to Lender.  Such policies
shall include:

 7
 

 

 

(i)            during the course of construction of the
Improvements, builder’s completed value risk insurance against “all risks of
physical loss,” including collapse and transit coverage, with deductibles not
to exceed $50,000, in nonreporting form, covering the total value of work to be
performed and equipment, supplies and materials to be furnished;

(ii)           insurance on real and personal property for limits reflecting 100% of
the full replacement cost (exclusive of foundations and footings) as a so
called “All Risk” form with coverage for flood and earthquake and such other
hazards as Lender may reasonably require. 
Such insurance policies shall contain replacement cost coverage and
agreed amount endorsements (with no reduction for depreciation), an endorsement
providing building ordinance coverage, and an endorsement covering the cost of
demolition and increased cost of construction due to the enforcement of
building codes and ordinances;

(iii)          Borrower shall also furnish insurance providing boiler and machinery
for all mechanical and electrical equipment at the Improvements insuring
against breakdown or explosion of such equipment on a replacement cost value,
which coverage shall include coverage for increased cost of construction,
demolition and building laws.  Borrower
also shall furnish business interruption or loss of income insurance in
connection with policies covering property and boiler & machinery, for a
period of not less than one year, endorsed to provide a 180 day extended period
of indemnity, which limit for business interruption shall be in addition to the
replacement cost of the building.  Not
withstanding any provisions set forth in paragraphs (a) or (b) above, all
insurance required under this paragraph shall be with companies, in amounts,
and with coverage and deductibles reasonably satisfactory to Lender and all
insurance required under this paragraph shall include endorsements naming
Lender as a loss payee and shall have endorsed thereon a standard mortgage
clause in favor of the Lender.  All
policies shall provide that insurance evidenced thereby shall not be canceled
(including for non-payment) or modified without at least 30 days prior written
notice from the insurance carrier to the Lender and no act or thing done by
Borrower or any Affiliate of any of them shall invalidate the policy against
Lender. Borrower shall deliver renewal certificates for policies of insurance
required under this paragraph at least 10 Business Days prior to the expiration
of the then current policy;

(iv)          Commercial General Liability (including contractual liability) covering
the Property and Borrower’s operations in an amount not less than $1,000,000
per occurrence and $2,000,000 in the aggregate per location;

(v)           Worker’s compensation insurance including liability and any other
appropriate insurance normally carried by companies engaged in similar business
and owning similar properties, in the statutory amount, covering all employees
of Borrower, if any;

 8
 

 

 

(vi)          Commercial Automobile Liability with a limit of not less than
$1,000,000 combined single limit and to be endorsed to cover owned, hired, and
non-owned automobiles, and garagekeepers liability;

(vii)         Borrower shall also furnish Umbrella Liability coverage in excess of
the foregoing liability coverage with a limit of not less than $10,000,000 or
such higher limits as Lender may reasonably require.

Such insurance policies (other than those referred to in subparagraph (v),
above) shall name Lender, as loss-payee, mortgagee or additional insured, as
its interests may appear, as may be appropriate for the particular type of insurance.  At such time as any part of the Property is
used for the sale or dispensing of beer, wine or any other alcoholic beverages,
Liquor Liability insurance against claims arising out of such sale or
dispensing of beer, wine or other alcoholic beverages also shall be furnished.

“Interest Reserve” has the meaning assigned in Section
2.06(d).

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

“Land” means the real property described on Exhibit A
attached hereto and incorporated herein by reference.

“Late Payment Fee” has the meaning assigned in the Note.

“Leases” means all present and future space leases, subleases or
other agreements or arrangements, whether written or oral, and all agreements
for the use or occupancy of any portion of the Property, together with any and
all extensions or renewals of said leases and agreements and any and all future
leases or agreements upon or covering the use or occupancy of all or a part of
the Property, but excluding (i) room rents and meeting room rentals and (ii)
any lease entered into or assumed by Borrower, as lessee, to lease
Personal Property for use in connection with the operation of the Property.

“Legal Opinions” means favorable opinions of counsel for
Borrower reasonably acceptable to Lender as to form, scope and substance, and
including opinions as to Texas law.

“Lender” means Texans Commercial Capital, LLC, a Texas limited
liability company.

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

“Loan” means the loan by Lender to Borrower, in an amount not to
exceed the Loan Amount, in accordance with this Loan Agreement and the other
Loan Documents.

 9
 

 

 

“Loan Agreement” or “Agreement” means this
Construction Loan Agreement, together with all amendments and modifications
hereof and supplements and attachments hereto.

“Loan Amount” means Thirty-One Million Six Hundred Fifty
Thousand and No/100 Dollars ($31,650,000.00).

“Loan Documents” means this Loan Agreement, the Note, the
Mortgage, the Financing Statements, the Environmental Indemnity Agreement, the
Guaranty, the Assignment of Leases
and Rents,  and such other instruments
evidencing, securing, or pertaining to the Obligation, or any part thereof, as
shall, from time to time, be executed and delivered by Borrower, any Guarantor,
or any other Person to Lender pursuant to or in connection with this Loan
Agreement or any other Loan Document.

 “Managing Member” means
Behringer Harvard Short Term Opportunity Fund I LP.

“Material Agreement” means any contract or agreement with
respect to the ownership or operation of the Property requiring total
consideration of $100,000 or more, which Lender reasonably determines has a
material impact on the ownership or operation of the Property.

“Maturity Date” has the meaning assigned in the Note.

“Maximum Rate”
means the maximum rate (or, if the context so
requires, an amount calculated at such rate) of interest which the holder of
the Note is allowed to contract for, charge, take, reserve, or receive under
applicable law after taking into account, to the extent required by applicable
law, any and all relevant payments or charges.

“Minor Condemnation Proceeds” means, for all Condemnation
Proceeds resulting from any one (1) condemnation of the Property as described
in Section 8.12, that such Condemnation Proceeds do not exceed Two Hundred
Fifty Thousand Dollars ($250,000.00).

“Mortgage” means the certain Deed of Trust, Security Agreement,
Financing Statement and Assignment of Rental, of even date herewith, executed
by Borrower for the benefit of Lender, covering the Property, as it may, from
time to time, be renewed, extended, modified, increased or supplemented.

“Multiemployer Plan” means a multiemployer plan as defined in
ERISA Section 4001(a)(3) or IRC Section 414 to which Borrower or any ERISA
Affiliate contributes, has contributed since September 2, 1974, or is
required to contribute.

“Net Sale Proceeds” means, with respect to each sale of a Unit,
the remainder of (i) the gross sales price for the Unit, less (ii) a
sales commission not greater than six percent and less (iii) customary
third party closing costs in Telluride, Colorado paid by a seller and actually
paid by Borrower, all such commissions and costs not to exceed eleven percent
of the gross sales price.

 10
 

 

 

“Note” means the promissory note issued by Borrower to Lender
pursuant to Section 2.03 hereof, as it may be renewed, extended,
modified or increased.

“Obligation” means all present and future indebtedness,
obligations, and liabilities of Borrower to Lender, and all renewals and
extensions thereof, or any part thereof, arising (a) pursuant to this Loan
Agreement or represented by the Note, and all interest accruing thereon, and
reasonable attorneys’ fees incurred in the drafting, negotiation, enforcement
or collection thereof, regardless of whether such indebtedness, obligations,
and liabilities are direct, indirect, fixed, contingent, joint, several or
joint and several; together with all indebtedness, obligations and liabilities
of Borrower evidenced or arising pursuant to any of the other Loan Documents,
and all renewals, modifications, increases and extensions thereof, or any part
thereof, (b) pursuant to any other loan and/or advances which Lender may
hereafter make to Borrower in connection with the Loan or the Property or any
portion thereof, and (c) pursuant to all other and additional debts,
obligations and liabilities of every kind and character of Borrower now or
hereafter existing in favor of Lender, in connection with the Loan or the
Property or any portion thereof, regardless of whether such debts, obligations
and liabilities be direct or indirect, primary or secondary, joint, several or
joint and several, fixed or contingent, and regardless of whether such present
or future debt, obligations and liabilities may, prior to their acquisition by
Lender, be or have been payable to or in favor of some other person or entity
or have been acquired by Lender in a transaction with one other than Borrower.

“OFAC Prohibited Person” means, a country, territory,
individual or Person (i) listed on, included within or associated with any of
the countries, territories, individuals or entities referred to on The Office
of Foreign Assets Control’s List of Specially Designated Nationals and Blocked
Persons or any other prohibited person lists maintained by governmental
authorities, or otherwise included within or associated with any of the
countries, territories, individuals or entities referred to in or prohibited by
any other Anti-Terrorism and Anti-Money Laundering Laws, or (ii) which is
obligated or has any interest to pay, donate, transfer or otherwise assign any
property, money, goods, services, or other benefits from the Mortgaged Property
directly or indirectly, to any countries, territories, individuals or entities
on or associated with anyone on such list or in such laws.

“Operating Agreements” means any agreement entered into by or on
behalf of Borrower, other than the Management Agreement and the Scheduled
Personal Property Contracts, which relates to the ownership, operation or
maintenance of the Property, but excluding cash purchase agreements.

“Organizational Documents” means:

For any limited partnership, the following:

(a)           Certificate of Limited Partnership and all amendments thereto,
certified as complete and correct by the Secretary of State (or other
appropriate officers) of the state of formation, together with a copy of the
partnership agreement, and all amendments thereto, certified as complete and
correct by the general partners of the partnership;

 11

 

 

(b)           Current certificates of existence and good standing issued by the
appropriate state officer(s) of the state of formation and states in which the
partnership does business; and

(c)           Consents of partners to the extent necessary under the partnership agreement;
and

For any general partnership, the following:

(a)           Certified copy of partnership agreement; and

(b)           Consent of partners to the extent necessary under the partnership
agreement.

For any corporation, the following:

(a)           Copy of the Articles of Incorporation of such corporation and all
amendments thereto certified as complete and correct by the Secretary of State
(or other appropriate officer) of the state of incorporation, together with a
true copy of the By-laws of such corporation and all amendments thereto;

(b)           A current certificate of corporate existence of such corporation and
certificate evidencing the filing of all required franchise tax reports and the
payment of all franchise taxes due, each issued by the appropriate officer or
department of the state of incorporation;

(c)           A signed certificate of the Secretary or Assistant Secretary of such
corporation certifying the names of the officers of such corporation authorized
to sign each of the Loan Documents to which it is a party and the other documents
or certificates to be delivered pursuant to the Loan Documents to which it is a
party, together with the true signatures of each such officer.  Lender may conclusively rely on such
certificate until Lender shall receive a further certificate of the Secretary
or Assistant Secretary of such corporation canceling or amending the prior
certificate and submitting the signatures of the officers named in such further
certificate; and

(d)           Resolutions of such corporation approving the execution, delivery and
performance of the Loan Documents to which such corporation is a party and the
transactions contemplated therein, duly adopted by the Board of Directors of
such corporation and accompanied by a certificate of the Secretary or Assistant
Secretary of such corporation stating that such Resolutions are true and
correct, have not been altered or repealed and are in full force and effect.

 12
 

 

 

For any limited liability company, the following:

(a)           Copy of the Regulations or other formation document of such limited
liability company and all amendments thereto certified as complete and correct
by the Secretary of State (or other appropriate officer) of the state of
formation;

(b)           A current certificate of existence of such entity and certificate
evidencing the filing of all required franchise tax reports and the payment of
all franchise taxes due, each issued by the appropriate officer or department
of the state of formation;

(c)           A signed certificate of the manager of such entity certifying the names
of the members or managers of such entity authorized to sign each of the Loan
Documents to which it is a party and the other documents or certificates to be
delivered pursuant to the Loan Documents to which it is a party, together with
the true signatures of each such member or manager.  Lender may conclusively rely on such
certificate until Lender shall receive a further certificate of the manager of
such entity canceling or amending the prior certificate and submitting the
signatures of the members or managers named in such further certificate; and

(d)           Resolutions of the members of such entity approving the execution,
delivery and performance of the Loan Documents to which such entity is a party
and the transactions contemplated therein, duly adopted by the members of such
entity and accompanied by a certificate of the manager of such entity stating
that such resolutions are true and correct, have not been altered or repealed
and are in full force and effect.

“Origination Fee” means the Origination Fee
required by and described in Section 2.05 hereof.

“Participant” shall have the meaning given to such term in Section 9.09(b).

“Payment Date” has the meaning assigned in the Note.

“PBGC” means the Pension Benefit Guaranty Corporation, and any
successor to all or any of the Pension Benefit Guaranty Corporation’s functions
under ERISA.

“Permitted Exceptions” means the exceptions to title listed on Exhibit B
attached to the Mortgage.

“Permitted Indebtedness” means (a) the Loan,
(b) property taxes and insurance premiums accrued but not delinquent, (c)
indebtedness for items permitted under the Approved Budget for which no Advance
has yet been made for payment and which is not past due, and (d) trade
Indebtedness incurred in the ordinary course of business of operation and
maintenance of the Property in an amount not to exceed $100,000.00, which is
not past due..

“Permitted Liens” means (a) the Permitted Exceptions,
(b) Liens for taxes, assessments, or governmental charges or levies not
yet due or which Borrower is actively contesting in good faith by appropriate
proceedings and in conformance with Sections 4.10 and 4.11
hereof, (c) Liens for any other purpose which Borrower is actively
contesting in good faith by 

 13
 

 

 

appropriate
proceedings and in conformance with Section 4.11 hereof and (d) Liens in
favor of Lender as contemplated in this Loan Agreement.

“Permitted Personal Property Transaction” means (a) any
sale, assignment, trade, transfer, exchange or other disposition of any item of
Personal Property which (i) has become obsolete or worn beyond practical
use, and (ii) has been replaced by an adequate substitute having a value
equal to or greater than the replaced item when new, which replacement item is
owned by Borrower and is subject to a first, perfected security interest in favor
of Lender, and (b) sales of food and beverages and gift shop inventory, to
the extent such sales are made in the ordinary course of Borrower’s business.

“Permitted
Transfer” means any transfer of any limited partnership interest in
Borrower other than to an OFAC Prohibited Person provided that Behringer
Harvard Short-Term Opportunity Fund I at all times owns, directly or
indirectly, at least fifty-one percent of the ownership interests in Borrower..

“Person” means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof, or any other form of
entity.

“Personal Property” means all fixtures, building materials,
machinery, equipment, inventory, furniture, furnishings, and personal property
used in connection with or resulting from the operation of the Property.

“Plans” means the final working drawings and specifications as
prepared for the construction, renovation or reconstruction of the Improvements
as provided in Section 4.15.

“Potential Default” means the occurrence of any event or
circumstance which, after the giving of notice or passage of time, or both,
could constitute an Event of Default.

“Pre-Sale Contract” means a written commitment from a
third-party not an Affiliate of Borrower or any member of Borrower for the
purchase of a Unit for a purchase price not less than that set forth in the
Price Schedule attached hereto as Exhibit J.

“Prohibited ERISA Transaction” means a transaction that is
prohibited under IRC Section 4975 or ERISA Section 406 and not exempt
under IRC Section 4975 or ERISA Section 408.

“Property” means the Land, the Improvements, the Personal
Property, all other estates, easements, licenses, interests, rights, titles,
powers and privileges of every kind and character arising from or used in
connection with the ownership or operation of the Land, and all accounts,
accounts receivable, inventory, instruments, chattel paper, documents, consumer
goods, insurance proceeds, Leases, contract rights and general intangibles used
in connection with or resulting from the ownership or operation of the Land,
Improvements or Personal Property, and all other property and appurtenances
constituting the “Mortgaged Property,” as described in the Mortgage.

 14
 

 

 

“Purchaser” means (a) any purchaser of all or any portion
of the Property at foreclosure or by deed in lieu of foreclosure,
(b) Lender or any Affiliate of Lender as the purchaser or successor owner
of all or any portion of the Property following foreclosure or deed in lieu of
foreclosure, and any transferee of any such Person which acquires the Property.

“Quarterly Period” means each fiscal quarter of Borrower.

“Regulation D” means Regulation D of the Board of Governors of
the Federal Reserve System, from time to time in effect, and shall include any
successor or other regulation relating to reserve requirements applicable to
member banks of the Federal Reserve System.

“Regulation U” means Regulation U promulgated by the Board of
Governors of the Federal Reserve System, 12 C.F.R. Part 221, or any other
regulation hereafter promulgated by said Board to replace the prior Regulation
U and having substantially the same function.

“Regulation X” means Regulation X promulgated by the Board of Governors
of the Federal Reserve System, 12 C.F.R. Part 224, or any other regulation
hereafter promulgated by said Board to replace the prior Regulation X and
having substantially the same function.

“Rents” means all rents, royalties, bonuses, income, accounts,
accounts receivable, receipts, revenues, issues, profits and other benefits
derived from the Property or any part thereof, or the occupation, use or
enjoyment of the Property, or any part thereof, or from any Lease, and all
proceeds payable under any policy of insurance covering the loss of rent or
income resulting from destruction of or damage to the Property.

“Reportable Event”
shall have the meaning assigned to that term in Title IV of ERISA.

“Residential Condominium” means a four building, 23 unit residential
condominium, and related amenities, to be constructed by Borrower on the
Property.

“Soils Report” means a report prepared by a competent engineer
certifying that the soils of the Property are adequate to support the
Improvements.

“Subsidiary” means, with respect to any Person, any other Person
directly or indirectly owned by such Person.

“Survey” means a current, certified survey of the Land and
Improvements in form and substance, including certification, acceptable to
Lender and meeting the requirements of Exhibit G attached hereto.

“Tax Information” means tax certificates from the tax
assessor-collectors of all taxing authorities having jurisdiction over all or
any part of the Property setting forth all outstanding ad valorem taxes against
such property.

“Term” means the period commencing on the Closing Date and
ending on the Maturity Date.

 15
 

 

 

“Title Company” means Stewart Title Guaranty Company, through
its agent, Telluride Mountain Title Company, 335 W. Colorado Avenue, Telluride,
Colorado 81435, 970-728- 3025 (Telephone), 970-728-6416
(Fax); Attention:  Colette Raeber.

“Title Insurance Commitment” means the commitment to
issue the Title Insurance Policy issued by the Title Company, along with copies
of all instruments creating or evidencing exceptions or encumbrances to title.

“Title Insurance Policy” means a Mortgagee Title
Insurance Policy from the Title Company and insuring the priority and
sufficiency of the Mortgage as a first Lien upon the Land and Improvements
(a) in an amount equal to the Loan Amount, (b) showing all easements
or other matters affecting the Property, all subject only to such exceptions or
qualifications as are acceptable to Lender in its sole discretion,
(c) insuring unconditionally against contractors’, suppliers, and mechanics’
lien claims recorded prior to the date hereof, as well as matters related to
the Survey; (d) contain any endorsements or assurances that Lender may
reasonably request for protection of its interests including, but not limited
to, (i) comprehensive endorsement, (ii) variable rate endorsement,
(iii) zoning endorsement, and (iv) an access endorsement, insuring that
there will be at least one location at the Property with unlimited vehicular
ingress and egress to an adjacent publicly dedicated street.

“Unit” means each residential condominium unit under the
Condominium Declaration.

“UCC Searches” means central and local current financing
statement searches from Texas and such other jurisdictions as Lender may
request, covering the Borrower and any other known owner of the Property during
the past five years, together with copies of all financing statements listed in
said search.

1.02                           Other Definitional Provisions.

(a)           All terms defined in this Loan Agreement shall have the above-defined
meanings when used in the Notes or any of the other Loan Documents, or in any
other certificate, report or other document made or delivered pursuant to this
Loan Agreement, unless the context therein shall otherwise require.

(b)           Defined terms used in the singular shall import the plural and vice
versa.

(c)           The words “hereof,” “herein,” “hereunder” and similar terms when used
in this Loan Agreement shall refer to this Loan Agreement as a whole and not to
any particular provision of this Loan Agreement.

(d)           Any accounting terms used in this Loan Agreement which are not
separately defined shall have the meanings customarily given them in accordance
with GAAP.

 16
 

 

 

ARTICLE II

THE LOAN

2.01         The Loan.

(a)           Subject
to the terms and conditions of this Loan Agreement and relying upon the
representations and warranties herein set forth, and provided that no Potential
Default or Event of Default has occurred and is continuing, Lender agrees to
advance the Initial Advance to Borrower on the Closing Date and to make
Advances to Borrower from time to time as set forth in this Loan
Agreement.  The Advances for which
Borrower qualifies hereunder shall be made from time to time from the date
hereof to and including the Construction Commitment Termination Date (provided
that, to the extent there remain funds in the Interest Reserve, those funds may
be advanced after the Construction Commitment Termination Date).  Lender shall have no obligation to make any
advance hereunder after the Construction Commitment Termination Date.  Notwithstanding anything herein to the
contrary, the commitment of Lender to make Advances shall terminate if Borrower
has not satisfied all conditions precedent to the first of the Advances
contemplated in Section 2.12 on or before November 1, 2006.  The Loan is not revolving and any principal
payment or prepayment made may not be reborrowed.

(b)           Lender
shall advance the Initial Advance on the Closing Date by wire transfer in
immediately available funds to the Title Company for the benefit of Borrower.

2.02         Interest on the Loan.  The
Loan shall bear interest as provided in the Note.

2.03         Note; Repayments.  The
Loan shall be evidenced by and payable as provided in the Note.  After the maturity of the Loan, the
obligations of Borrower and the rights and privileges of Lender under this Loan
Agreement, the Note and all other Loan Documents shall continue in full force
and effect until the Note and the remaining Obligation have been paid and
performed in full.

2.04         Manner and Application of Payments.  All
payments of principal of and interest on the Loan, and of all other amounts
payable under this Loan Agreement or the other Loan Documents by Borrower to or
for the account of Lender, shall be made by Borrower to Lender, before 1:00
p.m. (Dallas, Texas time) in federal or other immediately available funds.  Should any payment required hereby become due
and payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day. 
Funds received after 1:00 p.m. (Dallas, Texas time) shall be treated for
all purposes as having been received by Lender on the first Business Day next
following receipt of such funds.  All
payments made on the Loan so long as no Event of Default has occurred and is
continuing shall be applied (except as may be otherwise required by applicable
Governmental Requirements) first to any payment on the Loan (including
principal, interest, costs, fees and expenses) then due and owing, second to
any past-due payment on the Loan, and third, to the remaining Obligation in
such order and manner as Lender may determine, any instructions from Borrower
or any other Person to the contrary 

 17
 

 

 

notwithstanding.  All payments made on the Loan while an Event
of Default has occurred and is continuing shall be applied (except as may be
otherwise required by applicable Governmental Requirements) to the Obligation
in such order and manner as Lender may determine, any instructions from
Borrower or any other Person to the contrary notwithstanding.  Subject to the foregoing limitations, Lender
may, in its sole and absolute discretion, apply payments first to satisfy the
portion of the Obligation, if any, for which Borrower or any other Person has
no personal, partnership or corporate liability, if any, and then to the
remaining Obligation.

2.05         Origination Fee. 
Contemporaneously with its execution of this Agreement, Borrower shall
pay to Lender an Origination Fee (herein so called) in the amount of
Three Hundred Sixteen Thousand Five Hundred Dollars ($316,500.00), in
consideration for the agreement of Lender to enter into this Agreement.

2.06         Advances.

(a)           Timing of Advances.  Advances
for the payment of the cost of labor, materials, and services supplied for the
construction of the Improvements shall be made by Lender upon compliance by
Borrower with the terms and conditions contained in this Loan Agreement after
actual commencement of construction of the Improvements for work actually done
during the preceding period.  From time
to time, but no more frequently than monthly, Borrower may submit to Lender an
Application for Advance requesting an Advance under the Loan for the payment of
the cost of labor, materials, and services supplied for the construction of the
Improvements and for the payment of other costs and expenses incident to the
Loan or the construction of the Improvements and specified in the Approved
Budget.  Lender may require an inspection
of, and favorable report on, the Improvements by the Inspecting
Architect/Engineer prior to making any Advance. 
Each Application for Advance shall be submitted by Borrower to Lender a
reasonable time (but not less than five (5) Business Days) prior to the date
upon which the Advance requested is desired by Borrower.  Borrower shall be entitled to an Advance only
in an amount approved by Lender.

(b)           Limitation on Advances.  Advances
for payment of the cost of construction of the Improvements shall not exceed
the aggregate of (i) the cost of labor, materials, and services
incorporated into the Improvements in a manner acceptable to Lender and as
specified in the Approved Budget, plus (ii) the purchase price of
all uninstalled materials to be utilized in the construction of the
Improvements and stored upon the Property, or elsewhere with the written
consent of, and in a manner acceptable to, Lender, less (iii) retainage
of not less than ten percent (10%), and less (iv) all prior
Advances made for payment of the cost of labor, materials, and services for the
construction of the Improvements.  No
Advances shall be made after the Construction Commitment Termination Date.

(c)           Final Advance.  The
final Advance, including all retainage, will not be made until the expiration
of thirty (30) days from the date of final completion and acceptance by Lender
of the Improvements, and in any event not until Lender has received the
following with respect to the Improvements and the Loan; (i) a certificate
from the Inspecting 

 18
 

 

 

Architects/Engineers certifying to Lender that
the Improvements have been completed substantially in accordance with the
Plans, (ii) evidence that no mechanic’s or materialman’s liens or other
encumbrances have been filed and remain in effect against the Improvements,
(iii) evidence that all Governmental Requirements have been satisfied,
including without limitation, delivery to Lender of a Certificate of Occupancy
permitting the Improvements to be legally occupied, and (iv) a liens paid
affidavit executed by Borrower and the Contractor to the effect that (and/or,
at Lender’s request, final lien releases or waivers evidencing to Lender’s
satisfaction that) all subcontractors, materialmen, and other parties who have
supplied labor, materials, or services for the construction of the
Improvements, or who otherwise might be entitled to claim a contractual,
statutory, or constitutional lien against the Property, have been paid in full
with respect to the Improvements, or Borrower, at its option, may provide to
Lender a Bond indemnifying Against Liens (pursuant to Tex. Property Code
§53.171) in such amount as Lender may reasonably require.

(d)           Interest Reserve Advances.  Borrower
acknowledges and agrees that the sum of Three Million One Hundred Thirty-Eight Thousand
Four Hundred Seventy Five and No/100 Dollars ($3,138,475.00) of the Loan as
specified or to be specified in the Approved Budget represents a reserve for
the payment of interest upon the full amount of the Advances of the Loan (the “Interest
Reserve”) pursuant to this Loan Agreement. 
Borrower hereby authorizes Lender, and Lender shall have the right, to
disburse and charge (or cause to be disbursed and charged) the Interest Reserve
in reimbursement of Borrower for the interest payments made by Borrower under
this Loan Agreement and the other Security Documents on each interest payment
date as such interest payments become due and payable pursuant to the terms
hereof and of the Note.  Such
disbursements shall be made as Advances of the Loan, in amounts equal to the
accrued interest which has been paid on each of such interest payment dates.  Interest as provided in the Note will be
charged on any disbursed portion of the Interest Reserve as and when disbursed,
but interest will not be charged on the undisbursed portion of the Interest
Reserve.  If, at any time during the term
of the Loan, the Interest Reserve shall become depleted or shall be deemed by
Lender to be insufficient to reimburse Borrower for the interest payments on
the Loan as they are made, interest shall be payable on each interest payment
date in accordance with the terms of the Loan Agreement and the Note, and
Lender shall have no obligation to make any Advance to Borrower for any such
interest payments from the remaining proceeds of the Loan.  The Interest Reserve shall be available only
for disbursement of the periodic payments of accrued interest due to Lender on
the Loan pursuant to the terms of this Loan Agreement and the Note, and for no
other purpose.  If, at any time, Lender
shall not have received on the date due, any payment of interest upon the Loan,
Lender may, at its sole option, disburse the Interest Reserve directly in
payment of such interest amount. 
Advances of the Interest Reserve shall be subject to the terms and
conditions of this Loan Agreement, including, without limitation, the
conditions precedent set forth in Sections 2.11 and 2.12.

 19
 

 

 

2.07         Prepayment
of Loan.

(a)           Voluntary.

(i)            At any time and from time to time Borrower
may, upon five (5) Business Days’ written notice to Lender, prepay the
principal of the Loan then outstanding, in whole or in part, without penalty or
premium; provided, however, that  each prepayment of less
than the full outstanding principal balance of the Loan shall be in an amount
equal to at least One Hundred Thousand Dollars ($100,000) and integral
multiples thereof.

(ii)           All prepayments under this Section 2.07 shall also be subject to
the other terms of this Loan Agreement.

(iii)          All prepayments by Borrower hereunder shall be made by Borrower to
Lender, before 1:00 p.m. (Dallas, Texas time) in federal or other immediately
available funds.  Funds received after
1:00 p.m. (Dallas, Texas time) shall be treated for all purposes as having been
received by Lender on the first Business Day next following receipt of such
funds.  All prepayments made on the Loan
hereunder shall be made together with interest accrued (through the date of
such prepayment) on the principal amount prepaid, and shall be applied by
Lender in the manner described in Section 2.04 hereof.

(b)           Mandatory.  Borrower shall deliver to
Lender, on October 1, 2008, a prepayment of the principal balance of the Loan
in the amount of $5,000,000.00 unless, prior to that date, Borrower has
delivered to Lender valid and subsisting Pre-Sale Contracts evidencing
prospective Net Sale Proceeds of not less than $6,000,000.00.

(c)           Partial Releases.  Borrower
shall be entitled to partial releases of the lien of the Mortgage in accordance
with the terms and provisions of Article VI of the Mortgage.  Each Release Price (as defined in the
Mortgage) received by Lender shall be applied as provided in Section 2.04
of this Agreement.

2.08         Taxes.

(a)           Any and all payments by Borrower hereunder and under the other Loan
Documents shall be made free and clear of and without deduction for any and all
present or future taxes, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto, but excluding, with respect to
Lender, (i) taxes imposed on its income, and franchise taxes imposed on
it, by the jurisdiction under the laws of which Lender is organized or any
political subdivision thereof and, taxes imposed on its income, and franchise
taxes imposed on it, by the jurisdiction of Lender’s applicable lending office
or any political subdivision thereof and (ii) income and franchise taxes
and any other taxes imposed by the United States of America by means of
withholding at the source if and to the extent that such taxes shall be in
effect and shall be applicable, on the date hereof, to payments to be made to
Lender (all such taxes, levies, imposts, deductions, 

 20
 

 

 

charges, withholdings and liabilities except
as so excluded being hereinafter referred to as “Taxes”).  If Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder to Lender,
(A) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 2.08) Lender receives an amount
equal to the sum it would have received had no such deductions been made,
(B) Borrower shall make such deductions and (C) Borrower shall pay
the full amount deducted to the relevant taxation authority or other authority
in accordance with applicable law.

(b)           In addition, Borrower agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Loan Agreement
or any other Loan Document (hereinafter referred to as “Other Taxes”).

(c)           Borrower will indemnify Lender for the full amount of Taxes or Other
Taxes (including, without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 2.08) paid by Lender
and any liability (including penalties, interest and expenses) arising therefrom
or with respect thereto except as a result of the gross negligence or willful
misconduct of Lender, whether or not such Taxes or Other Taxes were correctly
or legally asserted.  This
indemnification shall be made within thirty (30) days from the date Lender
makes written demand therefor.

(d)           Within thirty (30) days after the date of any payment of Taxes by or at
the direction of Borrower, Borrower will furnish to Lender, at its address
referred to in Section 9.01 hereof, the original or a certified copy
of a receipt evidencing payment thereof.

(e)           Lender shall endeavor in good faith (consistent with its internal
policies and legal and regulatory restrictions) to select a jurisdiction for
its lending office or change the jurisdiction for its lending office, as the
case may be, so as to avoid the imposition of any Taxes or Other Taxes or to
reduce the amount of any such additional amounts which may thereafter accrue; provided
that no such selection or change of the jurisdiction for its lending office shall
be made if, in the judgment of Lender, such selection or change would be
disadvantageous to Lender.

(f)            Without prejudice to the survival of any
other agreement of Borrower hereunder, the agreements and obligations of
Borrower contained in this Section 2.08 shall survive the payment
in full of the Obligation.

 21

 

 

2.09         Lending
Office.  Lender may change its lending offices from
time to time by notice to Borrower.  Any
such change in Lender’s principal office or lending office which is a result of
an election by Lender for its internal corporate convenience shall not increase
the cost of the Loan to Borrower.

2.10         Conditions Precedent for the Benefit of
Lender.  All conditions precedent to the obligation of
Lender to make the Loan or any Advance are imposed hereby solely for the
benefit of Lender, and no other party may require satisfaction of any such
condition precedent or be entitled to assume that Lender will refuse to make
the Loan or any Advance in the absence of strict compliance with such
conditions precedent.  All requirements
of this Loan Agreement may be waived by Lender, in whole or in part, at any
time in Lender’s sole discretion.

2.11         Conditions to the Initial Advance.  As a
condition precedent to the Initial Advance under the Loan, Borrower must
satisfy the conditions required hereunder and execute and deliver to, procure
for and deposit with, and pay to Lender, and if appropriate, record in the
proper records with all filing and recording fees paid, the documents,
certificates, and other items described in Article VI, together with
such other documents, instruments and certificates as Lender may reasonably
require from time to time.

2.12         Conditions to Subsequent Advances.  As a
condition precedent to each Advance subsequent to the Initial Advance, and in
addition to all other requirements herein, Borrower must satisfy the following
requirements:

(a)           All conditions precedent to the Initial Advance shall have been
satisfied;

(b)           Borrower shall have delivered to Lender the following:

(i)            the Plans;

(ii)           the Construction Contract, executed by all parties;

(iii)          the Contractor’s Affidavit and Subordination, executed by Borrower;

(iv)          the Assignment of Plans and Specifications, executed by Borrower and
acknowledged and consented to by the Architect;

(v)           the Assignment of Rights under Construction Contract, executed by
Borrower;

(vi)          a building permit for the construction of the Improvements and all
related amenities;

(vii)         the Approved Budget; and

(viii)        any endorsements to the Title Policy which Lender
shall require.

 22
 

 

 

(c)           There shall exist no Event of Default or Potential Default;

(d)           The representations and warranties made in this Loan Agreement shall be
true and correct on and as of the date of each Advance, with the same effect as
if made on such date;

(e)           If any agreement or other instrument binding upon Borrower requires
that a consent of any third party be obtained before Borrower may execute,
deliver or perform this Loan Agreement, the Note or the other Loan Documents
executed by such party, then such consent shall be delivered to Lender;

(f)            Borrower shall procure and deliver to Lender, the
Inspecting Architect/Engineer  and the
Title Company releases or waivers of mechanic’s liens and receipted bills
showing payment to all parties who have furnished materials or services or
performed labor of any kind in connection with the construction of any of the
Improvements;

(g)           Promptly upon preparation thereof, Borrower shall deliver to Lender
copies of any inspection reports prepared by the Inspecting Architect/Engineer,
and/or any Governmental Authority having jurisdiction over the Improvements;

(h)           Borrower shall procure and deliver to Lender, if required by Lender,
evidence reasonably satisfactory to Lender that the amount theretofore invested
by Borrower in the Property, together with the funds remaining to be advanced
by Lender under the terms of this Loan Agreement, or sums which Borrower agrees
to make available, are adequate to meet all costs incurred and to be incurred
in connection with the construction of the Improvements;

(i)            Borrower shall procure and deliver to Lender
inspection reports, in form and substance acceptable to Lender, from the
Inspecting Architect/Engineer at not less than thirty (30)-day intervals;
and

(j)            Borrower
shall have deposited into the Borrower’s Deposit such funds as Lender may have
required pursuant to Section 4.22 hereof.

2.13         Reallocation of Approved Budget.  At
any time that an Event of Default has occurred and is continuing, Lender shall
have the right from time to time to make Advances which are allocated to any of
the designated items in the Approved 
Budget for such other purposes or in such different proportions as
Lender may, in its sole discretion, deem necessary or advisable.  Borrower may not reallocate items of cost or
make changes in the Approved Budget without the prior written consent of
Lender, except that upon presentation to Lender of reasonable evidence of
demonstrated cost savings in a line item, the Borrower may reallocate the cost
savings in that line item to another line item.

 23
 

 

 

2.14         No Waiver.  No Advance shall
constitute a waiver of any condition precedent to the obligation of Lender to
make any further Advance or preclude Lender from thereafter declaring the
failure of Borrower to satisfy such conditions precedent to be an Event of
Default.

2.15         Subordination.  Lender
shall not be obligated to make, nor shall Borrower be entitled to receive, any
Advance until such time as Lender shall have received, to the extent requested
by Lender, the Contractor Affidavit and Subordination from the Contractor, and
subordination agreements from all other persons furnishing labor, materials, or
services for the design or construction of the Improvements, subordinating to
the lien of the Mortgage any lien, claim or charge which such party may have
against Borrower or the Property.

ARTICLE III

REPRESENTATIONS AND
WARRANTIES OF BORROWER

To induce Lender to enter into this Loan Agreement
and to make the Loan hereunder, Borrower hereby represents and warrants to
Lender as of the Closing Date the matters set forth in this Article III.

3.01         Organization.

(a)           Borrower.  Borrower is a limited
liability company duly formed, validly existing and in good standing under the
laws of the State of Colorado, in accordance with the Organizational Documents
of Borrower.  The business which Borrower
carries on and which it proposes to carry on may be conducted in limited
partnership form by Borrower.  Managing
Member is the sole managing member of Borrower and owns one hundred percent
(100%) of the Class A interests in Borrower. 
Borrower is duly authorized to conduct business in Texas and in each
other jurisdiction, if any, in which the nature of its properties, assets or
activities require such authorization. 
Except as disclosed in writing to Lender, neither General Partner nor
Behringer Harvard Mockingbird Commons Investors LP have transferred, assigned,
pledged or mortgaged its interest in Borrower or any profits or proceeds
therefrom.

(b)           Guarantors.  Behringer Harvard Short Term
Opportunity Fund I LP is a limited liability company duly formed, validly
existing and in good standing under the laws of the State of Texas in
accordance with the Organizational Documents of such person.  The business which any Guarantor carries on
and which it proposes to carry on may be conducted in limited liability company
form by such Guarantor.  In addition,
each Guarantor is duly authorized to conduct business in Texas and in each
other jurisdiction in which the nature of its properties, assets or activities
require such authorization.  Except as
disclosed in writing to Lender, no partner or member of any Guarantor has
transferred, assigned, pledged or mortgaged its interest in such Guarantor or
any profits or proceeds therefrom.

3.02         Authorization and Power.  Each
of Borrower and each Guarantor has the power and requisite authority to
execute, deliver, and perform its respective obligations under this Loan
Agreement and the other Loan Documents to which it is a party; each of Borrower
and each 

 24
 

 

 

Guarantor
is duly authorized to, and has taken all action necessary to authorize it to,
execute, deliver and perform under this Loan Agreement and each of the other
Loan Documents to which it is a party and is and will continue to be duly
authorized to perform under this Loan Agreement and the other Loan Documents to
which it is a party.

3.03         Valid and Binding Obligation.  All
of the Loan Documents, and all other documents referred to herein to which
Borrower, any Guarantor, or any Partner is a party, upon execution and delivery
by such Person, will constitute valid and binding obligations of such Person,
enforceable in accordance with their terms, except as limited by Debtor Relief
Laws and by general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity).

3.04         Conflicts.  Neither the execution and
delivery of this Loan Agreement, the Note or the other Loan Documents to which
Borrower, any Guarantor or any Partner is a party, nor consummation of any of
the transactions herein or therein contemplated nor compliance with the terms
and provisions hereof or with the terms and provisions thereof, will contravene
any provision of law, statute, rule or regulation to which such Person is
subject or any judgment, decree, license, order or permit applicable to such
Person, or will conflict or be inconsistent with, or will result in any breach
of any of the terms of the covenants, conditions or provisions of, or
constitute a delay under, or result in the creation or imposition of a Lien
(except Liens in favor of Lender) upon any of the property or assets of such
Person pursuant to the terms of any indenture, mortgage, deed of trust,
agreement or other instrument to which such Person is a party or by which such
Person may be bound, or to which such Person may be subject, or violate any
provision of the Organizational Documents of such Person.

3.05         Consents, Etc.  No
consent, approval, authorization or order of any court or governmental
authority or any third party (other than those which have been obtained prior
to the date hereof and of which Borrower has notified Lender in writing on the
date hereof) is required in connection with the execution and delivery by
Borrower or any Guarantor of this Loan Agreement or the other Loan Documents,
or to consummate the transactions contemplated hereby or thereby.

3.06         Pending Litigation. 
Other than the Disclosed Litigation, there are no material proceedings
pending, or to Borrower’s knowledge, threatened, against or affecting Borrower,
any Guarantor, or the Property or any portion thereof, in any case in any court
or before any Governmental Authority or arbitration board or tribunal which
involve the possibility of materially and adversely affecting (a) the
assets, business, prospects, profits or condition (financial or otherwise) of Borrower,
any Guarantor, or the ability of any such Person to perform its respective
obligations under the Loan Documents or any Organizational Document of any such
Person, or (b) the Property . 
Neither Borrower, any Guarantor, nor the Property is in default with
respect to any order of any court, Governmental Authority or arbitration board
or tribunal.

3.07         Principal Office, Etc.  The
chief executive office, principal office and principal place of business of
Borrower is at 15601 Dallas Parkway, Suite 600, Addison, Texas 75001.  The addresses of Borrower and Guarantors set
forth in Section 9.01 hereof are accurate, true and correct.

 25
 

 

 

3.08         Control Persons. 
Borrower is not, and no Person having “control” (as that term is defined
in 12 U.S.C. §375b or in regulations promulgated pursuant thereto) of Borrower
is, an “executive officer,” “director,” or “person who directly or indirectly
or in concert with one or more persons, owns, controls, or has the power to
vote more than 10% of any class of voting securities” (as those terms are
defined in 12 U.S.C. §375b or in regulations promulgated pursuant thereto) of
Lender, of a holding company of which Lender is a subsidiary, or of any other
subsidiary of a holding company of which Lender is a subsidiary, of any bank at
which Lender maintains a correspondent account, or of any bank which maintains
a correspondent account with any Lender.

3.09         Government Regulation.

(a)           Borrower is not an “investment company” or a company “controlled” by an
“investment company,” within the meaning of the Investment Company Act of 1940.

(b)           Borrower is not a “public-utility company,” or a “holding company,” or
a “subsidiary company” of a “holding company,” or an “affiliate” of a “holding
company” or of a “subsidiary company” of a “holding company,” within the
meaning of the Public Utility Holding Company Act of 1935.

(c)           Borrower is not engaged principally, or as one of its important
activities, in the business of extending, or arranging for the extension of,
credit for the purpose of “purchasing or carrying any margin stock,” within the
meaning of Regulation U of the Board of Governors of the Federal Reserve
System.  No portion of the assets of
Borrower consists of any such margin stock, and no part of the proceeds of any
Loan will be used to purchase or carry any such margin stock within the meaning
of said regulation or to extend credit to others for such purpose.

(d)           Neither Borrower, any Guarantor or any Person who owns a controlling
interest in or otherwise controls Borrower or any Guarantor is an OFAC
Prohibited Person. Borrower has implemented appropriate procedures and policies
to ensure compliance with the requirements of the Anti-Terrorism and Anti-Money
Laundering Laws.

3.10         Insider.  Neither Borrower nor any
general partner of Borrower is an “executive officer”, “director”, or “person
who directly or indirectly or acting through or in concert with one or more
persons, owns, controls, or has the power to vote more than ten percent (10%)
of any class of voting securities” (as those terms are defined in
12 U.S.C. § 375b or in regulations promulgated pursuant thereto) of
Lender, of any bank holding company of which Lender is a subsidiary, or of any
subsidiary of a bank holding company of which Lender is a subsidiary, of any
bank at which Lender maintains a correspondent account or which maintains a
correspondent account with any Lender.

 26
 

 

 

3.11         O.S.H.A.  Each of Borrower, each
Guarantor, and the Property, have (or within thirty (30) days of the Closing
Date will have) duly complied with, and their respective facilities, business
assets, property, leaseholds and equipment are (or within thirty (30) days of
the Closing Date will be) in compliance in all material respects with, the
provisions of the Federal Occupational Safety and Health Act and all rules and
regulations thereunder and all similar state and local laws, rules and
regulations, to the extent required thereby; there are no outstanding
citations, notices or orders of non-compliance issued to Borrower or any
Guarantor or relating to their respective businesses, assets, property,
leaseholds or equipment under any such laws, rules or regulations, or with
respect to the Property.

3.12         Financial Condition.  As
of the date of execution hereof and the Closing Date, the present fair salable
value of the assets of Borrower and each Guarantor is greater than the amount
required to pay such Person’s total liabilities, and each is able to pay its
debts as they mature.  Borrower has
sufficient capital to carry on its business and transactions as now conducted
and as planned to be conducted in the future. 
Neither Borrower nor any Guarantor is the subject of any bankruptcy,
insolvency, reorganization or receivership proceeding and, to Borrower’s best
knowledge, no such proceeding is threatened or imminent with respect to any
such Person.  The Initial Financial
Statements reflect the current financial condition of each Person described
therein and no material adverse change has occurred in the financial condition
of any such Person since the respective dates of the Initial Financial
Statements.

3.13         Restrictions. 
Neither of Borrower nor any Guarantor is a party to any contract or
agreement, or subject to any charter or other restriction, which materially and
adversely affects its business.  Neither
of Borrower or any Guarantor has agreed or consented to cause or permit in the
future (upon the happening of a contingency or otherwise) any of its assets,
whether now owned or hereafter acquired, to be subject to any Liens (other than
the Permitted Liens).  Neither Borrower
nor any Guarantor and no general partner or limited partner of Borrower or any
Guarantor has agreed or consented to cause or permit in the future (upon the
happening of a contingency or otherwise) all or any portion of its direct
ownership interest in such Person, or any profits or proceeds therefrom, to be
subject to any Liens (other than Permitted Liens).

3.14         No Default.  No Potential Default or Event
of Default has occurred and is continuing under this Loan Agreement or any
other Loan Document.

3.15         Labor Relations. 
Borrower is not a party to any collective bargaining agreement.  There are no material grievances, disputes or
controversies with any union or any other organization of Borrower’s employees
with respect to the Property, or threats of strikes, work stoppages or any
asserted pending demands for collective bargaining by any union or organization
with respect to the Property.

3.16         ERISA.  (a) No Reportable
Event has occurred and is continuing with respect to any ERISA Plan;
(b) PBGC has not instituted proceedings to terminate any ERISA Plan;
(c) neither Borrower, any Affiliate of Borrower or any General Partner,
nor any duly-appointed administrator of an ERISA Plan (i) has
incurred any liability to PBGC with respect to any ERISA Plan other than for
premiums not yet due or payable or (ii) has instituted or intends to
institute proceedings to terminate any ERISA Plan under Section 4041
or 4041A of ERISA
or withdraw 

 27
 

 

 

from any Multi-Employer
Pension Plan (as that term is defined in Section 3(37)
of ERISA); and (d) each ERISA Plan of
Borrower has been maintained and funded in all material respects in accordance
with its terms and with all provisions of ERISA applicable thereto.

3.17         Single Purpose Entities; Nature of Borrower. 
Borrower is a single purpose limited partnership whose only business is
the operation of the Property and whose only asset is the Property and other
assets directly related to the operation of the Property.

3.18         Indebtedness. 
Borrower has not incurred, created, contracted for, waived, assumed,
guaranteed or is otherwise liable in respect of any Indebtedness other than the
Permitted Indebtedness.  No default or
failure of performance has occurred and is continuing with respect to any
Indebtedness of Borrower

3.19         Taxes.  All tax returns required to be
filed by Borrower in any jurisdiction have been filed and all taxes,
assessments, fees, and other governmental charges upon Borrower or upon any of
its properties, income or franchises have been paid that are required to be
paid prior to the time that the non-payment of such taxes could give rise to a
Lien on any asset of Borrower, unless (i) such tax, assessment, fee or
charge is being contested in good faith by Borrower through appropriate
proceedings after the establishment of appropriate reserves therefor in
accordance with GAAP or (ii) such filing, tax, assessment, fee or charge
would not involve the possibility of materially and adversely affecting the
assets, business, prospects, profits and condition of Borrower or the
Property.  There is no proposed tax
assessment against Borrower or, to the knowledge of Borrower, any basis for
such assessment which is not being contested in good faith by Borrower through
appropriate proceedings after the establishment of appropriate reserves
therefor in accordance with GAAP.  The
Land is separately assessed from all other adjacent land for purposes of real
estate taxes and, to Borrower’s knowledge, there are no intended public
improvements which may involve any charge, assessment or lien, upon the
Property.

3.20         Property.

(a)           To Borrower’s knowledge, there is no existing or proposed plan to
modify or realign any street or highway or any existing or proposed eminent
domain proceeding that would result in the taking of all or any part of the
Property or that would adversely affect the Property or the use or operation of
the Property; and

(b)           As of the Closing Date, no bills for labor and materials furnished in
connection with construction, renovation or maintenance of the Property remain
unpaid in part or in full.

 28
 

 

 

3.21         Use
of Property.

(a)           To Borrower’s knowledge, the Property and the uses which Borrower makes
of the Property and intends to make thereof as the Residential Condominium
comply with all applicable restrictive covenants and all Governmental
Requirements;

(b)           Borrower has obtained or will obtain all requisite zoning, utility,
building, health, and other necessary permits from each Governmental Authority
having jurisdiction over the Property or any portion thereof and to Borrower’s
knowledge, there is no problem which would jeopardize any license, permit or
approval necessary for the construction or operation of the Property or any
portion thereof.  Borrower owns, or is
licensed or otherwise has the lawful right to use, all applicable patents,
trademarks, tradenames, copyrights, technology, know-how and processes
necessary for the conduct of its business as currently conducted, and the
operation of the Property in the manner currently conducted.  There are no claims, and to the best of
Borrower’s knowledge, there is no infringement of the rights of any Person,
arising from the use of such patents, trademarks, copyrights, technology,
know-how and processes by Borrower. 
Borrower has no knowledge of any infringement by any third party on any
rights of Borrower in any of its or any Guarantor’s intellectual property;

(c)           The sanitary water supply, storm and sanitary sewers, water lines, and
other necessary utility facilities (including gas, electric and telephone
facilities) are available to and operational at the Property and sufficient to
meet the current and anticipated needs of the Property, and design and as-built
conditions of the Property are such that no drainage or surface or other water
will drain across or rest upon the Land or the land of others.  All utility service for the Property has been
approved by applicable Governmental Authorities, to the extent required or
obtainable;

(d)           None of the Improvements create an encroachment over, across, or upon
any of the Property boundary lines, rights of way, or easements and no
buildings or other improvements on adjoining land create such an encroachment
on any of the Land;

(e)           The Property has been validly subdivided in accordance with all
Governmental Requirements so that, for all purposes, the Property forms a
separate tax lot, independent of any other property and the Property may be
mortgaged, conveyed or otherwise dealt with as a whole and independently of any
other property.

3.22         Full Disclosure. 
There is no fact related specifically to Borrower, any Guarantor or the
Property known to Borrower that Borrower has not disclosed to Lender which
could have a material adverse effect on Borrower, any Guarantor, or any of the
Property.

3.23         Title to the Property. 
Borrower is the sole legal and beneficial owner of the Property and has
and will have good and indefeasible title to the Property, free and clear of
any and all Liens, claims, charges, equities, covenants, conditions,
restrictions, easements, rights-of-way and all other matters affecting such
property, whether or not of record, except for the Permitted Exceptions.  Borrower will preserve its title to the
Property, will forever warrant and 

 29
 

 

 

defend
the same to Lender, and will forever warrant and defend the validity and priority
of the Liens of the Loan Documents with respect to the Property against the
claims of all Persons whomsoever.  None
of the Land is located within an area that has been designated or identified as
an area having special flood hazards by the Secretary of Housing and Urban
Development or by such other official shall from time to time be authorized by
federal or state law to make such designation pursuant to the National Flood
Insurance Act of 1968, as such act may be from time to time amended, or
pursuant to any other national, state, county or city program of flood control.

3.24         Leases.  There are no Leases in
existence with respect to the Property or any portion thereof except the
Scheduled Lease.  No default, failure of
performance or terminating event has occurred and is continuing under the
Scheduled Lease as of the Closing Date.

3.25         Governmental Requirements.  To
Borrower’s knowledge, no violation of any Governmental Requirement exists with
respect to any of the Property, and the current and anticipated use thereof
complies with applicable restrictive covenants.

3.26         Financing Statements. 
There is no financing statement or other document creating or evidencing
a Lien now on file with any Governmental Authority covering any of the
Property, and there is no Lien on any of the Property, whether such Property
shall be real or personal, tangible or intangible, or whether Borrower is named
or signed as “Debtor”, other than the Liens which are Permitted Exceptions.

3.27         Material Agreements.  The
Management Agreement furnished to Lender by or on behalf of Borrower pursuant
to this Loan Agreement is true, correct and complete.  The Management Agreement and each Material
Agreement are in full force and effect and no terminating event, default or
failure of performance has occurred thereunder. 
No party to the Management Agreement or any of the Material Agreements
has challenged or denied the validity or enforceability of any such agreement.

3.28         Accuracy of Information.  All
statements, certificates and information delivered or to be delivered to Lender
by or on behalf of Borrower or any Partner pursuant to or as required by this
Loan Agreement or any other Loan Document are, or shall be, when delivered,
true and correct in all material respects as of the date given and does not,
and do not or shall not, when delivered, contain any untrue statement of a
material fact or omit to state any material fact necessary to keep the
statements contained therein from being materially misleading.

3.29         Access.  The Land has access to and from completed
public streets and roads adequate for its current use and for its intended use
after completion of the Improvements.

3.30         Commencement of Construction.  As of the date hereof, there are not bills
for work performed or materials delivered to the Land which could give rise to
a mechanic’s or materialman’s lien which have not been paid or will not be paid
in full and there exists no contest or disagreement with respect to any such
bill.

3.31         Authorized Signatories.  Borrower has appointed and invested in each
of the Authorized Signatories full authority to execute and deliver, on behalf
of Borrower, any Request for Disbursement, and any other notice, request or
other document required or permitted 

 30
 

 

 

hereunder to be submitted
by Borrower to Lender and Lender is entitled to rely upon the authority of each
Authorized Signatory until and unless Lender shall receive from Borrower
written notice revoking such authority and naming a new Authorized Signatory.

ARTICLE IV

AFFIRMATIVE COVENANTS OF BORROWER

Until
payment in full of the Obligation, Borrower agrees that:

4.01         Financial Statements, Reports and Documents
of Borrower and Other Persons.  Borrower shall deliver or cause to be
delivered to Lender each of the following:

(a)           Annual Financial Statements.  As
soon as available, and in any event within one hundred five (105) days after
the end of each fiscal year of Borrower and each Guarantor, respectively,
beginning with the fiscal year ending December 31, 2006, (i) a copy of the
annual report of Borrower and each Guarantor for such fiscal year containing,
on a consolidated basis, balance sheets and statements of income, retained
earnings, and cash flow as at the end of such fiscal year and for the 12-month
period then ended, in each case setting forth in comparative form the figures
for the preceding fiscal year, all in reasonable detail and compiled by
independent certified public accountants of recognized standing reasonably
acceptable to Lender, to the effect that such report has been prepared in
accordance with GAAP and containing no material qualifications or limitations
on scope and (ii) Audited Financial Statements for Behringer Harvard Short Term
Opportunity Fund I LP.

(b)           Quarterly Financial Statements.  As
soon as available, and in any event within forty-five (45) days after the end
of each quarter of each fiscal year of Borrower and each Guarantor,
respectively, beginning with the quarter ending September 30, 2006, a copy of
an unaudited financial report of Borrower and each Guarantor as of the end of
such quarter and for the portion of the fiscal year then ended, containing
balance sheets and statements of income, retained earnings, and cash flow, all
in reasonable detail certified by the chief executive officer, president or
chief financial officer of Borrower and each Guarantor to have been prepared in
accordance with GAAP and to fairly and accurately present (subject to year-end
audit adjustments) the financial condition and results of operations of
Borrower and each Guarantor, on a consolidated and consolidating basis, at the
date and for the periods indicated therein.

(c)           Compliance Certificate. 
Concurrently with the delivery of the financial information and
statements required by Sections 4.01(a) and (b) hereof, a certificate
executed by a responsible and authorized officer or representative of Borrower
in the form attached as Exhibit H stating that a review of the
activities of Borrower and the Property during such Quarterly Period has been
made under his or her supervision and that to the best of his or her knowledge
and belief after reasonable and due investigation, (i) Borrower has
observed, performed and fulfilled each and every material obligation and
covenant contained herein and in each of the Loan Documents or, if there is any

 31
 

 

 

exception to the foregoing, specifying the
nature and status thereof, (ii) there exists no Event of Default as of the
date of such certificate or, if any such event shall have occurred, specifying
the nature and status thereof, (iii) no default, material failure of
performance or terminating event has occurred under the Management Agreement or
any other Material Agreement, and no party to any such agreement has challenged
or denied the validity or enforceability of such agreement or given any notice
of default, termination or intent to terminate thereunder, or specifying the
nature and status thereof, (iv) there is no litigation, mediation or
arbitration which is material and is not covered by insurance pending with
respect to Borrower or any of the Property or, if any such litigation,
mediation, or arbitration is pending, specifying the nature and status thereof
and (v) that all information and calculations delivered to Lender with
respect to Sections 4.01(a) and (b) are true and correct in all
material respects.  Concurrently with the
delivery of the financial information and statements required by Section
4.01(b) hereof, a certificate executed by a responsible and authorized
officer or representative of Borrower stating that Borrower is in full compliance
with Section 4.09 hereof.

(d)           Notices by Governmental Authorities. 
Promptly upon receipt of the same, true and complete copies of any
official notice, claim or complaint by any Governmental Authority pertaining to
any of the Property and which would have a material adverse effect upon
Borrower, any Guarantor or the ownership, value, income, revenues or operation
of or from the Property.

(e)           Tax Returns.  Within ten (10) days after the
first to occur of (i) the date actually filed, and (ii) the applicable
filing deadline (including any extension(s) thereof), copies of all federal and
state tax returns required to be filed by Borrower and each Guarantor, together
with evidence of payment of any and all taxes shown to be due and owing
thereunder.

(f)            Management Agreement. 
Contemporaneously with Borrower’s receipt or giving of same, a copy of
any written communication with respect to any alleged default or default
pursuant to or in connection with any approved management agreement.

(g)           Notification by Borrower.  The
following notifications:

(i)            promptly upon the filing of, and any material
determination in, all litigation and all proceedings before any Governmental
Authority affecting Borrower, any Guarantor or any of the Property;

(ii)           promptly upon the occurrence thereof, of any material change in any
fact or circumstance represented or warranted in this Loan Agreement or any of
the other Loan Documents, and of any fact or circumstance which might
materially interfere with the operation of the Property;

(iii)          within five (5) Business Days after the occurrence thereof, of any
payment default, any failure to satisfy any financial covenant, or any other
material default under any note, indenture, loan agreement, mortgage, lease,
deed 

 32
 

 

 

or other similar agreement relating to any
Indebtedness of Borrower or any Guarantor;

(iv)          within five (5) Business Days after the occurrence thereof, if Borrower
or any Guarantor shall incur, create, contract for, waive, assume, have
outstanding, guarantee or otherwise become liable with respect to Indebtedness;

(v)           promptly upon the occurrence thereof, of any name change or change in
Fiscal Year for Borrower or any Guarantor;

(vi)          promptly upon the occurrence thereof, a copy of any amendment to the
Organizational Documents of Borrower;

(vii)         immediately upon Borrower’s learning thereof, of any event or
occurrence which constitutes a Potential Default; and

(viii)        within five (5) Business Days after the date entered into, a copy of
each contract, agreement, arrangement or understanding evidencing a material
Operating Agreement which has a primary term which is greater than one year and
involves payments by Borrower in excess of $50,000 per year.

(h)           Property Rights and Claims. 
Promptly upon receipt of same, a copy of any notice or other instrument
received by Borrower which might materially adversely affect the Property or
the Liens securing the Obligation including, without limitation, any notice
from a public authority concerning any tax or special assessment, or any notice
of any alleged violation of any zoning ordinance, restrictive covenant, fire
ordinance, building code provision, or other Governmental Requirement affecting
the Property.

(i)            Other Information.  Such
other information concerning the business, properties, or financial condition
of Borrower and any Guarantor as Lender shall reasonably request.

4.02         Loan Proceeds. 
Borrower shall use the proceeds of the Initial Advance to pay amounts
set forth on the Borrower’s Statement prepared by the Title Company for
Closing, approved by Lender, and shall use the balance of the proceeds of the
Loan Amount only for the purposes for which they are advanced in accordance
with this Loan Agreement.

4.03         Assets of Borrower.  The
only business of Borrower shall be the ownership and operation of the Property,
and the only asset of Borrower shall be the Property and other assets directly
related to the operation of the Property.

4.04         Leases.  Borrower shall execute no Lease with respect to any portion of the
Property or Residential Condominium without the prior written consent of
Lender.  In the event Lender consents to
any Lease upon such Property (i) Borrower shall not collect any rent for more
than one month in advance under any such Lease, (ii) Borrower shall not
pledge, transfer, assign, mortgage, encumber, or allow to be encumbered any
Leases or future payments of the Rents 

 33
 

 

 

except
to Lender and (iii) at the request of Lender, Borrower will assign and transfer
to Lender any and all Leases and execute and deliver all such further assurances
and assignments as Lender shall from time to time require.

4.05         Management,
Maintenance, Repairs and Alterations.

(a)           The Property shall at all times be managed directly and exclusively by
Borrower and no property management company shall be utilized for management of
the Property unless approved in advance by Lender.

(b)           Once the Improvements are substantially complete, Borrower shall cause
the Property to be operated, maintained and managed at all times in a
first-class manner consistent with the requirements of the Condominium
Declaration.  Borrower shall keep in
effect (or cause to be kept in effect) at all times all permits, licenses and
contractual arrangements as may be necessary to meet the standard of operation
described in the foregoing sentence or as may be required by Governmental
Requirements.

(c)           Except as contemplated by the Plans and Approved Budget, Borrower
(i) shall not undertake to construct any Improvements on the Property
without the prior written consent of Lender, (ii) shall not commit or
permit any waste or deterioration of or to the Property, and
(iii) following completion of the Improvements, shall constantly keep and
maintain the Property and all amenities in connection therewith in good and
neat order and repair and in compliance with the requirements of the
Condominium Declaration.

(d)           From time to time, as required by Lender and Borrower shall permit
Lender and any Governmental Authority and their respective agents, employees
and representatives, to enter upon the Property for the purpose of inspection
thereof.

(e)           Borrower will act prudently and in accordance with customary industry
standards in managing and operating its assets, properties, business and
investments (including the Property). 
Borrower will keep the Property, and all of its other assets which are
reasonably necessary to the conduct of its business in good working order and
condition.

4.06         Inspection of Books and Records. 
Borrower shall at all times keep complete and accurate books, records
and accounts of its transactions, in accordance with GAAP, and permit any
representative of Lender, at all reasonable times upon reasonable notice, to
examine and copy the books and records of Borrower, and all contracts,
statements, invoices, bills, and claims for labor, materials, and services
supplied for the construction, reconstruction, maintenance, operation and
repair of the Property.

4.07         Compliance with Governmental Requirements. 
Borrower shall timely comply with all Governmental Requirements
affecting the Property and, upon request by Lender, deliver to Lender evidence
thereof to the extent reasonably available. 
Borrower assumes full responsibility for the compliance of the Plans and
the Property with all Governmental 

 34

 

 

Requirements,
applicable restrictive covenants and sound building and engineering practices
and, notwithstanding any approvals by Lender, Lender shall not have any
obligation or responsibility whatsoever for the Plans or any other matter
incident to the Property or the construction, renovation or maintenance of any
part of the Improvements.

4.08         Insurance and Notice.

(a)           Borrower shall
maintain, or cause to be maintained, in full force and effect, until the Loan
and Obligation have been paid in full, insurance as evidenced by the Insurance
Policies, and shall deliver or cause to be delivered to Lender,
(a) contemporaneously with the execution hereof, the Insurance Policies or
certificates evidencing the Insurance Policies and (b) all renewal Insurance
Policies, or certificates thereof, at least fifteen (15) days before the
expiration date of each expiring Insurance Policy.  Each insurance policy shall contain a
provision whereby the insurer agrees that the policy shall  not be cancelled or modified without providing
at least thirty (30) days prior written notice to the Lender.  The insurers waive any rights to claim any
premiums and commissions against Lender and provide that the Lender is
permitted to make payments to effect continuation of the policies in the event
of notice of cancellation due to non-payment of premiums.  The policies shall provide that, with respect
to the interest of the Lender, the policy will not be invalidated and shall
insure Lender regardless of any act, failure to act, negligence, or violation
of warranties, or conditions in the policy by any named insured.

(b)           BORROWER
IS REQUIRED TO (i) KEEP THE PROPERTY INSURED AGAINST DAMAGE IN THE AMOUNT THE
LENDER SPECIFIES; (ii) PURCHASE THE INSURANCE FROM AN INSURER THAT IS
AUTHORIZED TO DO BUSINESS IN THIS STATE OR AN ELIGIBLE SURPLUS LINES INSURER;
AND (iii) NAME THE LENDER AS THE PERSON TO BE PAID UNDER THE POLICY IN THE
EVENT OF A LOSS.  BORROWER MUST, IF
REQUIRED BY THE LENDER, DELIVER TO THE LENDER A COPY OF THE POLICY AND PROOF OF
THE PAYMENT OF PREMIUMS.  IF BORROWER
FAILS TO MEET ANY REQUIREMENT LISTED IN THE PRECEDING TWO SENTENCES, LENDER MAY
OBTAIN COLLATERAL PROTECTION INSURANCE ON BEHALF OF BORROWER AT BORROWER’S
EXPENSE.  This Notice is
provided pursuant to the requirements of Texas Finance Code §307.052.

4.09         Payment of Taxes. 
Borrower shall pay and discharge all taxes, assessments, and
governmental charges or levies imposed upon Borrower (whether imposed by
contract or agreement or by Governmental Requirement), or upon Borrower’s
income or profits, or upon any of the Property or upon any other property
belonging to it before delinquent; provided, however, that
Borrower shall not be required to pay any such tax, assessment, charge, or levy
if and so long as the amount, applicability, or validity thereof shall
currently be contested in good faith by appropriate proceedings and appropriate
reserves therefor have been established, unless such contest would violate Section 4.10
hereof.  Borrower shall deliver to Lender
evidence of the payment of all such taxes, assessments and governmental charges
and levies by no later than 

 35
 

 

 

thirty
(30) days after the payment of any such taxes, assessments and governmental
charges or levies is due.

4.10         Payment of Claims. 
Borrower shall promptly pay or cause to be paid when due all lawful
taxes and assessments and all costs and expenses incurred in connection with
the Property, and shall keep the Property free and clear of any Liens, charges,
or claims other than the Liens of the Mortgage and other Liens securing
obligations of Borrower to Lender, and the Permitted Exceptions.  Notwithstanding anything to the contrary
contained in this Loan Agreement, Borrower (a) may contest the validity or
amount of any claim of any contractor, consultant, architect, or other person
providing labor, materials, or services with respect to the Property,
(b) may contest any tax or special assessments levied by any Governmental
Authority, and (c) may contest the enforcement of or compliance with any
Governmental Requirement, and such contest on the part of Borrower shall not be
an Event of Default hereunder if during the pendency of any such
contest, Borrower shall furnish to Lender and Title Company (i) a bond
indemnifying against liens in accordance with applicable law with corporate
surety satisfactory to Lender and Title Company or (ii) other security as
required by a court of competent jurisdiction to remove any such lien as an
encumbrance against the Property, and provided that Borrower shall immediately
pay any amount adjudged by a court of competent jurisdiction to be due, with
all costs, interest, and penalties thereon.

4.11         Costs and Expenses. 
Borrower shall pay when due all costs and expenses required by this Loan
Agreement including, without limitation, (a) all taxes and assessments
applicable to the Property, (b) all fees for filing or recording the Loan
Documents, (c) all fees and commissions lawfully due to brokers, salesmen,
and agents in connection with the Loan or the Property and which are not
incurred by Lender, (d) all reasonable fees, disbursements, and expenses
of legal counsel to Lender incurred in connection with the Loan, (e) all
title insurance and title examination charges, including premiums for the Title
Insurance Policy, (f) all survey costs and expenses, including the cost of
the Survey, (g) all premiums for the Insurance Policies, (h) all
costs and expenses of the Environmental Audit, the Engineer’s Audit, the
Insurance Audit, and the Appraisal, and (i) all other reasonable costs and
expenses payable to third parties which are incurred by Lender in connection
with the consummation of the transactions contemplated by this Loan Agreement,
whether incurred prior to or after the date hereof.

Borrower further agrees to pay all out-of-pocket expenses to third
parties incurred by Lender in connection with the preparation of this Loan
Agreement and the other Loan Documents or in connection with any amendments,
modifications or waivers of the provisions hereof or thereof (whether or not
the transactions thereby contemplated shall be consummated) or incurred by
Lender in connection with the administration or the enforcement or protection
of its rights and obligations (or the rights and obligations of Lender) in
connection with this Loan Agreement and the other Loan Documents or in
connection with the Loan made or any Note issued hereunder including, but not
limited to, all reasonable fees, charges and disbursements of counsel for
Lender and all out-of-pocket expenses incurred by Lender for reasonable visits
by Lender’s employees and agents to inspect the Property.

4.12         Indemnity by Borrower. 
Borrower will indemnify, save, defend, and hold harmless Lender and its
respective Affiliates, directors, officers, shareholders, agents, attorneys, 

 36
 

 

 

and
employees (collectively, the “indemnitee”) from and against:
(a) any and all claims, demands, actions, or causes of action that are
asserted against any indemnitee by any Person if the claim, demand, action, or
cause of action relates to a claim, demand, action, or cause of action that the
Person asserts or may assert against Borrower, any Guarantor or any of the
Property, (b) any and all claims, demands, actions or causes of action
that are asserted against any indemnitee if the claim, demand, action or cause of
action directly or indirectly relates to the failure of Borrower, any Guarantor
or any other Person to perform or comply with any of the terms, covenants or
provisions of this Loan Agreement or of any of the other Loan Documents,
(c) any and all claims, demands, actions or causes of action that are
asserted against any indemnitee if the claim, demand, action or cause of action
directly or indirectly relates to any failure of condition or any other breach
or default under any Governmental Requirement applicable to Borrower, any
Guarantor or any of the Property, (d) any administrative or investigative
proceeding by any Governmental Authority directly or indirectly related to a
claim, demand, action or cause of action described in clauses (a), (b) or (c)
above, and (e) any and all liabilities, losses, costs, or expenses
(including reasonable attorneys’ fees, expenses and disbursements) that any
indemnitee suffers or incurs as a result of any of the foregoing; provided,
however, that Borrower shall have no obligation under this Section
4.12 to any indemnitee with respect to any of the foregoing arising out of
the gross negligence or willful misconduct of such indemnitee or any of such
indemnitee’s agents or employees nor shall Borrower have any obligation under
this Section 4.12 to any indemnitee with respect to any negligent act of
Lender in operating or managing the Property after Lender has taken possession
thereof.  If any claim, demand, action or
cause of action is asserted against any indemnitee, such indemnitee shall
promptly notify Borrower, but the failure to do so shall not affect Borrower’s
obligations under this Section 4.12 unless such failure materially
prejudices Borrower’s right to participate in the contest of such claim,
demand, action or cause of action, as hereinafter provided.  If requested by Borrower in writing and so
long as no Event of Default shall have occurred and be continuing, such
indemnitee shall in good faith contest the validity, applicability and the
amount of such claim, demand, action or cause of action and shall permit
Borrower to participate in such contest. 
Any indemnitee that proposes to settle or compromise any claim or
proceeding for which Borrower may be liable for payment of indemnity hereunder
shall give Borrower written notice of the terms of such proposed settlement or
compromise reasonably in advance of settling or compromising such claim or
proceeding and shall obtain Borrower’s concurrence thereto.  Each indemnitee is authorized to employ
counsel in enforcing its rights hereunder and in defending against any claim,
demand, action, or cause of action covered by this Section 4.12; provided,
however, that each indemnitee shall endeavor, but shall not be
obligated, in connection with any matter covered by this Section 4.12
which also involves other indemnitees, to use reasonable efforts to avoid
unnecessary duplication of effort by counsel for all indemnitees.

4.13         Further Assurances. 
Borrower will make, execute or endorse, and acknowledge and deliver or
file or cause the same to be done, all such vouchers, invoices, notices,
certifications, additional agreements, undertakings, conveyances, deeds of
trust, mortgages, transfers, assignments, financing statements or other
assurances, and take all such other action, as Lender may, from time to time,
deem reasonably necessary or proper in connection with this Loan Agreement or
any of the other Loan Documents, the obligations of Borrower hereunder or
thereunder, or for better assuring and confirming unto Lender all or any part
of the security for any of the Obligation.

 37
 

 

 

4.14         Construction Contracts.  Borrower
shall become party to no contract, for the performance of any work on the
Property or for the supplying of any labor, materials, or services for the
construction of any improvements on the Property except upon such terms and
with such parties as shall be reasonably approved in advance in writing by
Lender.  Contemporaneously with the
execution by Borrower of any construction contract for construction of any of
the Improvements, Borrower shall deliver to Lender a Contractor’s Affidavit and
Subordination executed by the Contractor. 
Each Construction Contract shall provide that all liens of the
contractor are subordinate to the Mortgage and shall require all subcontracts
entered into by the contractor to contain a provision subordinating the
subcontractor’s liens to the lien of the Mortgage.  No change orders requiring an increase in the
cost of any labor, materials or services in connection with the Property in
excess of $100,000 per change order, or in excess of $500,000 in the aggregate
of increases required by all change orders, shall be effective without the
prior written approval of Lender. 
Notwithstanding the foregoing, no change order which results in a change
in the Approved Budget which is
not permitted by Section 4.16 may be made.  No approval by Lender of any construction
contract or change order shall impose upon Lender any responsibility for the
adequacy, form, or content of such construction contract or any change orders.

4.15         Plans.  Borrower shall deliver
to Lender, for Lender’s review, a complete set of plans and specifications for
the Improvements not later than thirty (30) days before Borrower desires to
commence construction of the Improvements. 
Lender shall employ, at Borrower’s cost and expense, the Inspecting
Architect/Engineer to review and comment upon plans and specifications
submitted by Borrower.  Borrower and
Borrower’s Architect shall resolve any comments or concerns of Lender or the
Inspecting Architect/Engineer.  The plans
and specifications approved by Lender shall constitute the “Plans” for
purposes of this Loan Agreement.  Lender
shall use commercially reasonable efforts to ensure that Lender and Lender’s
consultants do not unreasonably delay a response to Borrower as to any plans
and specifications submitted to Lender for review.

4.16         Prosecution of Construction.  The construction of the Improvements shall be
prosecuted with due diligence and continuity, in a good and workmanlike manner,
and in accordance with sound building and engineering practices, all applicable
Governmental Requirements, and the Plans. 
From and after the date hereof, Borrower shall not permit complete
cessation of work for a period in excess of thirty (30) consecutive days
without the prior written consent of Lender (which consent shall not be
unreasonably withheld), except for staging of construction as set forth in a
schedule submitted to Lender in connection with the Plans, delays due to
weather, strikes, riots, acts of God, war, unavailability of labor or
materials, governmental laws, regulations or restrictions.  Borrower shall promptly notify Lender of any
such delays; provided, however, that in no event shall work cease for a period
in excess of one hundred and twenty (120) aggregate days regardless of the
cause.  Borrower shall, in any event,
complete construction of all Improvements free and clear of all liens on or
before the Construction Commitment Termination Date.

4.17         Correction of Defects.  Borrower shall correct or cause to be
corrected (i) any material defect in any part of the Improvements,
(ii) any material departure (other than pursuant to change orders provided
for by Section 4.14 above) in the construction of any part of the
Improvements from the Plans and Governmental Requirements, or (iii) any
encroachment by any part of the Improvements upon any 

 38
 

 

 

building line, easement, property line, or restricted area, in each
case except as may be consented to by Lender following Borrower’s written
notice to Lender of such issue.

4.18         Storage of Materials.  Borrower shall cause all materials supplied
for, or intended to be utilized in, the construction of any part of the
Improvements, but not affixed to or incorporated into the Improvements or the
Property, to be stored on the Property or at such other location as may be
approved by Lender in writing, with adequate safeguards, to prevent loss,
theft, damage, or commingling with other materials or projects.

4.19         Inspection of the Property.  Borrower shall permit Lender, the Inspecting
Architect/Engineer, any Governmental Authority, and their respective agents and
representatives, to enter upon the Property and any locations where materials
intended to be utilized in the construction of any part of the Improvements are
stored, for the purpose of inspection of the Property,  the Improvements, and such materials at all
reasonable times.

4.20         Notices
by Governmental Authority, Fire and Casualty Losses, Etc. Borrower shall
timely comply with and promptly furnish to Lender true and complete copies of
any official notice or claim by any Governmental Authority pertaining to the
Property.  Borrower shall promptly notify
Lender of any fire or other casualty or any notice of taking or eminent domain
action or proceeding affecting the Property .

4.21         Application
of Advances and the Loan.  No part of the Loan will be used for the
purpose, whether immediate, incidental or ultimate, of purchasing or carrying
any “margin stock” (as defined by Federal Reserve Board Regulation U) or
extending credit to others for the purpose of purchasing or carrying any margin
stock.

4.22         The Borrower’s Deposit.  If
Lender reasonably determines at any time that the unadvanced portion of the
Loan will be insufficient for payment in full of (i) the costs of labor, materials,
and services required for the construction of the Improvements, (ii) other
costs and expenses specified in the Approved Budget, and (iii) other costs
and expenses required to be paid in connection with the acquisition and
financing of the Land and the construction of the Improvements in accordance
with the Plans and any Governmental Requirements, then Borrower shall, within
five (5) days of a written request from Lender, deliver such funds as Lender
may require (the “Borrower’s Deposit”) to Lender.  Lender shall not be required to pay interest
on such Borrower’s Deposit.  Lender may
advance all or a portion of the Borrower’s Deposit prior to disbursing any
additional proceeds of the Loan. 
Borrower shall promptly notify Lender in writing if and when the cost of
the construction of the Improvements exceeds, or appears likely to exceed, the
amount of the unadvanced portion of the Loan and the unadvanced portion of the
Borrower’s Deposit.

4.23         Direct Disbursement and Application by Lender.  Lender
shall have the right, but not the obligation, to disburse and directly apply
the proceeds of any Advance to the satisfaction of any of Borrower’s
obligations hereunder.  Any Advance by
Lender for such purpose, except from the Borrower’s Deposit, shall be part of
the Loan and shall be secured by the Security Instruments.  Lender shall notify Borrower in writing of
any disbursements made directly by Lender; provided, however, Lender shall have
no liability to Borrower for failure to deliver such notice.  Borrower hereby authorizes Lender to hold,
use, disburse, and apply the proceeds of the Loan and the Borrower’s Deposit
for payment of the costs of construction of the Improvements, expenses 

 39
 

 

 

incident to the Loan and the Property, and the payment
or performance of the Obligation. 
Borrower hereby assigns and pledges the proceeds of the Loan and the
Borrower’s Deposit to Lender for such purposes. 
Lender may advance and incur such expenses as Lender deems necessary for
the completion of construction of the Improvements and to preserve the
Property, and any other security for the Loan, and all such expenses, even
though in excess of the amount of the Loan, shall be secured by the Security
Instruments, and payable to Lender upon demand. 
Lender may disburse any portion of any Advance at any time, and from
time to time, to persons other than Borrower for the purposes specified in this
Section 4.11, irrespective of the provisions of Section 2.03
hereof, and the amount of Advances to which Borrower shall thereafter be entitled
shall be correspondingly reduced.

4.24         Anti-Terrorism
Compliance  Borrower
shall maintain adequate procedures and policies to ensure that it is in
compliance at all times with the requirements of Anti-Terrorism and Anti-Money
Laundering Laws, including without limitation, Executive Order 13224, 66 Fed.
Reg. 49079 (published September 25, 2001).

4.25         Defense
of Title.  Borrower will preserve and defend its title
to the Property, will forever warrant and defend the same to Lender, and will
forever warrant and defend the validity and priority of the Liens of the Loan
Documents with respect to the Property against the claims of all Persons
whomsoever.

4.26         Pre-Sale
Contracts.  Borrower shall deliver to Lender a copy of
each Pre-Sale Contract within five (5) Business Days of its execution.

ARTICLE V

NEGATIVE COVENANTS

Until payment in full of the Obligation, Borrower
agrees that:

5.01         Name, Fiscal Year and Accounting Method. 
Borrower will not change its Fiscal Year or, except as may be approved
by Lender, its method of accounting or its name.  Lender will not unreasonably withhold its
consent to any name change if, in connection with such name change, Borrower
executes such financing statements and other documents as Lender may reasonably
require to protect and preserve the Liens, rights, benefits, privileges and
claims of Lender under the Loan Documents.

5.02         Consolidation, Merger, Conveyance, Transfer
or Lease.  Without the prior written consent of Lender,
which consent may be granted or withheld at Lender’s sole discretion, Borrower
will not consolidate with or merge into any other Person or convey, transfer or
lease its properties or assets substantially as an entirety to any Person.

5.03         ERISA Compliance. 
Neither (a) Borrower, nor (b) any ERISA Affiliate will take
any action of fail to take any action in violation of ERISA.

 40
 

 

 

5.04         Transactions with Affiliates. 
Borrower will not enter into any transaction with, or pay any
construction, service, operation, management or other fees to itself or any
Affiliate of Borrower except with Lender’s consent, such consent not to
be unreasonably withheld (it being agreed that each transaction disclosed in
the prospectus of  Behringer Harvard
Short–Term Opportunity Fund I LP has been approved by Lender); provided, however, that
Borrower may enter into transactions with an Affiliate of Borrower upon terms
not less favorable to Borrower than would be obtainable at the time in
comparable transactions of Borrower in arms-length dealings with Persons other
than such affiliated or related Persons.

5.05         No Conditional Sales Contracts,
Etc.  No materials, equipment, or fixtures shall be
supplied, purchased, or installed for the construction or operation of the
Property pursuant to security agreements, conditional sale contracts, lease
agreements, or other arrangements or understandings whereby title or a security
interest is retained by any party or the right is reserved or accrues to any
party to remove or repossess any property, materials, equipment or fixtures
intended to be utilized in the construction, renovation or operation of the
Property.

5.06         Lines of Business. 
Borrower will not, directly or indirectly, engage in any business other
than those in which it is presently engaged, or discontinue any of its existing
lines of business or substantially alter its method of doing business.

5.07         Easements.  Borrower shall not grant any
easements or licenses for utilities, roads or any other purposes over, under or
on any of the Property without the prior written consent of Lender, which
consent will not be unreasonably withheld or delayed by Lender.

5.08         Changes in Zoning. 
Borrower will not request or seek to obtain any change to, or consent to
any request for or change in, any Governmental Requirement, restrictive
covenant or other restriction applicable to any of the Property or any other
law, ordinance, rule, regulation, restrictive covenant or restriction affecting
the zoning, development or use of any of the Property, or any variance or
special exception therefrom, without the prior written consent of Lender, which
consent will not be unreasonably withheld or delayed.

5.09         New Construction. 
Except with respect to construction of the Improvements as contemplated
in the Plans and Approved Budget, Borrower shall not undertake to construct any
new building or other significant improvement on the Land without the prior
written consent of Lender.

5.10         Limitation on Indebtedness and Liens. 
Borrower shall not incur, create, contract for, waive, assume, have
outstanding, guarantee or otherwise become liable with respect to Indebtedness
other than Permitted Indebtedness, or grant or suffer to exist any Liens other
than Permitted Liens.

5.11         Distributions, Dividends and Repayments.  Borrower
shall not make or allow to be made any Distributions or Dividends at any time
if any Event of Default has occurred and is continuing.

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5.12         Limitation on Investments. 
Borrower shall not, without the prior written consent of Lender,
directly or indirectly, make, retain or have outstanding any investments
(whether through purchase of stock or obligations or otherwise) in, or loans or
advances to, any other Person or acquire all of any substantial part of the
assets or business of any other Person, or be or become liable as endorser,
guarantor, surety or otherwise for any debt, obligation or undertaking of any
other Person or otherwise agree to provide funds for payment of the obligations
of another, or supply funds thereto or invest therein or otherwise assure a
creditor of another against loss or apply for or become liable to the issuer of
a letter of credit or subordinate any claim or demand it may have to the claim
or demand of any other Person; provided, however, that the foregoing
provisions shall not apply to nor operate to prevent.

(a)           investments in direct obligations of the United States of America or of
any agency or instrumentality thereof whose obligations constitute full faith
and credit obligations of the United States of America provided that any such
obligations shall mature within one year from the date the same are acquired by
Borrower;

(b)           investments in commercial paper rated P-1 by Moody’s Investors
Services, Inc., or A-1 by Standard & Poor’s Corporation maturing
within  one year of the date of issuance
thereof;

(c)           investments in certificates of deposit issued by any United States or
OECD commercial bank with a branch in the U.S. and in all cases having capital
and surplus of not less than $50,000,000; and

(d)           endorsements for collection or deposit of commercial paper received in
the ordinary course of business.

5.13         Organizational Documents.  Borrower shall not amend its Organizational
Documents without the prior written consent of Lender, which consent will not
be unreasonably withheld or delayed with respect to any amendment necessary in
connection with a Permitted Transfer.

5.14         Material Agreements. 
Without Lender’s prior written consent, which consent will not be
unreasonably held, Borrower shall not amend, restate or supplement, or allow
the amendment, restatement or supplement of, or allow any default or failure of
performance to occur under, any Material Agreement.  Without the prior written consent of Lender,
Borrower shall not allow the termination or rescission of any Material
Agreement.

5.15         Anti-Terrorism Compliance. 
Borrower shall not permit any Person who is an OFAC Prohibited Person to
own any direct or indirect interest in Borrower or any Guarantor.

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ARTICLE VI

CONDITIONS OF LENDING

The effectiveness of this Loan Agreement and the obligation of Lender
to make the Loan are subject to the conditions precedent that Lender shall have
received, each dated as of the date hereof, unless otherwise expressly stated,
all of the following, in form and substance acceptable to Lender:

6.01         Loan Documents. 
Fully executed and, where appropriate, acknowledged counterparts of this
Loan Agreement, the Note, the Mortgage, the Assignments of Leases and Rents,
the Environmental Indemnity Agreement, the Guaranties and the Financing
Statements.

6.02         Governmental Approvals. 
Zoning letters, an engineer’s report or other evidence, in form
reasonably satisfactory to Lender, that the Property complies with applicable
zoning requirements and that the Improvements, after completion of
construction, will comply with the Americans with Disabilities Act of 1990,
Pub. L. No. 89-670, 104 Stat. 327 (1990), as amended, and all regulations
promulgated pursuant thereto to the extent compliance is required thereby.

6.03         Appraisal.  An Appraisal of the Property
dated not earlier than June 28, 2006, confirming that the aggregate value of
the Property, after completion of the Improvements, will be equal to or will
exceed Forty-Two Million Two Hundred Thousand Dollars ($42,200,000.00).

6.04         Insurance.  Insurance Policies covering
the Property, including without limitation, prior to commencement of
construction, builder’s risk insurance.

6.05         Survey.  A Survey of the Land dated
within six (6) months of the Closing Date or such more recent date as is
required by the Title Insurance Company to issue to Lender the Title Policy in
the form required.

6.06         Title Insurance.  A
Title Insurance Commitment, whereby the Title Insurance Company unconditionally
commits to issue the Title Insurance Policy.

6.07         UCC Searches.  The
UCC Searches.

6.08         Financial
Information.  The Initial Financial Statements.

6.09         Soils
Report .  The Soils Report.

6.10                         Inspecting Architect/Engineer Audit.  The
Inspecting Architect/Engineer Audit.

6.11         Environmental Audit.  The
Environmental Audit.

6.12         [Reserved]

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6.13         Organizational Documents.  True
and complete copies of the Organizational Documents of Borrower, each partner
of Borrower, and Guarantors.

6.14         Tax Information.  The
Tax Information.

6.15         Opinions of Counsel.  The
Legal Opinions.

6.16         Account. The Account shall have been established with Texans Credit Union.

6.17         The Fees.  The Origination Fee required
by Section 2.05 hereof.

6.18         Partnership Consent.  A
consent of Borrower to the incurrence by Borrower of the Loan, in form and
substance reasonably acceptable to Lender. 
A consent of the members of each Guarantor to the execution and delivery
of their respective Guaranty and the Environmental Indemnity.

6.19         Additional Information.  Such
other information and documents as may reasonably be required by Lender and its
counsel.

ARTICLE VII

EVENTS OF DEFAULT

An “Event of Default” (herein so
called) shall exist if any one or more of the following events shall occur:

(a)           The failure of payment when due of (i) the principal of or accrued,
unpaid interest on the Note upon maturity, whether upon the Maturity Date or
earlier following acceleration, (ii) any regularly scheduled installment
of interest on the Note on or before ten (10) days after the due date, or (iii)
any other part of the Obligation on or before ten (10) days after written
notice from Lender;

(b)           The failure of any Person other than Lender to punctually and properly
perform any covenant, agreement, obligation, or condition contained herein or
in any other Loan Document and (except for any negative covenant contained in Article
IV, for which no notice or grace period shall apply) the continuance of
such failure for a period of thirty (30) days following the earlier of Borrower’s
actual knowledge thereof or written notice thereof from Lender, or such longer
period of time (but in no event longer than sixty (60) days from the date of
such failure) as may be necessary to cure such failure provided that such
Person is diligently working to cure or remedy such failure; or

(c)           Any statement, representation, or warranty in this Loan Agreement or any
other Loan Document by any Person other than Lender was false, misleading, or
erroneous in any material respect as of the date made; or

 44

 

 

(d)           Borrower or any Guarantor shall (i) execute a general assignment
for the benefit of its creditors, or (ii) become the subject, voluntarily
or involuntarily, of any bankruptcy, insolvency or reorganization proceeding;
provided, however, it shall not be an Event of Default if Borrower or a
Guarantor becomes the subject of an involuntary bankruptcy, insolvency or
reorganization proceeding so long as such person promptly objects to such
proceeding and seeks a dismissal thereof and the proceeding is dismissed
within sixty (60) days following its filing, or (iii) admit in writing
that it is unable to pay its debts generally as they become due, or
(iv) apply for or consent to the appointment of a custodian, receiver,
trustee, or liquidator of itself or of all or a substantial part of its assets,
or (v) file a voluntary petition seeking protection under any Debtor
Relief Laws, or other insolvency law now or hereafter existing, or
(vi) file an answer admitting the material allegations of, or consenting
to, or default in filing an answer to, a petition filed against it in any
bankruptcy, reorganization, or other insolvency proceedings, or
(vii) institute or voluntarily be or become a party to any other judicial
proceedings intended to effect a discharge of the debts of such person, in
whole or in part, or a postponement of the maturity and the collection thereof,
or a suspension of any of the rights or powers of Lender granted in the Note,
the Mortgage, this Loan Agreement, any Guaranty or the other Loan Documents; or

(e)           An order, judgment, or decree shall be entered by any court of
competent jurisdiction appointing a custodian, receiver, trustee, or liquidator
of Borrower or any Guarantor or of all or any substantial part of such Person’s
assets; or

(f)            The failure of Borrower or any Guarantor to
pay (or bond to the satisfaction of Lender) any money judgment against such
person in excess of $10,000.00, or with respect to each and every money
judgment against Borrower or any Guarantor, $50,000.00 in the aggregate as to
each such person, at least ten (10) Business Days prior to the date on which
its assets may be sold to satisfy such judgment; or

(g)           The failure to have discharged within a period of ten (10) Business
Days after the commencement thereof any attachment, sequestration, or similar
proceedings against any of the assets of Borrower or any Guarantor; or

(h)           The liquidation, dissolution or termination of  Borrower or any Guarantor; or

(i)            Any of the Loan Documents shall for any
reason cease to be in full force and effect, or be declared null and void or
unenforceable in whole or in material part; or the validity or enforceability
(but excluding reasonable issues of interpretation) of any Loan Document shall
be challenged or denied by any party thereto; or

(j)            Condemnation of all or any part of the
Property which, in Lender’s good faith judgment, (i) results or will result in
the Property or any portion thereof failing to comply in any material respect
with any Governmental Requirement or any restriction affecting the Property or
(ii) will, in Lender’s reasonable judgment, materially and 

 45
 

 

 

adversely affect the operation or use of the
Property, including without limitation, access, parking, security or material
amenities; or

(k)           Without the prior written consent of Lender, which consent may be
withheld in Lender’s sole and absolute discretion, there shall be any transfer,
sale, Lease, trade, conveyance, exchange, mortgage, encumbrance, pledge,
assignment or other disposition of (i) the Property (except for Leases permitted
hereunder and Permitted Personal Property Transactions), (ii) any
ownership interest in Borrower except for a Permitted Transfer, (iii) the
right to receive distributions, dividends or profits from Borrower, or
(iv) any portion of, or any interest in, any of the property, rights and
interests described in the foregoing subsections (i), (ii), or (iii); or

(l)            The Liens created (or purported to be
created) by the Mortgage or any other Loan Documents should become
unenforceable, or cease to be first priority Liens; or

(m)          Any default or failure of performance occurs under any Permitted
Indebtedness (except the Obligation) involving an aggregate amount in excess of
$100,000 and is not cured to the satisfaction of the holder of such
Indebtedness within the applicable cure period, if any, expressly granted in
the documents evidencing such Indebtedness; or

(n)           An inability of
Borrower to satisfy any conditions specified in this Loan Agreement as
precedent to the obligation of Lender to make an Advance within thirty (30)
days after written notice from Lender that Borrower has failed to satisfy the
conditions to an Advance requested pursuant to a Request for Disbursement; or

(o)           A
failure of any of the materials supplied for the construction of the
Improvements to comply in any material respect with the Plans or any Government
Requirements and such non-compliance is not corrected by (i) if such
failure is reasonably susceptible of cure within thirty (30) days, within
thirty (30) days of written notice from Lender, or (ii) if such failure is
not reasonably susceptible of cure within thirty (30) days, the first to occur
of (A) within one hundred twenty (120) days following written notice from
Lender, so long as Borrower commences the cure within the first thirty (30)
days and diligently prosecutes such cure to completion, (B) the applicable
deadline imposed by any Governmental Authority or Governmental Requirement, or
(C) the Construction Commitment Termination Date; or

(p)           The
Improvements are not complete (other than non-material punch list items) as
contemplated in the Plans and the Approved Budget within thirty (30) days
beyond the Construction Commitment Termination Date; or

(q)           The
proceeds of the Loan, or any part thereof, are being, or shall at any time have
been, diverted to a purpose other than the purpose for which advanced.

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ARTICLE VIII

RIGHTS AND REMEDIES OF
LENDER

8.01         Rights of Lender.  At
any time upon the occurrence and during the continuance of any Event of
Default, Lender shall have the right, in addition to any other right or remedy
of Lender, but not the obligation, in its own name or in the name of Borrower,
to enter into possession of all or any portion of the Property; to perform all
work necessary to complete the construction, reconstruction, maintenance or
renovation of or to operate the Property; and to employ watchmen and other
safeguards to protect such Property. 
Borrower hereby appoints Lender as the attorney-in-fact of Borrower,
with full power of substitution, and in the name of Borrower, if Lender elects
to do so, at any time upon the occurrence and during the continuance of any
Event of Default to use such sums as are necessary to make such alterations,
repairs and renovations to the Property and employ such architects, engineers,
and contractors as may be required for the purpose of completing any
construction, reconstruction, maintenance or renovation on the Property or any
portion thereof substantially in accordance with Governmental Requirements,
applicable restrictive covenants and the Management Agreement, or to operate
the Property or any portion thereof, (b) execute all applications and
certificates in the name of Borrower which may be required for completion of
construction, maintenance or renovation of or for the operation of any of the
Improvements, or for the benefit of the Property, (c) endorse the name of
Borrower on any checks or drafts representing proceeds of the Insurance
Policies, or other checks or instruments payable to Borrower with respect to
the Property, (d) do every act with respect to the construction, repair,
maintenance and operation of any of the Property or any portion thereof which
Borrower may do, and (e) prosecute or defend any action or proceeding
incident to the Property.  The
power-of-attorney granted hereby is a power coupled with an interest and is
irrevocable.  Lender shall have no
obligation to undertake any of the foregoing actions, and if Lender should do
so, it shall have no liability to Borrower for the sufficiency or adequacy of
any such actions taken by Lender.

Notwithstanding the foregoing, it is expressly understood that Lender
assumes no liability or responsibility for the performance of any duties of
Borrower hereunder or under any of the Loan Documents, applicable Governmental
Requirements or restrictive covenants, or the Management Agreement, or other
control over the management and affairs of Borrower, nor by any such action
shall Lender be deemed to create a partnership with Borrower.

8.02         Acceleration.  At
any time upon the occurrence and during the continuance of any Event of
Default, Lender may, at its option, declare the Loan and the remaining
Obligation to be immediately due and payable without presentment, demand,
protest, notice of protest and non-payment, or other notice of default, notice
of acceleration and intention to accelerate or other notice of any kind, all of
which are expressly waived by Borrower; provided, however, that if any
Event of Default specified in Article VII(e) hereof shall occur, the
principal of and all interest on the Loan shall thereupon become due and
payable concurrently therewith, without any further action by Lender and
without presentment, demand, protest, notice of protest and non-payment, or
other notice of default, notice of acceleration and intention to accelerate or
other notice of any kind, all of which are expressly waived by Borrower.

 47
 

 

 

8.03         Funds of Lender.  Any
funds of Lender used for any purpose referred to in this Article VIII
shall constitute a portion of the Obligation, shall bear interest from the date
advanced at the Default Rate, shall be secured by all collateral as security
for the Loan and shall be due and payable immediately upon demand.

8.04         Intentionally Deleted.

8.05         Payments to Affiliates. 
Borrower shall not pay or allow to be paid any amount to Borrower,
Guarantor or any Affiliate of any such Person upon the occurrence and during
the continuance of an Event of Default.

8.06         Management Agreement  If
Borrower has entered into a management agreement with respect to management of
the Property (which Borrower is not permitted to do without Lender’s prior
written consent and approval of the manager) then upon the occurrence of any
Event of Default, at any time prior to the completion of the Improvements,
Lender may, at its option, require that the management agreement be
terminated.  Upon a foreclosure or deed
in lieu of foreclosure with respect to all or any portion of the Property, each
Purchaser (and Lender, if Lender is a Purchaser) shall have the right to
terminate the management agreement at its discretion.

8.07         Other Rights and Remedies. Unless such document expressly allows
Lender to act prior to the occurrence of an Event of Default, and with or
without accelerating the maturity of the Loan, Lender may proceed to take and
enforce any of its rights, interests, benefits or privileges under the Loan
Documents or which may be otherwise available to Lender, at law or in equity.

8.08         No Waiver or Exhaustion.  No
waiver by Lender of any of its rights or remedies hereunder, in the other Loan
Documents, or otherwise, shall be considered a waiver of any other or
subsequent right or remedy of Lender; no delay or omission in the exercise or
enforcement by Lender of any rights or remedies shall ever be construed as a
waiver of any right or remedy of Lender; and, no exercise or enforcement of any
such rights or remedies shall ever be held to exhaust any right or remedy of
Lender.

8.09         Right of Offset. 
Borrower hereby grants to Lender a right of offset, to secure the
repayment of the Obligation, upon any and all monies, securities or other
property of Borrower, and the proceeds therefrom, now or hereafter held or
received by or in transit to Lender, from or for the account of Borrower,
whether for safekeeping, custody, pledge, transmission, collection or
otherwise, and also upon any and all deposits (general or special) and credits
of Borrower, and any and all claims of Borrower against Lender at any time
existing.  At any time upon the
occurrence and during the continuance of any Event of Default, Lender is hereby
authorized at any time and from time to time, without notice to Borrower, to
offset, appropriate, apply and enforce said liens against any and all items
hereinabove referred to against the Loan and the remaining Obligation.  Borrower waives any right of Borrower to
require or request that Lender look to any of the Property or Collateral for
repayment of the Obligation prior to exercising its right of offset and waives
any obligation of Lender to do so.

 48

 

 

8.10         Application
of Insurance Proceeds..

(a)           Borrower shall give prompt notice to Lender of any damage, destruction
or casualty to the Property or any part thereof, whether or not covered by
insurance.

(b)           Lender may collect the proceeds of any and all insurance required to be
carried under this Loan Agreement that may become payable with respect to the
Property or any portion thereof (and Borrower hereby authorizes and directs
each insurance company to make payment of such proceeds directly to Lender at Lender’s
request) and, at Lender’s sole option, may apply the same to the Obligation in
the order and manner as Lender may determine, or use all such casualty proceeds
to allow Borrower to restore or rebuild the Property so damaged to a condition
reasonably satisfactory to Lender provided that all of the following conditions
are satisfied: (i) Lender determines in good faith that it is
economically, financially and practically feasible to repair and restore the
Property to its previous condition, with such repairs and restorations being
completed prior to the Maturity Date; (ii) the total cost of repairing and
restoring the Property to its previous condition, as estimated by an architect
approved by Lender, shall not be greater than the amount of such casualty
insurance proceeds together with any sums that Borrower deposits with Lender in
advance for the purpose of paying for the cost of such repairs and restoration;
(iii) such restoration and repair shall be accomplished in accordance with
the requirements and conditions of Section 8.10(c) hereof; and
(iv) no Event of Default has occurred and is continuing.  Notwithstanding the foregoing, upon the
request of Borrower, Lender shall make such insurance proceeds available to
Borrower to restore or rebuild the Property if the insurance proceeds payable
with respect to any damage, destruction or casualty do not exceed One Million
Dollars ($1,000,000.00); provided, that the conditions set forth in subsections
(i), (ii), (iii) and (iv) above have been satisfied.  To the extent Lender makes such proceeds
available to restore or rebuild, the Improvements shall be repaired and
restored so as to be of at least equal value in substantially the same
character as prior to such damage or destruction on or before the Maturity Date.  If such casualty proceeds are made available
by Lender to Borrower, any surplus which may remain out of said insurance
proceeds after payment of all costs and expenses of such repair and restoration
shall, at the option of Lender, be applied as a payment or prepayment of the
Obligation.

(c)           Any restoration or repair shall be commenced with due diligence and in
good faith by Borrower and all funds held by Lender in accordance with the
terms of this Section 8.10 shall be paid out from time to time as such
restoration and repair progresses upon the written approval of Lender and the
written request of Borrower, which requests shall be submitted in form and
substance, and with supporting notices, documentation and waivers as may be
required by Lender.

(d)           Prior to application or disbursal of any casualty insurance proceeds
under this Section 8.10, Lender may deduct therefrom any expenses
incurred in connection with the collection or handling of such proceeds, it
being understood and agreed that Lender shall not be, under any circumstances,
liable or responsible for failure to collect, or 

 49
 

 

 

exercise diligence in the collection of, any
such proceeds, and Lender shall provide Borrower a written summary of all
expenses deducted from such proceeds.

(e)           In the event the Mortgage is foreclosed, or title to any of the
Property is transferred in extinguishment, in whole or in part, of the
indebtedness secured thereby, or by transfer or conveyance in lieu of
foreclosure, and in connection therewith all right, title, and interest of
Borrower in and to all Insurance Policies passes to (i.e., is purchased by)
such transferee or purchaser, the Insurance Policies shall inure to the benefit
of and pass to such successor in interest of Borrower or the Purchaser.

(f)            Notwithstanding anything set forth in this Section
8.10 to the contrary, if the casualty proceeds exceed the Obligation then
outstanding, Borrower may use such proceeds to first repay the Obligation in
full, and upon receipt of funds sufficient to repay the Obligation in full,
Lender shall release the balance of the casualty proceeds to Borrower.

8.11         Application
of Condemnation Proceeds.

(a)           Lender shall be entitled to receive any and all sums which may be
awarded or become payable to Borrower for the condemnation of any of the
Property for public or quasi-public use, or by virtue of private sale in lieu
thereof, and any sums which may be awarded or become payable to Borrower for
damages caused by public works or construction on or near the Property
(collectively, “Condemnation Proceeds”). 
All such Condemnation Proceeds are hereby assigned to Lender, and
Borrower shall, upon request of Lender, make, execute, acknowledge and deliver
any and all additional assignments and documents as may be necessary from time
to time to enable Lender to collect and receipt for any such Condemnation
Proceeds.  Lender shall not, under any
circumstances, be liable or responsible for failure to collect, or exercise
diligence in the collection of, any such Condemnation Proceeds.

(b)           Lender shall, upon Borrower’s written request and so long as no Event
of Default has occurred, make all Minor Condemnation Proceeds available to
Borrower to allow Borrower to repair, renovate or reconstruct the Property to a
condition reasonably satisfactory to Lender, provided that all of the following
conditions are satisfied:

(i)            Lender determines in good faith that
following the contemplated repairs, renovation or reconstruction, the Property
shall not fail to comply with the Management Agreement or any Governmental
Requirement or other restriction affecting the Property, and any changes in the
Property resulting therefrom will not materially adversely affect the operation
or use of the Property (including, without limitation, access, parking, food
and beverage service, security or amenities);

(ii)           Lender determines in good faith that it is economically, financially
and practically feasible to repair, renovate or reconstruct the Property to a
condition substantially equivalent to the condition of the Property prior to
such condemnation, with such repairs, renovation or reconstruction being
completed prior to the Maturity Date;

 50
 

 

 

(iii)          The total cost of repairing, renovating or reconstructing the Property
to a condition substantially equivalent to the condition of the Property prior
to such condemnation, as approved by Lender, and in accordance with the
requirements of subsections (c)(i) and (ii) herein, as estimated
by an architect approved by Lender, shall not be greater than the amount of the
Condemnation Proceeds, together with any sums that Borrower deposits with
Lender in advance for the purpose of paying for the cost of such repairs,
renovation or reconstruction;

(iv)          Such renovation, repairs or reconstruction shall be accomplished in
accordance with the requirements and conditions of Section 8.11(d)
hereof; and

(v)           Lender in good faith believes that prior to completion of such repair,
renovation or reconstruction, sufficient income and revenues will be available
from the Property to pay Total Debt Service and Expenses during the period of
such repair, renovation and reconstruction.

To the extent Lender makes Condemnation
Proceeds available to renovate, repair or reconstruct, the Improvements shall
be renovated, repaired or reconstructed so as to be of at least equal quality
as the quality of the Property prior to such condemnation on or before the
Maturity Date.  If such Condemnation
Proceeds are made available by Lender to Borrower, any surplus which may remain
out of such Condemnation Proceeds after payment of all costs and expenses of
such repair, renovation or reconstruction, shall, at the option of Lender, be
applied as a payment or prepayment of the Obligation.

(c)           Any repairs, renovation or reconstruction, shall be commenced with due
diligence and in good faith by Borrower and all funds held by Lender in
accordance with the terms of this Section 8.11 shall be paid out from
time to time as such repair, renovation, reconstruction or satisfaction
progresses upon the written approval of Lender and the written request of
Borrower, which request shall be submitted in form and substance, and with
supporting notices, documentation and waivers as may be required by Lender.

(d)           If (i) the conditions to Lender’s obligation to make the Condemnation
Proceeds available to Borrower as set forth in Section 8.11(c) hereof
are not satisfied, (ii) an Event of Default has occurred, (iii) the
Condemnation Proceeds are not Minor Condemnation Proceeds, or
(iv) Borrower does not request that Lender make such Minor Condemnation Proceeds
available to Borrower to repair, renovate or reconstruct the Property, Lender
may apply the Condemnation Proceeds to the Obligation in the order and manner
as Lender may determine, or as otherwise provided in this Loan Agreement.

(e)           Prior to application or disbursal of any Condemnation Proceeds under
this Section 8.11, Lender may deduct therefrom any expenses
incurred in connection with the collection or handling of such Condemnation
Proceeds, it being understood and agreed that Lender shall not be, under any
circumstances, liable or responsible for failure to collect, or exercise
diligence in the collection of, any such Condemnation Proceeds.

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8.12         Third
Party Payments  Whenever this Loan Agreement or any other
Loan Document requires that amounts payable by a third party be paid directly
to Lender, Lender may enforce such right with a preliminary injunction or
temporary restraining order.  Borrower
agrees that irreparable harm may result if such payments are not made directly
to Lender.  Borrower agrees not to oppose
a motion for such injunction or restraining order.

8.13         Protective
Advances.  If 
Borrower has failed to keep or perform any covenant whatsoever contained
in any Loan Document, Lender may, but shall not be obligated to any person to,
perform or attempt to perform said covenant, and any payment made or expense
incurred in the performance or attempted performance of any such covenant shall
be a part of the Obligation, and Borrower promises, upon demand, to pay to
Lender all sums so advanced or paid by Lender, with interest at the Default
Rate from the date when paid or incurred by Lender.  No such payment by Lender shall constitute a
waiver of any Event of Default.  In
addition to the Liens of the Loan Documents, Lender shall be subrogated to all
rights, titles, liens, and security interests securing the payment of any debt,
claim, tax, or assessment for the payment of which Lender may make an advance,
or which Lender may pay.

8.14         Tax and Insurance Escrow.  At
the request of Lender after the occurrence of any Event of Default, Borrower
shall create a  reserve for the payment
of all insurance premiums, taxes and assessments against the Property by paying
to Lender, on each Payment Date, a sum equal to the premiums that will next
become due and payable on the hazard Insurance Policies covering the Property,
or any part thereof, plus taxes and assessments next due on the Property, or
any part thereof, as estimated by Lender, less all sums paid previously to
Lender therefor, divided by the number of installments of principal and/or
interest to elapse before one month prior to the date when such premiums, taxes
and assessments will become delinquent, such sums to be held by Lender for the
purposes of paying such premiums, taxes and assessments.  Upon notice from Lender to Borrower, any
excess reserve may, at the discretion of Lender, be credited by Lender on
subsequent payments to be made on the Obligation by Borrower, and any
deficiency shall be paid by Borrower to Lender on or before the date when such
premiums, taxes and assessments shall have become delinquent.  Transfer of legal title to the Property shall
automatically transfer title to any sums deposited under the provisions of this
Section 8.15.

8.15         Waiver of Offset Right Deficiency Statute.
 To the extent such statute is ever
determined applicable by a court of competent jurisdiction in spite of the
location of the Property in the State of Colorado, Borrower hereby knowingly
and intentionally waives, on its own behalf and on behalf of each Guarantor, the right of offset granted
by Sections 51.003, 51.004 and 51.005 of the Texas Property Code.

ARTICLE IX

MISCELLANEOUS

9.01         Notices.  Any notice, demand, request,
consent, approval or other communication, which any party hereto may be
required or may desire to give hereunder, shall be in writing (except where
telephonic instructions or notices are expressly authorized herein to be given)
and 

 52
 

 

 

shall
be deemed to be effective (a) if by hand delivery, telex, telecopy or
other facsimile transmission, on the day and at the time on which delivered to
such party at the address or telecopier numbers specified below; (b) if by
mail, on the second Business Day following the day upon which it is deposited,
postage prepaid, in the United States, registered or certified mail,
return receipt requested, (and first class mail) addressed to such party at the
address specified below; or (c) if by Federal Express or other reputable
express mail service, on the next Business Day following the delivery to such express
mail service, addressed to such party at the address set forth below:

	
  If to Lender:

  	
  Texans Commercial Capital, LLC

  
	
   

  	
  777 East
  Campbell Road, Suite 650

  
	
   

  	
  Richardson,
  Texas 75081

  
	
   

  	
  Telephone:       972-348-2098

  
	
   

  	
  Telecopier:       972-348-2045

  
	
   

  	
  Attention:         Linda
  Robertson

  
	
   

  	
   

  
	
  with copy to:

  	
  Haynes and Boone, LLP

  
	
   

  	
  901 Main Street,
  Suite 3100

  
	
   

  	
  Dallas, Texas
  75202

  
	
   

  	
  Telephone:       214-651-5515

  
	
   

  	
  Telecopier:       214-200-0516

  
	
   

  	
  Attention:         Brad
  Lowry, Esq.

  
	
   

  	
   

  
	
  If to Borrower:

  	
  Behringer Harvard Mountain Village, LLC

  
	
   

  	
  15601 Dallas
  Parkway, Suite 600

  
	
   

  	
  Addison, Texas
  75001

  
	
   

  	
  Telephone:       214-655-1600

  
	
   

  	
  Telecopier:       214-655-1610

  
	
   

  	
  Attention:         Gerald
  J. Reihsen, III

  
	
   

  	
   

  
	
  with copy to:

  	
  Powell & Coleman, L.L.P.

  
	
   

  	
  8080 North
  Central Expressway, Suite 1380

  
	
   

  	
  Dallas, Texas
  75206

  
	
   

  	
  Telephone:       214-890-7108

  
	
   

  	
  Telecopier:       214-373-8768

  
	
   

  	
  Attention:         Patrick
  M. Arnold, Esq.

  

 

Failure
to deliver copies of notices to parties other than Borrower and Lender shall
not affect the effectiveness or validity of notices otherwise properly
given.  Any party may change its address
for purposes of this Loan Agreement by giving ten (10) days written notice of
such change to the other parties pursuant to this Section 9.01.

Notwithstanding any provision contained herein or in any of the Loan
Documents to the contrary, in the event that Lender shall fail to give any
notice to any Person required hereunder or thereunder, the sole and exclusive
remedy for such failure shall be to seek appropriate equitable 

 53
 

 

 

relief
to enforce this Loan Agreement and the other Loan Documents to give such notice
and to have any action of such Person postponed or revoked and any proceedings
in connection therewith delayed or terminated pending the giving of such notice
by Lender, and no Person shall have any right to damages (whether actual or
consequential) or any other type of relief not herein specifically set out
against Lender, all of which damages or other relief are expressly waived.  The foregoing is not intended and shall not
be deemed under any circumstances to require Lender to give notice of any type
or nature to any Person except as expressly required hereby or thereby, or by
applicable Governmental Requirements.

9.02         Modifications.  No
provision of this Loan Agreement or of the other Loan Documents may be
modified, waived, or terminated except by an instrument in writing executed by
Borrower and Lender.

9.03         Form and Substance.  All
documents, certificates, Insurance Policies, and other items required pursuant
to the provisions of this Loan Agreement or any other Loan Document to be
executed and/or delivered to Lender shall be in form and substance satisfactory
to Lender.

9.04         No Third Party Beneficiary.  This
Loan Agreement is for the sole benefit of Lender and Borrower, and is not for
the benefit of any third party.

9.05         Availability of Records; Confidentiality. 
Borrower acknowledges and agrees that Lender may provide to any
Participant or proposed Assignee or 
Participant, originals or copies of this Loan Agreement, all Loan
Documents and all other documents, certificates, opinions, letters of credit,
reports, acquisitions and other material and information of every nature or
description, and may communicate all oral information, at any time submitted by
or on behalf of Borrower or received by Lender in connection with the Loan or
the Property.

9.06         Number and Gender. 
Whenever used herein, the singular number shall include the plural and
the singular, and the use of any gender shall be applicable to all genders.

9.07         Captions.  The captions, headings, and
arrangements used in this Loan Agreement are for convenience only and do not in
any way affect, limit, amplify, or modify the terms and provisions hereof.

9.08         Survival of Agreement.  All
covenants, agreements, representations and warranties made by Borrower or any
other Person herein or in the other Loan Documents shall be considered to have
been relied upon by Lender and shall survive the making by Lender of the Loan
and the execution and delivery to Lender of the Note evidencing the Loan,
regardless of any investigation made by Lender or on its behalf, and shall
continue in full force and effect as long as all or any portion of the
Obligation is outstanding.

9.09         Parties
Bound; Assignment.

(a)           The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Borrower 

 54
 

 

 

may
not assign or otherwise transfer any of its rights under this Agreement without
the prior written consent of Lender.

(b)           Lender may at any time grant to one or more
financial institutions or other entities (each a “Participant”) a
participating interest in the Loan.  In
the event of any such grant by Lender of a participating interest to a
Participant, Lender shall remain responsible for the performance of its
obligations hereunder, and Borrower shall continue to deal solely and directly
with Lender in connection with Lender’s rights and obligations under this
Agreement.  Borrower shall not be
responsible for the payment of any taxes associated with the grant of a
participating interest in the Loan to any Participant as a result of the
Participant’s domicile being other than within the United States of America.

(c)           (i)            Lender
may at any time assign to one or more financial institutions or other entities
(an “Assignee”) all, or a proportionate part of all, of its rights and
obligations under this Agreement and the Note.

9.10         Governing Law; Choice of Forum; Consent to
Service of Process and Jurisdiction; Waiver of Trial by Jury.  This
Agreement, the other Loan Documents and all other aspects of the lending
transaction contemplated herein and evidenced by the Loan Documents shall be
governed by the laws of the State of Texas or the laws of the United States, as
applicable.  Any suit, action or
proceeding against Borrower with respect to this Loan Agreement, the Note or
the other Loan Documents or any judgment entered by any court in respect
thereof, may be brought in the courts of the State of Texas or in the United
States Courts located in the Northern District of Texas as Lender in its sole
discretion may elect, and Borrower hereby submits to the non-exclusive
jurisdiction of such courts for the purpose of any such suit, action or
proceeding.  Borrower hereby agrees that
service of all writs, process and summonses in any such suit, action or
proceeding brought in the State of Texas may be brought upon its process agent
appointed below, and Borrower hereby irrevocably appoints Gerald J. Reihsen,
III, whose address is 15601 Dallas Parkway, Suite 600, Addison, Texas 75001,
its process agent, as its true and lawful attorney-in-fact in the name, place
and stead of Borrower to accept such service of any and all such writs, process
and summonses.  Borrower hereby
irrevocably consents to the service of process in any suit, action or
proceeding in said court by the mailing thereof by Lender by registered or
certified mail, postage prepaid, to Borrower’s address set forth in Section 9.01
hereof.  Borrower hereby irrevocably
waives any objections which it may now or hereafter have to the laying of venue
of any suit, action or proceeding arising out of or relating to this Loan
Agreement, the Note or any other Loan Document brought in the courts located in
the State of Texas, County of Dallas, and hereby further irrevocably waives any
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum. BORROWER AND LENDER AND LENDER HEREBY
WAIVE TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING BROUGHT IN CONNECTION
WITH THIS LOAN AGREEMENT, THE NOTE OR ANY OF THE OTHER LOAN DOCUMENTS, WHICH
WAIVER IS INFORMED AND VOLUNTARY.  TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER HEREBY WAIVES ANY AND ALL
RIGHTS TO REQUIRE MARSHALING OF ASSETS BY LENDER, WITH RESPECT TO THEIR
RESPECTIVE RIGHTS UNDER THE LOAN DOCUMENTS OR OTHERWISE.

 55
 

 

 

9.11         Time of the Essence.  Time
is of the essence with respect to the provisions of this Loan Agreement and the
other Loan Documents.  By accepting
payment of any portion of the Obligation after its due date, Lender does not
waive its right to require prompt payment when due of all other portions of the
Obligation or to declare an Event of Default for failure so to pay.

9.12         Waivers.  No failure or delay of Lender
in exercising any power or right hereunder or under any other Loan Document
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof
or the exercise of any other right or power. 
The rights and remedies of Lender hereunder and under the other Loan Documents
are cumulative and not exclusive of any rights or remedies which it would
otherwise have.  No waiver of any
provision of this Loan Agreement or any of the other Loan Documents or consent
to any departure by Borrower or any other Person therefrom shall in any event
be effective unless signed in writing by Lender, and then such waiver or
consent shall be effective only in the specific instance and for the purpose
for which given.  No notice or demand on
Borrower or any other Person in any case shall entitle Borrower or such Person
to any other or further notice or demand in similar or other circumstances.

9.13         Severability.  In
the event any one or more of the provisions contained in this Loan Agreement or
in any other Loan Documents should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein or therein shall not in any way be affected or
impaired thereby.  The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.

9.14         Counterparts.  This
Loan Agreement may be executed in any number of counterparts, with the same
effect as if all of the parties had signed the same document.  All counterparts shall be construed together
and constitute one agreement.

9.15         Maximum
Interest Rate.  It is the intention of each of Lender and Borrower to
comply with all applicable federal and state Laws relating to usury; that is,
laws limiting charges for the use, detention or forbearance of money and
governing contracts relating thereto. 
Accordingly, this Agreement and all agreements between Borrower and
Lender, whether now existing or hereafter arising, are expressly limited so
that in no event whatsoever, whether by reason of acceleration of the maturity
of the Obligation, or otherwise, shall the amount paid or agreed to be paid to
Lender for the use, forbearance or detention of the money to be loaned under
the Note or otherwise, or for the performance or payment of any covenant or
obligation contained herein or in any other Loan Document exceed the Maximum
Rate.  In the event Lender ever receives,
collects, or applies as interest, any excess amount which would be excessive
interest, that amount shall be treated as a principal prepayment under the Note
and applied to reduce the outstanding principal balance of the Note; provided
that, if the principal of the Note is paid in full, any remaining excess
shall be paid to Borrower.  In
determining whether or not the interest paid or payable, under any specific
contingency, exceeds the Maximum Rate, Borrower and Lender shall, to the
maximum extent permitted under applicable law, (a) characterize any
nonprincipal payment as an expense, fee, or premium rather than as interest,
(b) exclude voluntary prepayments and the effects thereof, and (c) spread the
total amount of interest throughout the entire contemplated term of the Note; provided
that, if the Note is paid and performed in full prior to the end of the
full contemplated term of 

 56
 

 

 

the Note, and if the interest received by Lender for the actual period
of existence of the Note exceeds the Maximum Rate, Lender shall refund to
Borrower the amount of such excess, and, in such event, Lender shall not be
subject to any penalties provided by any laws for contracting for, charging,
taking, reserving, or receiving interest in excess of the Maximum Rate.   To the extent that Lender is relying on the
laws of the State of Texas for purposes of determining the Maximum Rate, such
term shall mean the interest rate ceiling from time to time in effect as
provided in Chapter 303 of the Texas Finance Code, as may be hereafter amended
or recodified.  To the extent United
States federal law permits Lender to contract for, charge or receive a greater
amount of interest, Lender will rely on United States federal law instead of
Chapter 303 of the Texas Finance Code, as may be hereafter amended or
recodified, for the purpose of determining the Maximum Rate.  Additionally, to the extent permitted by
applicable law now or hereafter in effect, Lender may, at its option and from
time to time, implement any other method of computing the Maximum Rate under
Chapter 303 of the Texas Finance Code, as may be hereafter amended or
recodified, or under other applicable Law, by giving Borrower the notice
required by applicable law now or hereafter in effect.  In no event shall the Loan be considered a
revolving credit account as defined in Chapter 346 of the Texas Finance
Code, as may be hereafter amended or recodified.  The terms and provisions of this Section 9.15
shall control and supersede every other provision of this Agreement and of all
agreements with respect to the Loan between Borrower and Lender in the event of
a conflict in such provisions.

9.16         Binding Effect.  This
Loan Agreement shall become effective when it shall have been executed by
Borrower and Lender.

9.17         Controlling Document.  In
the event of any conflict between the terms of this Loan Agreement and any of
the other Loan Documents, the terms of this Loan Agreement shall control.

9.18         Final Release.  Full
payment of the Note by Borrower or any other Person shall automatically
constitute a full release of any claims or causes of action existing as of the
date of such payment in favor of Borrower or any other party, in connection
with the Loan, this Agreement, the Note or any of the other Loan Documents, to
the extent that such claim relates to (i) alleged failure of Lender or its
Affiliates to act in good faith or deal fairly, (ii) alleged oral agreements to
modify the terms of this Agreement, the Note or the other Loan Documents, (iii)
alleged, special or fiduciary relationship between Borrower and Lender, and
(iv) tortuous interference with, or control, over the management of Borrower.

9.19         Entire Agreement.  The
Loan Documents embody the entire agreement between the parties and supersede
all prior agreements and understandings.

9.20         Liability.  Any obligation or liability
of  Borrower hereunder shall be enforceable only against, and payable only
out of, the property of Borrower, and in no event shall any officer, director,
shareholder, partner, beneficiary, agent, advisor or employee of Borrower, be
held to any personal liability whatsoever or be liable for any of the
obligations of the parties hereunder, or the property of any such Persons be
subject to the payment of any such obligations, except in the case of certain
Persons as otherwise specifically provided in the Loan Documents and where such
Persons have executed a written agreement pertaining thereto.

[Remainder of this
page is blank.  Next page is signature
page.]

 57
 

 

 

IN WITNESS WHEREOF, Borrower and Lender have caused this Loan Agreement
to be duly executed by their duly authorized officers, all as of the day and
year first above written.

LENDER:

TEXANS COMMERCIAL CAPITAL, LLC,

a
Texas limited liability company

	
  By:

  	
   

  	
   

  
	
  James N. Roland, Senior Vice President

  	
   

  

 

BORROWER:

BEHRINGER
HARVARD MOUNTAIN VILLAGE, LLC,

a Colorado limited liability company

By:          Behringer Harvard Short-Term Opportunity Fund I LP,

a Texas limited partnership,

its
manager

By:          Behringer Harvard Advisors
II LP.

a Texas limited partnership,

its
general partner

By:          Harvard Property Trust, LLC,

a
Texas limited liability company

its general partner

	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  

 

 58

 

 

LOAN AGREEMENT

by and among

BEHRINGER HARVARD MOUNTAIN VILLAGE LLC,

as Borrower

and

TEXANS COMMERCIAL CAPITAL, LLC,

as Lender

* * *

US $31,650,000

* * *

September 29, 2006

 

 

	
  ARTICLE I

  	
   

  	
  DEFINITIONS

  	
   

  	
  1

  
	
  1.01

  	
   

  	
  Definitions

  	
   

  	
  1

  
	
  1.02

  	
   

  	
  Other Definitional Provisions

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
   

  	
  THE LOAN

  	
   

  	
  17

  
	
  2.01

  	
   

  	
  The Loan

  	
   

  	
  17

  
	
  2.02

  	
   

  	
  Interest on the Loan

  	
   

  	
  17

  
	
  2.03

  	
   

  	
  Note; Repayments

  	
   

  	
  17

  
	
  2.04

  	
   

  	
  Manner and Application
  of Payments

  	
   

  	
  17

  
	
  2.05

  	
   

  	
  Origination Fee

  	
   

  	
  18

  
	
  2.06

  	
   

  	
  Advances.

  	
   

  	
  18

  
	
  2.07

  	
   

  	
  Prepayment of Loan

  	
   

  	
  20

  
	
  2.08

  	
   

  	
  Taxes

  	
   

  	
  20

  
	
  2.09

  	
   

  	
  Lending Office

  	
   

  	
  22

  
	
  2.10

  	
   

  	
  Conditions Precedent
  for the Benefit of Lender

  	
   

  	
  22

  
	
  2.11

  	
   

  	
  Conditions to the
  Initial Advance

  	
   

  	
  22

  
	
  2.12

  	
   

  	
  Conditions to
  Subsequent Advances

  	
   

  	
  22

  
	
  2.13

  	
   

  	
  Reallocation of
  Approved Budget

  	
   

  	
  23

  
	
  2.14

  	
   

  	
  No Waiver

  	
   

  	
  24

  
	
  2.15

  	
   

  	
  Subordination

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
   

  	
  REPRESENTATIONS AND
  WARRANTIES OF BORROWER

  	
   

  	
  24

  
	
  3.01

  	
   

  	
  Organization

  	
   

  	
  24

  
	
  3.02

  	
   

  	
  Authorization and Power

  	
   

  	
  24

  
	
  3.03

  	
   

  	
  Valid and Binding Obligation

  	
   

  	
  25

  
	
  3.04

  	
   

  	
  Conflicts

  	
   

  	
  25

  
	
  3.05

  	
   

  	
  Consents, Etc

  	
   

  	
  25

  
	
  3.06

  	
   

  	
  Pending Litigation

  	
   

  	
  25

  
	
  3.07

  	
   

  	
  Principal Office, Etc.

  	
   

  	
  25

  
	
  3.08

  	
   

  	
  Control Persons

  	
   

  	
  26

  
	
  3.09

  	
   

  	
  Government Regulation

  	
   

  	
  26

  
	
  3.10

  	
   

  	
  Insider

  	
   

  	
  26

  
	
  3.11

  	
   

  	
  O.S.H.A.

  	
   

  	
  27

  
	
  3.12

  	
   

  	
  Financial Condition

  	
   

  	
  27

  
	
  3.13

  	
   

  	
  Restrictions

  	
   

  	
  27

  
	
  3.14

  	
   

  	
  No Default

  	
   

  	
  27

  
	
  3.15

  	
   

  	
  Labor Relations

  	
   

  	
  27

  
	
  3.16

  	
   

  	
  ERISA

  	
   

  	
  27

  
	
  3.17

  	
   

  	
  Single Purpose
  Entities; Nature of Borrower

  	
   

  	
  28

  
	
  3.18

  	
   

  	
  Indebtedness

  	
   

  	
  28

  
	
  3.19

  	
   

  	
  Taxes

  	
   

  	
  28

  

 

 

 

	
  3.20

  	
   

  	
  Property

  	
   

  	
  28

  
	
  3.21

  	
   

  	
  Use of Property

  	
   

  	
  29

  
	
  3.22

  	
   

  	
  Full Disclosure

  	
   

  	
  29

  
	
  3.23

  	
   

  	
  Title to the Property

  	
   

  	
  29

  
	
  3.24

  	
   

  	
  Leases

  	
   

  	
  30

  
	
  3.25

  	
   

  	
  Governmental
  Requirements

  	
   

  	
  30

  
	
  3.26

  	
   

  	
  Financing Statements

  	
   

  	
  30

  
	
  3.27

  	
   

  	
  Material Agreements

  	
   

  	
  30

  
	
  3.28

  	
   

  	
  Accuracy of Information

  	
   

  	
  30

  
	
  3.29

  	
   

  	
  Access

  	
   

  	
  30

  
	
  3.30

  	
   

  	
  Commencement of
  Construction

  	
   

  	
  30

  
	
  3.31

  	
   

  	
  Authorized Signatories

  	
   

  	
  30

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
   

  	
  AFFIRMATIVE COVENANTS
  OF BORROWER

  	
   

  	
  31

  
	
  4.01

  	
   

  	
  Financial Statements,
  Reports and Documents of Borrower and Other Persons

  	
   

  	
  31

  
	
  4.02

  	
   

  	
  Loan Proceeds

  	
   

  	
  33

  
	
  4.03

  	
   

  	
  Assets of Borrower

  	
   

  	
  33

  
	
  4.04

  	
   

  	
  Leases

  	
   

  	
  33

  
	
  4.05

  	
   

  	
  Management,
  Maintenance, Repairs and Alterations

  	
   

  	
  34

  
	
  4.06

  	
   

  	
  Inspection of Books and Records

  	
   

  	
  34

  
	
  4.07

  	
   

  	
  Compliance with
  Governmental Requirements

  	
   

  	
  34

  
	
  4.08

  	
   

  	
  Insurance and Notice

  	
   

  	
  35

  
	
  4.09

  	
   

  	
  Payment of Taxes

  	
   

  	
  35

  
	
  4.10

  	
   

  	
  Payment of Claims

  	
   

  	
  36

  
	
  4.11

  	
   

  	
  Costs and Expenses

  	
   

  	
  36

  
	
  4.12

  	
   

  	
  Indemnity by Borrower

  	
   

  	
  36

  
	
  4.13

  	
   

  	
  Further Assurances

  	
   

  	
  37

  
	
  4.14

  	
   

  	
  Construction Contracts

  	
   

  	
  38

  
	
  4.15

  	
   

  	
  Plans

  	
   

  	
  38

  
	
  4.16

  	
   

  	
  Prosecution of
  Construction

  	
   

  	
  38

  
	
  4.17

  	
   

  	
  Correction of Defects

  	
   

  	
  38

  
	
  4.18

  	
   

  	
  Storage of Materials

  	
   

  	
  39

  
	
  4.19

  	
   

  	
  Inspection of the
  Property

  	
   

  	
  39

  
	
  4.20

  	
   

  	
  Notices by Governmental
  Authority, Fire and Casualty Losses, Etc.

  	
   

  	
  39

  
	
  4.21

  	
   

  	
  Application of Advances
  and the Loan

  	
   

  	
  39

  
	
  4.24

  	
   

  	
  Anti-Terrorism
  Compliance

  	
   

  	
  40

  
	
  4.25

  	
   

  	
  Defense of Title

  	
   

  	
  40

  
	
  4.26

  	
   

  	
  Pre-Sale Contracts

  	
   

  	
  40

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
   

  	
  NEGATIVE COVENANTS

  	
   

  	
  40

  
	
  5.01

  	
   

  	
  Name, Fiscal Year and
  Accounting Method

  	
   

  	
  40

  
	
  5.02

  	
   

  	
  Consolidation, Merger,
  Conveyance, Transfer or Lease

  	
   

  	
  40

  
	
  5.03

  	
   

  	
  ERISA Compliance

  	
   

  	
  40

  

 

 

 

	
  5.04

  	
   

  	
  Transactions with
  Affiliates

  	
   

  	
  41

  
	
  5.05

  	
   

  	
  No Conditional Sales Contracts,
  Etc.

  	
   

  	
  41

  
	
  5.06

  	
   

  	
  Lines of Business

  	
   

  	
  41

  
	
  5.07

  	
   

  	
  Easements

  	
   

  	
  41

  
	
  5.08

  	
   

  	
  Changes in Zoning

  	
   

  	
  41

  
	
  5.09

  	
   

  	
  New Construction

  	
   

  	
  41

  
	
  5.10

  	
   

  	
  Limitation on
  Indebtedness and Liens

  	
   

  	
  41

  
	
  5.11

  	
   

  	
  Distributions,
  Dividends and Repayments

  	
   

  	
  41

  
	
  5.12

  	
   

  	
  Limitation on
  Investments

  	
   

  	
  42

  
	
  5.13

  	
   

  	
  Organizational
  Documents

  	
   

  	
  42

  
	
  5.14

  	
   

  	
  Material Agreements

  	
   

  	
  42

  
	
  5.15

  	
   

  	
  Anti-Terrorism
  Compliance

  	
   

  	
  42

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
   

  	
  CONDITIONS OF LENDING

  	
   

  	
  43

  
	
  6.01

  	
   

  	
  Loan Documents

  	
   

  	
  43

  
	
  6.02

  	
   

  	
  Governmental Approvals

  	
   

  	
  43

  
	
  6.03

  	
   

  	
  Appraisal

  	
   

  	
  43

  
	
  6.04

  	
   

  	
  Insurance

  	
   

  	
  43

  
	
  6.05

  	
   

  	
  Survey

  	
   

  	
  43

  
	
  6.06

  	
   

  	
  Title Insurance

  	
   

  	
  43

  
	
  6.07

  	
   

  	
  UCC Searches

  	
   

  	
  43

  
	
  6.08

  	
   

  	
  Financial Information

  	
   

  	
  43

  
	
  6.09

  	
   

  	
  Soils Report

  	
   

  	
  43

  
	
  6.10

  	
   

  	
  Inspecting
  Architect/Engineer Audit

  	
   

  	
  43

  
	
  6.11

  	
   

  	
  Environmental Audit

  	
   

  	
  43

  
	
  6.13

  	
   

  	
  Organizational
  Documents

  	
   

  	
  44

  
	
  6.14

  	
   

  	
  Tax Information

  	
   

  	
  44

  
	
  6.15

  	
   

  	
  Opinions of Counsel

  	
   

  	
  44

  
	
  6.16

  	
   

  	
  Account

  	
   

  	
  44

  
	
  6.17

  	
   

  	
  The Fees

  	
   

  	
  44

  
	
  6.18

  	
   

  	
  Partnership Consent

  	
   

  	
  44

  
	
  6.19

  	
   

  	
  Additional Information

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
   

  	
  EVENTS OF DEFAULT

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
   

  	
  RIGHTS AND REMEDIES OF
  LENDER

  	
   

  	
  47

  
	
  8.01

  	
   

  	
  Rights of Lender

  	
   

  	
  47

  
	
  8.02

  	
   

  	
  Acceleration

  	
   

  	
  47

  
	
  8.03

  	
   

  	
  Funds of Lender

  	
   

  	
  48

  
	
  8.04

  	
   

  	
  Intentionally Deleted

  	
   

  	
  48

  
	
  8.05

  	
   

  	
  Payments to Affiliates

  	
   

  	
  48

  
	
  8.06

  	
   

  	
  Management Agreement

  	
   

  	
  48

  

 

 

 

	
  8.07

  	
   

  	
  Other Rights and
  Remedies

  	
   

  	
  48

  
	
  8.08

  	
   

  	
  No Waiver or Exhaustion

  	
   

  	
  48

  
	
  8.09

  	
   

  	
  Right of Offset

  	
   

  	
  48

  
	
  8.10

  	
   

  	
  Application of
  Insurance Proceeds.

  	
   

  	
  49

  
	
  8.11

  	
   

  	
  Application of
  Condemnation Proceeds.

  	
   

  	
  50

  
	
  8.12

  	
   

  	
  Third Party Payments

  	
   

  	
  52

  
	
  8.13

  	
   

  	
  Protective Advances

  	
   

  	
  52

  
	
  8.14

  	
   

  	
  Tax and Insurance
  Escrow

  	
   

  	
  52

  
	
  8.15

  	
   

  	
  Waiver of Offset Right
  Deficiency Statute

  	
   

  	
  52

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IX

  	
   

  	
  MISCELLANEOUS

  	
   

  	
  52

  
	
  9.01

  	
   

  	
  Notices

  	
   

  	
  52

  
	
  9.02

  	
   

  	
  Modifications

  	
   

  	
  53

  
	
  9.03

  	
   

  	
  Form and Substance

  	
   

  	
  53

  
	
  9.04

  	
   

  	
  No Third Party Beneficiary

  	
   

  	
  53

  
	
  9.05

  	
   

  	
  Availability of
  Records; Confidentiality

  	
   

  	
  53

  
	
  9.06

  	
   

  	
  Number and Gender

  	
   

  	
  53

  
	
  9.07

  	
   

  	
  Captions

  	
   

  	
  53

  
	
  9.08

  	
   

  	
  Survival of Agreement

  	
   

  	
  53

  
	
  9.09

  	
   

  	
  Parties Bound;
  Assignment

  	
   

  	
  53

  
	
  9.10

  	
   

  	
  Governing Law; Choice
  of Forum; Consent to Service of Process and Jurisdiction; Waiver of Trial by
  Jury

  	
   

  	
  55

  
	
  9.11

  	
   

  	
  Time of the Essence

  	
   

  	
  56

  
	
  9.12

  	
   

  	
  Waivers

  	
   

  	
  56

  
	
  9.13

  	
   

  	
  Severability

  	
   

  	
  56

  
	
  9.14

  	
   

  	
  Counterparts

  	
   

  	
  56

  
	
  9.15

  	
   

  	
  Maximum Interest Rate

  	
   

  	
  56

  
	
  9.16

  	
   

  	
  Binding Effect

  	
   

  	
  57

  
	
  9.17

  	
   

  	
  Controlling Document

  	
   

  	
  57

  
	
  9.18

  	
   

  	
  Final Release

  	
   

  	
  57

  
	
  9.19

  	
   

  	
  Entire Agreement

  	
   

  	
  57

  

 

EXHIBITS

	
  Exhibit A

  	
  Legal Description of Land

  
	
  Exhibit B

  	
  Approved Budget

  
	
  Exhibit C

  	
  Assignment of Construction Contract

  
	
  Exhibit D

  	
  Application for Advance

  
	
  Exhibit E

  	
  Contractor’s Affidavit and Subordination

  
	
  Exhibit F

  	
  Assignment of Plans and Consent of Architect and
  Engineer

  
	
  Exhibit G

  	
  Survey Requirements

  
	
  Exhibit H

  	
  Compliance Certificate

  
	
  Exhibit I

  	
  Disclosed Litigation

  
	
  Exhibit J

  	
  Price Schedule

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00111-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00111-of-00352.parquet"}]]