Thermidor 18, 2002

Fictional Insurance Company

P.O. Box 0000
Smallville, NY 00000

Attention:

AUTHORITY REQUESTED

ADJUSTERS REPORT
For the sole consideration of Addressee - Privileged

Our Reference : 02206-02

Your Reference : 12345678

Insured : Fancy Restaurant, Inc.

Location of Loss : 400West 800thStreet, New York, NY 10000

Type of Loss : Fire

Policy No. : 0000000000

Date of Loss : Thermidor 25, 2002

Claim BPP : $128,002.99

Claim Business Income : $162,850.08

Claim Extra Expense : $30,000.00

ESTIMATE OF DAMAGE

BUSINESS PERSONAL PROPERTY (I & B, CODE UPGRADE, EQUIPMENT, CONTENTS, STOCK):

RCV Loss $128,002.99

Less Depreciation (20,638.34)
ACV Loss 107,364.65
Less Deductible (5,000.00)
ACV Claim $102,364.65

Recoverable Depreciation $20,638.34

BUSINESS INCOME:

Loss as Incurred $162,850.08

EXTRA EXPENSE:

Loss as Incurred $30,000.00

COVERAGE

Coverage is provided by Fictional Group pursuant to policy No. 0000000000 which is an All Risk
policy providing Replacement Cost coverage to your insureds Business Personal Property subject
to a $2,234,000 limit of liability and $5,000 deductible. Business Income as incurred up to twelve
months is also provided subject to a limit of liability of $4,470,218 and a twenty-four hour waiting
period. Extra Expense coverage is afforded although we are unaware of the liability limit. The
policy is written on Fictional Insurance Company paper and is subject to the LSM package forms.
This loss occurred during the twelve month policy period that commenced February 8, 2002.
The location of this loss is 400West 800th Street, New York, NY 10000.

We note that the definitions form defines Business Personal Property to include code upgrades
which is relevant as such an upgrade is a feature of this loss.

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INSURED/RISK

Your named insured is Fancy Restaurant, Inc.,

which operates three Fancy Restaurant restaurants;
two located in Manhattan, the other in Minnesota.
The loss location subject to this claim is the Fancy
Restaurant eatery located at 400 West 800th Street
in Manhattan. This is your insureds premier
location where an average cost of a dinner and one
drink is $64 (according to Zagat survey).
Accordingly, the restaurant serves an exclusive
Restaurant in Rear of 1st Floor & Basement
clientele and is considered the premier Antarctic
themed restaurant in the metropolitan area. The
restaurant, situated within a former Rockefeller residence which is now an historic landmark
building, is noted as much for its elegant decor as for its food. The interior includes a glass atrium
over the main dining area, a two story waterfall cascading down a marble wall, birch trees, and
private dining rooms adorned with valuable artwork.

In addition to the main dining area, which accommodates 165 patrons, there is a small caf and
separate full bar. The dining and cafes each have separate kitchens. Fancy Restaurant operates
seven days per week serving lunch between noon and 3:00PM and dinner between 5:30PM and
10:30PM. The location employs 90 individuals and was renovated by your insured approximately
one year prior to the fire. Renovations included new carpeting, paint, and ceiling tiles throughout.
Your insured reports between $130,000 and $140,000 in weekly sales from all the operations at this
location. The location also includes a back office administrative area and executive office for its
general manager, Joseph Smith.

Oligarch Realty, Inc. owns and manages the building. Attached you will a fifteen year lease
agreement between your insured and the predecessor landlord, Big Landlord, Inc. Our full review
of the document reveals that your insured is obligated to maintain its Improvements & Betterments
and that the building owner is to maintain all common portions of the structure. Further, the lease
entitles the insured to a rent abatement during the repair period of common portions of the structure
after a casualty. This abatement is reflected in our Business Income calculation and has been
objected to by the insureds landlord. However, the insured agrees with our interpretation of the
lease and has decided to fight the landlord for the abatement through it legal counsel. Further, the
lease provides for a mutually beneficial subrogation waiver. We have marked the document for your
review and you can find the relevant provisions as follows:

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 Legal Interest: Pages 12, 14

Rent Abatement: Pages 17, 19

Subrogation Waiver: Page 16

CAUSE OF LOSS

While preparing for food service on the date of loss,

a skillet of butter was spilt on your insureds grill in
the main kitchen resulting in a flash fire which
spread to the exhaust hood and into the buildings
ductwork. Due to an outdated duct design and
mismatched fire suppression system and exhaust
hood, the fire was not extinguished and continued to
burn until extinguished by the New York City Fire
Department. The fire department released
Exhaust Hood
pressurized water into the duct system, flooding
your insureds kitchens and portions of the dining
and bar areas. Resulting damage to equipment, Improvements & Betterments, and portions of the
building duct system resulted in a suspension of operations lasting nineteen and one half days (your
insured missed lunch but opened for dinner on the date operations resumed).

Attached you will find reports by cause and origin and equipment experts we retained on your
behalf. It is their conclusion that inadequate cleaning of the main ductwork throughout the building
and the branch of duct between the main ductwork and your insureds primary kitchen exhaust hood
by your insureds duct cleaning vendor caused the initial flash fire to continue to burn within the
duct system. The existing fire suppression system, which was incompatible with your insureds
exhaust hood, failed to suppress the fire. The fire suppression system was installed by your insured
upon assuming occupancy of the premises approximately fifteen years ago, while the duct system
was built by your insureds landlord. The duct system itself does not conform to current codes as
the main duct throughout the building branches into two separate ducts leading to each of your
insureds kitchen operations. We are told that current building codes require separate and
independent duct systems for each kitchen.

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The attached report by James F. Valentine, Inc. is a clinical analysis of the operation and design of
your insureds exhaust and fire suppression systems, an analysis of industry and municipal standards
for the equipment, and an overview of the failure that led to the fire. According to Mr. Valentine,
in addition to the poor duct cleaning by your insureds vendor, the company retained by your insured
to maintain and inspect the fire suppression system negligently approved an ansel fire suppression
wet chemical extinguishing system incompatible with your insureds water wash hood and duct
system. Mr. Valentine concludes that ACME Fire Control, Inc. improperly considered the water
wash features of the hood as a fire suppression feature and therefore neglected to direct the insured
to install fire suppression nozzles to protect the plenum and duct areas of the hood. This resulted in
the fire spreading unimpeded into the duct system. An exhibit attached to Mr. Valentines report is
a letter from the National Fire Protection Association Standard Committee and Underwriters
Laboratories confirming that no water wash system has ever been listed as a fire suppression system.

SUBROGATION

We have placed both identified responsible parties on notice of Fictionals subrogation interest.
These parties are as follows:

Negligent Duct Guys, Inc.

25-03 Lizzie Avenue
Borden, NY 10000
Phone: (555) 555-1212
Fax: (555) 555-1212

and

ACME Fire Control, Inc.

9034 Walt Avenue
North Frasier, NJ 07000
Phone: (201) 555-1212
Fax: (212) 555-1212

The suppression system was last inspected by ACME Fire Control, Inc. on August 6, 2001. The
duct system, which was cleaned quarterly, was last cleaned on July 3, 2002. We have been informed
that the services provided by Negligent Duct Guys was inadequate and that your insured has retained
a new duct cleaning company which has been able to clean the duct system with much greater

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efficiency and effectiveness. However, we do note in Mr. Valentines report that the lack of access
panels on each level of the building as required by code made it physically impossible to gain access
to the entire duct run.

Immediately following his inspection, Mr. LeBow identified both parties and placed them on notice
of Fictionals subrogation rights independent of the letters issued from our office. An attempt was
made to facilitate an inspection by the insurers of these entities prior to extraction of the hood.
However, timely responses were not received and in an attempt to mitigate your insureds
suspension of operations, we had Mr. Valentines company remove and properly store the hood as
evidence. There is an evidence change of custody record included in Mr. Valentines report along
with photographic documentary evidence of the hoods condition post-loss and pre-removal.

LEGAL INTEREST

We appear to have an incomplete list of lien holders/loss payees on the declaration page provided
to us by the insureds broker. The following are identified:

Big Guy Realty Group, Inc.12345

New York, NY 10000

US Lead
1010 Thomas Edison Blvd.
Back Woods, NY 10000

There is no public adjuster. Although there is a certificate of satisfaction from United Restoration,
there is no direction of payment. We are unaware of any other parties with an interest in this claim.

Our Improvements & Betterments and Equipment estimate excludes all property owned by the
building. Although the lease agreement requires your insured to maintain the entire duct system,
the duct system was initially installed by the building and therefore does not constitute your
insureds Improvements & Betterments as defined in your policy. Therefore repair to the duct and
its insulation-board lining has not been included in our estimate despite the buildings demands.
Likewise, we have prorated a repair invoice to the duct system to reflect only those sections installed
by your insured at the time of the hood installation.

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SCOPE OF DAMAGE

We have retained Leihbacher-Mustich to

estimate damage sustained to your insureds
Improvements & Betterments and Steve
Mazer to perform the same for equipment.
United Restorations was brought in upon the
recommendation of the broker at the time the
claim was reported for the performance of
water extraction, microbial treatment,
aeration, and timely repairs to minor
Improvements & Betterments to facilitate
Water Damage Along Walls in Main Dining resumption of operations. Reports from all
three are included. We provided Leihbacher-
Mustich with Uniteds invoice prior to their inspection to avoid redundancies. A review was made
by our office to ensure that no building items were included. Also attached is our recapitulation of
the estimates of these experts and our estimate of the insureds Contents and Stock loss, all of which
fall under the Business Personal Property coverage. The Business Personal Property claim at
Replacement Cost totals $128,002.99. This falls approximately $40,000 short of the insureds claim;
the difference reflecting the variances the estimates for repairs prepared by Leihbacher and Mazer
and the charges your insured incurred from their contractor and equipment suppliers.

Our Improvements & Betterments recapitulation includes a trade summary of Leihbachers estimate,
the invoice by United Restoration along with miscellaneous items addressed elsewhere. As you
have been informed, we removed the overhead and profit charged by United Restoration as such a
calculation is inappropriate for a restoration company not performing general contractor activities.
Further, we note upon review of United Restorations invoice that profit is calculated within the unit
cost for individual line items making a profit calculation at the end of the estimate partially
redundant even in the event that general contractor activities were provided. All employees
performing restoration services were direct employees, not subcontractors, of United Restoration.
United Restoration has objected to our revision. Items which we have added at the end of
Leihbachers trade summary are for the rewiring of your insureds audio system, the replacing of
calcium block fire proofing behind the insureds hood (the fire proofing was installed by your
insured at the time of hood installation) and one third of an invoice to reflect your insureds interest
in the cleaning of ductwork made necessary as a result of the fire. Finally, Mr. Smith explained to
us that your insureds fire sensors and connections to the buildings fire panel were destroyed by the
exposure to water warranting a rewiring to the panel and the replacement of sensors by their
contractor, Crossfire. Their invoice in the amount of $6,900 is attached to the file.

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Concerning equipment, we have provided a recapitulation of those items reviewed and
recommended by Mazer. In addition, your insured was required to upgrade its fire suppression
system to eliminate the inadequacies which were partially responsible for this event. We discussed
the necessity of the upgrade with Mr. Valentine who concurred with your insureds new fire
suppression contractor, Reliable Fire Protection. Since code upgrades are included within the
definition of Business Personal Property, we have included the scope item in our equipment estimate
after revising the price in consultation with Mazer. As a result of this inclusion, we have removed
the line item by Steve Mazer for the removal and reinstallation of the existing system of $1,200. As
you will see in the attached photographs, the exhaust hood was irreparably damaged warranting
replacement and an agreed price between Mazer and your insureds contractor of $16,995.25.

The insured also submitted bills for repairing a fan switch and replacing and testing kitchen printers.
We revised these prices after consultation with Mazer as reflected in the recapitulation. Mazer
informs that these were not brought to his attention at the time of his inspection. The caf kitchen
oven required removal and resetting in order to facilitate other repairs to Improvements &
Betterments. We are told that the oven was damaged during the removal and the insured decided to
replace the piece of equipment rather than repair and reset it. We have included a price suggested
by Mazer for removal, resetting, and any associated reasonable repair of damage sustained to the
oven in the process.

We reviewed contents and stock with your insured at the time of our inspection and provide our
Contents estimate as an attachment to this report. Stock included in our estimate could not keep
during the period of restoration and was not deemed worthy of salvage consideration. In addition
to the stock, various items of your insureds China and glassware were damaged by firefighting
activities requiring replacement at prices that we have confirmed with your insured using previous
purchase invoices. Other Contents items included the replacement of chefs jackets, a repair to your
insureds telecommunication system and the replacement of destroyed plants, all of which we have
confirmed with invoices.

BUSINESS INCOME

As you are aware, our office provided Business Income calculations based upon your insureds tax
returns and profit and loss statements in order to facilitate advance payments to speed resumption
of operations. Attached to this report is our final BI calculation which has been agreed to by the

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 insured. It differs little from the previous
1,000,000.00
calculations provided to you. We reviewed
900,000.00

800,000.00
your insureds tax returns to determine daily
700,000.00 sales and expenses per account for the initial
600,000.00
calculations. For the final calculation we used
500,000.00

400,000.00
your insureds profit and loss statements for the
300,000.00 most recent data available and found that daily
200,000.00
sales and expenses as a percentage of sales
100,000.00

-
varied inconsequentially from our previous
calculation. At left is a chart mapping your
2000 2001 2002 insureds sales for the years 2000 through
2002. Although there is some negative
Sales Trend
trending for the two months just prior to the
date of loss, the months of January, March, and
May were higher than the previous years. Therefore, we did not consider a negative trend when
determining forecasted sales as there was insufficient data to suggest that the lower sales for the two
prior months was anything other than anomalous. We used your insureds profit and loss statements
for the months of July and August for previous years to determine a daily sales figure which reflects
any seasonality. July sales average $16,446.50 with August sales averaging $15,435.38. Therefore,
your insureds calculated lost sales for the 6 days in July and 12.5 days in August totals
$291,621.29. Using the same historical data to calculate expense per account as a percentage of
sales, we determined that costs of goods sold was 27.70% of all sales. Your insureds payroll at
23.72% of sales, continued throughout the period. Other than the costs of goods sold, other
significant non-continuing expenses included repairs, rent, promotions, linen service, flowers and
decoration, cleaning service and supplies, music and entertainment, travel, credit card processing
fees, and utilities. Our total for non-continuing expense is $128,771.21. This, subtracted from our
calculated sales loss, determines the Business Income claim at $162,850.08.

We have not received an extended Business Income claim from your insured.

EXTRA EXPENSE

Your insured collects that portion of fees from its patrons bills that reflect tips in order to distribute
the funds to its employees based upon position. Your insured also withholds taxes for proper
reporting to the IRS. In order to retain the wait staff during the period of restoration it was necessary
for the insured to approximate earned tips and pay a sufficient amount to the staff to keep them from

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seeking jobs elsewhere. Since your insured informs that this was necessary to reopen with the same
standard as existed prior to the loss, they have submitted it as part of their claim. It is our opinion
that it does not belong under the Business Income calculation as these tips were merely a pass
through of a transaction between the patron and employee and was not an expense of the insureds
(with the exception of any FICA matching which has not been claimed). Shortly after the loss your
insured informed that its payment of $30,000 was an approximation of the lost tips and was adequate
to retain the staff. At the time the payment was made, no documentation had been submitted to our
office for verification. When we pressed for verifying documents it was determined by your insured
that tips during the period would have actually approximated $50,000.

It is now being claimed that your insured was aware that the tips approximated $50,000 from the
outset and that an additional $20,000 had been promised to the wait staff once insurance proceeds
were received. We informed Fictional that it was our very strong impression that it was the insureds
belief that the tips approximated $30,000 and that the $50,000 figure subsequently calculated was
solely the result of our request, made after the resumption of operations, that the insured justify the
$30,000 figure. Therefore, the additional $20,000 was not needed to retain the wait staff and
therefore does not constitute a necessary Extra Expense as required by the policy. The insured has
informed that they would like to pay their wait staff the additional $20,000 they now believe is due.
We have informed that it is our position (to be reviewed by Fictional) that coverage under Extra
Expense is limited to the amount necessary to retain the wait staff, which was $30,000. We note that
the Extra Expense coverage form states as follows, we will pay for the actual and necessary extra
expense loss you incur due the physical loss or damage to your property . . . Once again, it is our
opinion that the additional $20,000 was neither actual (as it was not paid during the period of
restoration and has yet to be paid) nor necessary to avoid or mitigate the suspension of operations.

EXPERTS

The following experts have been retained on your behalf:

Leihbacher-Mustich
75 Cooley Street
Pleasantville, NY 10570

Attached you will find an invoice from Leihbacher-Mustich in the amount of $804.62.

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 Steven H. Mazer Associates
18 Fair Lane
Jericho, NY 11573

Attached you will find Mr. Mazers fee for services in the amount of $829.90.

Plankey/LeBow Associates
P.O. Box 120335
Staten Island, NY 10312

Attached you will find a fee for Mr. LeBows services in the amount of $2,102.24.

James Valentine Jr., Inc.

P.O. Box 4106
11 North Berlin Road
Lindenwold, NJ 08021

Mr. Valentines invoice was provided to you under separate cover for payment.

RECOMMENDATIONS

We hereby request authority to pursue settlement as outlined in the Estimate of Damage caption of
our report. Should you have any questions, please contact the undersigned at (646) 336-9380 or at
kstevenson@mswadjustmentgroup.com.

Very truly yours,

MSW ADJUSTMENT GROUP

Kenneth Stevenson
Partner

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Enclosures: Statement of Loss
MSW I & B Estimate Recapitulation
MSW Equipment Estimate Recapitulation
MSW Contents/Stock Estimate
MSW BI Calculation
Lease Agreement
Leihbacher-Mustich Report & Invoice
Steve Mazer Report & Invoice
James Valentine Causation Analysis
James Valentine Custody Report

Not sent but available upon request: Insureds Tax Returns & Profit & Loss Statements
Invoices from Insured for Repairs to BPP

Sent Previously: Jonathan LeBow Report

Photographs
United Restoration Invoice

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