Membership Interest Purchase Agreement

EXHIBIT 10.13


MEMBERSHIP INTEREST PURCHASE AGREEMENT

BETWEEN

PARAGON STEAKHOUSE RESTAURANTS, INC.

AND

DELAWARE TRUST COMPANY, N.A. AS OWNER TRUSTEE AND WELLS FARGO BANK, N.A. AS INDENTURE TRUSTEE OF THE ACLC BUSINESS LOAN RECEIVABLES TRUST 1999-2

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

2000-1

OCTOBER ____, 2006


TABLE OF CONTENTS

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

(a) Basic Transaction . 7

(b) Purchase Price and Payment 7

(c) Post-Closing Adjustment 8

(d) Closing 9

(e) Deliveries at Closing 9

(f) Security for Note 10

(g) Liquor Licenses 10

(h) Proration of Expenses 10

(i) Gift Cards 11 3. Representations and Warranties Concerning Transaction 11

(a) Sellers' Representations and Warranties 11

(b) Buyer' s Representations and Warranties 12 4. Representations and Warranties Concerning Each Company and Its Subsidiaries 12

(a) Organization, Qualification, and Corporate Power 13

(b) Capitalization 13

(c) Noncontravention 13

(d) Brokers' Fees 14

(e) Title to Assets 14

(f) Subsidiaries 14

(g) Financial Statements 14

(h) Events Subsequent to Most Recent Fiscal Year End : 15

(i) Undisclosed Liabilities 17

(j) Legal Compliance 17

(k) Tax Matters 17

(l) Real Property 19

(m) Intellectual Property 22

(n) Tangible Assets 23

(o) Inventory 23

(p) Contracts 24

(q) Notes and Accounts Receivable 25

(r) Powers of Attorney 25

(s) Insurance 25

(t) Litigation 26

(u) Reserved 26

(v) Liability 26

(w) Employees 26


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TABLE OF CONTENTS

(continued)

Page

(x) Employee Benefits 26

(y) Guaranties 28

(z) Environmental, Health, and Safety Matters 28

(aa) Certain Business Relationships with Company and Its Subsidiaries 29

(bb) Suppliers 29

(cc) Disclosure 29 5. Pre-Closing Covenants 29

(a) General 29

(b) Notices and Consents 29

(c) Operation of Business 29

(d) Preservation of Business 30

(e) Full Access 30

(f) Notice of Developments 30

(g) Exclusivity 30

(h) Maintenance of Real Property 30

(i) Leases 30

(j) Title Insurance and Surveys 30

(k) Tax Matters 31

(l) Payroll Expenses 31

(m) Employment Taxes 31 6. Post-Closing Covenants 31

(a) General 31

(b) Litigation Support 31

(c) Transition 31

(d) Confidentiality 32

(e) Reserved 32

(f) Reserved 32

(g) Employee Benefits 32

(h) Sales and Use Taxes 32

(i) Handling of Prior Claims 32 7. Conditions to Obligation to Close 32

(a) Conditions to Buyer' s Obligation 32

(b) Conditions to Sellers' Obligation 36

(c) Fees and Costs 36 8. Remedies for Breaches of This Agreement 37

(a) Survival of Representations and Warranties 37

(b) Indemnification Provisions for Buyer' s Benefit 37


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TABLE OF CONTENTS

(continued)

Page

(c) Indemnification Provisions for Sellers' Benefit 38

(d) Matters Involving Third Parties 38

(e) Determination of Adverse Consequences 39 9. Tax Matters 39

(a) Tax Indemnification 39

(b) Straddle Period 39

(c) Responsibility for Filing Tax Returns 39

(d) Cooperation on Tax Matters 39

(e) Tax Sharing Agreements 40 10. Reserved 40 11. Termination 40

(a) Termination of Agreement 40

(b) Effect of Termination 41 12. Miscellaneous 41

(a) Press Releases and Public Announcements 41

(b) No Third-Party Beneficiaries 41

(c) Entire Agreement 41

(d) Succession and Assignment 41

(e) Counterparts 41

(f) Headings 41

(g) Notices 41

(h) Governing Law 42

(i) Amendments and Waivers 42

(j) Severability 42

(k) Expenses 42

(l) Construction 42

(m) Incorporation of Exhibits and Schedules 43

(n) Specific Performance 43

(o) Submission to Jurisdiction 43

(p) Governing Language 43


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


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

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

B. The Sellers were the lienholders on the Restaurants described below. Hospitality Well Done!, Inc., a Vermont corporation, Sirloin Saloon, Inc., a Vermont corporation, Sirloin Saloon of Shelburne, Inc., a Vermont corporation, Sirloin Saloon of Rutland, Inc., a Vermont corporation, Sirloin Saloon of Manchester, Inc., a Vermont corporation, Dakota of Avon, Inc., a Vermont corporation, Dakota of Milford, Inc., a Vermont corporation, Adirondack' s Restaurants, Inc., a Vermont corporation, Perry Development Group, Inc., a Vermont corporation, and Angler Enterprise, L.L.C., a Vermont limited liability company (collectively, the " Borrowers" ), owned the Restaurants, as applicable, and have transferred the Restaurants to the Companies and Subsidiary in lieu of foreclosure. C. SBI holds the operating assets in the operation of three Sirloin Saloon restaurants located at: 2545 Shelburne Road Shelburne, VT 05482 (the " Shelburne Restaurant" ), 200 South Main Street, Rutland, VT 05701 (the " Rutland Restaurant" ), and 135 Depot Street, Manchester Center, VT 05255 (the " Manchester Restaurant" ). DWHI holds the operating assets in the operation of three Dakota restaurants located at 1651 Boston Post Road, Milford, CT 06460 (the " Milford Restaurant" ), 225 West Main Street, Avon, CT 06001 (the " Avon Restaurant" ), and 579 Troy-Schenectady Road Suite 79-80, Latham, NY 12110 (the " Latham Restaurant" ). Pittsfield holds the operating assets in the operation of the Dakota restaurants located at 1035 South Street, Pittsfield, MA 01201 (the " Pittsfield Restaurant" , and collectively with the Shelburne Restaurant, Rutland Restaurant, Manchester Restaurant, Milford Restaurant, Latham Restaurant and Avon Restaurant, the " Restaurants" ). D. DWHII owns fee simple title to the real estate and improvements located at the Shelburne, Rutland, Manchester and Pittsfield Restaurants (collectively, the " Owned Real Property" ), and leases such Owned Real Property to SBI or Pittsfield, as applicable.

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

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

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

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

NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows. 1. Definitions .

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

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

" Affiliated Group" means any affiliated group within the meaning of Code Section 1504(a) or any similar group defined under a similar provision of state, local or foreign law. " Basis" means any past or present fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction that forms or could form the basis for any specified consequence.

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

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

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

" Code" means the Internal Revenue Code of 1986, as amended.

" Company" and " Companies" have the meanings set forth in the preface above. " Confidential Information" means any information concerning the businesses and affairs of the Buyer, the Sellers or each Company and its Subsidiaries that is not already generally available to the public.

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

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

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


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

" Encumbrance Documents" has the meaning set forth in Section 4(l) below. " Environmental, Health, and Safety Requirements" shall mean all federal, state, local, and foreign statutes, regulations, ordinances, and other provisions having the force or effect of law, all judicial and administrative orders and determinations, all contractual obligations, and all common law concerning public health and safety, worker health and safety, and pollution or protection of the environment, including, without limitation, all those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, control, or cleanup of any hazardous materials, substances, or wastes, chemical substances or mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum products or byproducts, asbestos, polychlorinated biphenyls, noise, or radiation, each as amended and as now or hereafter in effect.

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

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

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

" Fiduciary" has the meaning set forth in ERISA Section 3(21). " Financial Statements" has the meaning set forth in Section 4(g) below. " FIRPTA Affidavit" has the meaning set forth in Section 7(a) below. " GAAP" means United States generally accepted accounting principles as in effect from time to time, consistently applied. " Improvements" has the meaning set forth in Section 4(l) below. " Indemnified Party" has the meaning set forth in Section 8(d) below. " Indemnifying Party" has the meaning set forth in Section 8(d) below. " Intellectual Property" means all of the following in any jurisdiction throughout the world: (a) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof, (b) all trademarks, service marks, trade dress, logos, slogans, trade names, mascots, corporate names, Internet domain names, and rights in telephone numbers, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith, (c) all copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith, (d) all mask works and all applications, registrations, and renewals in connection therewith, (e) all trade secrets, recipes, menus and confidential business information (including ideas, research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, facility plans, training materials, facility opening materials and business and marketing plans and proposals), (f) all computer software (including


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

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

" Knowledge" means actual knowledge after reasonable investigation.

" Lease Consents" has the meaning set forth in Section 7(a) below. " Leased Real Property" means all leasehold or subleasehold estates and other rights to use or occupy any land, buildings, structures, improvements, fixtures, or other interest in real property held by each Company or any of its Subsidiaries.

" Leases" means all leases, subleases, licenses, concessions and other agreements (written or oral), including all amendments, extensions, renewals, guaranties, and other agreements with respect thereto, pursuant to which each Company or any of its Subsidiaries holds any Leased Real Property, including the right to all security deposits and other amounts and instruments deposited by or on behalf of each Company or any of its Subsidiaries thereunder. " Liability" means any liability or obligation of whatever kind or nature (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes.

" Lien" means any mortgage, pledge, lien, encumbrance, charge, or other security interest, other than (a) liens for Taxes not yet due and payable, (b) purchase money liens and liens securing rental payments under capital lease arrangements, and (c) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money. " Material Adverse Effect" or " Material Adverse Change" means any effect or change that would be materially adverse to the business, assets, condition (financial or otherwise), operating results, operations, or business prospects of each Company and its Subsidiaries, taken as a whole, or on the ability of either Seller to consummate timely the transactions contemplated hereby (regardless of whether or not such adverse effect or change can be or has been cured at any time or whether Buyer has knowledge of such effect or change on the date hereof), including any adverse change, event, development, or effect arising from or relating to (a) general business or economic conditions, including such conditions related to the business of either Company and its Subsidiaries, (b) national or international political or social conditions, including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States, or any of its territories, possessions, or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States, (c) financial, banking, or securities markets (including any suspension of trading in, or limitation on prices for, securities on the New York Stock Exchange, American Stock Exchange, or Nasdaq National Market for a period in excess of three hours or any decline of either the Dow Jones Industrial Average or the Standard & Poor' s Index of 500 Industrial Companies by an amount in excess of fifteen percent (15%) measured from the close of business on the date hereof), (d) changes in United States generally accepted accounting principles, (e) changes in law, rules, regulations, orders, or other binding directives issued by any governmental entity, and (f) the taking of any action contemplated by this Agreement and the other agreements contemplated hereby. " Material Leased Real Property" has the meaning set forth in Section 7(a) below.

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

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

" Most Recent Fiscal Month End" has the meaning set forth in Section 4(g) below. " Most Recent Fiscal Year End" has the meaning set forth in Section 4(g) below. " Multiemployer Plan" has the meaning set forth in ERISA Section 3(37). " Net Working Capital" means the amount of the consolidated current assets of the Companies minus the consolidated current liabilities of the Companies.

" Non-Disturbance Agreements" has the meaning set forth in Section 7(a) below. " Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency).

" Party" or " Parties " has the meaning set forth in the preface above. " PBGC" means the Pension Benefit Guaranty Corporation.

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

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

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

" Purchase Price" has the meaning set forth in Section 2(b) below. " Real Property" has the meaning set forth in Section 4(l) below. " Real Property Laws" has the meaning set forth in Section 4(l) below.

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" Reportable Event" has the meaning set forth in ERISA Section 4043. " Securities Act" means the Securities Act of 1933, as amended. " Securities Exchange Act" means the Securities Exchange Act of 1934, as amended. " Seller" and " Sellers" have the meanings set forth in the preface above. " Subsidiary" means, with respect to any Person, any corporation, limited liability company, partnership, association, or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof or (ii) if a limited liability company, partnership, association, or other business entity (other than a corporation), a majority of partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof and for this purpose, a Person or Persons own a majority ownership interest in such a business entity (other than a corporation) if such Person or Persons shall be allocated a majority of such business entity' s gains or losses or shall be or control any managing director or general partner of such business entity (other than a corporation). The term " Subsidiary" shall include all Subsidiaries of such Subsidiary. " Surveys" has the meaning set forth in Section 7(a) below. " Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code Section 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not and including any obligations to indemnify or otherwise assume or succeed to the Tax liability of any other Person.

" Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. " Third Party Claim" has the meaning set forth in Section 8(d) below. " Title Company" has the meaning set forth in Section 7(a) below. " Title Policies" has the meaning set forth in Section 7(a) below.

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

Term

Definition Location

Preliminary Closing Balance Sheet Section 2(c)(i)

Net Working Capital Section 2(c)(i)

Auditor Section 2(c)(iii)

Final Closing Balance Sheet Section 2(c)(iv)

Closing Section 2(d)

Closing Date Section 2(d)

Real Property Permits Section 4(l)(ix)

Encumbrance Documents Section 4(l)(xi)

Real Estate Impositions Section 4(l)(xiii)

CERCLA Section 4(z)(v)

SWDA Section 4(z)(v)

Pre-Closing Tax Period Section 9(a)

Straddle Period Section 9(b)

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

(b) Purchase Price and Payment .


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

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

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

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