Document:

Exhibit 10.5

 

EXECUTION COPY

 

RESTRICTIVE CONVENANT- COVENANT NOT TO COMPETE

 

This agreement is made on 10/29,
2007 between Gregory Kenwood Gaines, (“selling Equityholder”) and VCG Holding
Corp. (“Purchaser”), collectively referred to as the “Parties”.

 

Recitals

 

This Agreement is made
reference to the following facts, circumstances, and objectives:

 

A.                                 Gregory
Kenwood Gaines has been associated with a certain adult business as shareholder
know as Platinum Plus, located in Hialeah, Florida.

 

B.                                   Gregory
Kenwood Gaines as owner of all (or substantially all) of the issued and
outstanding shares of the capital common stock of Kenja, II, Inc., a Florida
Corporations and Kenja Ventures, Inc., a Florida Corporation, has agreed that
Company shall sell to Purchaser all the interest of the business operated under
the name of Platinum Plus (the “Business”) at 7565 W. 20th Avenue,
Hialeah, Florida, 33014, (the “location”).

 

C.                                   The
Parties have consented that to enable Purchaser to conduct a profitable
business, it would be of genuine and material consideration to Purchaser for
Selling Equityholder to agree that he shall not directly or indirectly engage
in a Competing Business for a Reasonable Period of Time within a Geographic
Area determined by the Parties to be the market area of Company, in which such
good will may exist.

 

D.                                  As
additional consideration for this Agreement, Purchaser, including its
subsidiaries and affiliates have agreed not to compete with Selling
Equityholder in certain markets.

 

E.                                    The
Parties have determined that such an Agreement would not be prohibited or void
under the law because its only objective is to protect the value of each others
business, including those purchased for valuable consideration and good faith
and without any intent to establish a monopoly.

 

Agreement

 

1.                                                               Definitions.

 

1.1                                                         Competing
Business. Any business, trade, or operation similar to Business.

 

1.2                                                         Reasonable
Period of Time. A period of time commencing on the closing date and
terminating three (3) years after the Effective Date.

 

(INITIALED:
MO, KW)     

 

1.3                                                         Determined
Geographic Area. A radius of 50 miles from the Location and as set forth
below.

 

1.4                                                         Effective
Date. 10/29, 2007

 

 

2.                                                               Covenant
Not to Compete. Seller Equityholder shall not, directly or indirectly, or
through agent compete with the Buyer, for a period of 5 years and a radius of
50 miles from the Location.

 

In addition, in order to
induce Seller to enter into the Purchase and Sale agreement, VCG agrees not to
compete with Seller Equityholder for a period of three years in any area within
50 miles of any existing businesses of Seller Equityholder or in any market
which Seller Equityholder has a controlling interest, except for Maine. A
listing of all such businesses is attached as Addendum A to this Agreement. Seller
Equityholder has granted VCG a first right of refusal on the sale of such
businesses as consideration for this provision.

 

3.                                                               Consideration.
The Consideration is set forth in a purchase agreement dated this same date and
as set forth in this Agreement.

 

4.                                                               Default.
The Parties agree that a breach of the Covenant could cause economic harm to
the other which may be difficult to precisely measure in terms of money
damages. To protect and enable each party to fully realize the benefit of the
business and good will being acquired, each party agrees that in the event of a
breach in the Covenant either party may proceed in the circuit court or any
other tribunal having equitable jurisdiction over the other party to obtain any
appropriate equitable remedies, including, but not limited to, ex parte
restraining orders and injunctive orders during litigation and following
judgment; in addition to all other remedies provided by law or in equity for
the breach of the Covenant.

 

5.                                                               Notice.
All notices and payments given under this Covenant shall be either personally
delivered or mailed by first-class mail, postage prepaid, addressed to the
Respective parties at all addresses set forth in the notice provision of the
Purchase Agreement, or to any other address that each Party may designate in
writing in conformance with the terms of this paragraph.

 

6.                                                               Miscellaneous.

 

6.1                                                         Entire
Agreement. This Agreement sets forth the entire understanding of the
Parties.

 

6.2                                                         Amendment.
This Agreement may not be changed except by a written document executed by the
Parties. This agreement shall be interpreted in accordance with the law of the
state in which enforcement is sought.

 

(INITIALED: MO, KW)

 

6.3                                                         Binding
Effect. This Agreement shall be binding on and inure to the benefit of the
Parties and their respective heirs, successors, administrators, personal
representatives, and assigns.

 

The Parties
have executed this Agreement on the dates set forth below. This Agreement is
effective as of the Effective Date.

 

	
   

  	
  Landlord’s Initials 

  	
  KW

  
	
   

  	
   

  
	
   

  	
  Tenant’s Initials 

  	
  MO

  

 

 

	
   

  	
  PURCHASER

  
	
   

  	
   

  
	
  Dated: 

  	
  10/29/07

  	
   

  	
  By:

  	
  /s/ Micheal
  L. Ocello

  	
   

  
	
   

  	
  VCG
  HOLDING CORP.

  
	
   

  	
  By:
  President

  
	
   

  	
  Its:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GREGORY
  KENWOOD GAINES

  
	
   

  	
   

  
	
  Dated: 

  	
  10/29/07

  	
   

  	
  By:

  	
  /s/ G.
  Kenwood Gaines

  	
   

  
							

 

 

(INITIALED: KW)

 

 

EXECUTION
COPY

 

ADDENDUM A

 

For Seller Equityholder

 

Greenville, South Carolina   /s/
MO

 

Columbia, South Carolina   /s/ KW

 

(INITIALED: KW)

 

	
   

  	
  Landlord’s Initials 

  	
  KW

  
	
   

  	
   

  
	
   

  	
  Tenant’s Initials 

  	
  MOExhibit 10.6

 

BONUS AGREEMENT RELATED TO PURCHASE AGREEMENT

DATED SEPTEMBER 14, 2007

 

WHEREAS, on September 14, 2007, Kenja, Inc.
and Kenja II, Inc entered into a Purchase

 

	
   

  	
  Landlord’s Initials 

  	
  KW

  
	
   

  	
   

  
	
   

  	
  Tenant’s Initials

  	
  MO

  

 

 

Agreement
whereby they agreed to sell to Purchaser, VCG Holding Corp (“VCG”) an adult
business located in the City of Hialeah, Florida (the “Business”); and

 

WHEREAS, the Purchase agreement provided that
the Purchaser would pay the sum of Six Million Eight Hundred and Seventy Five Thousand
($6,875,000.00) Dollars for the business, pursuant to the terms of the
agreement between Buyer and Seller; and

 

WHEREAS, Gregory Kenwood Gaines (“Seller
Shareholder”), has agreed to assist in the operation of the business following
the closing in order to attempt to increase sales at the business. Seller
Shareholder has agreed to assist in the operation of the Business without
remuneration in exchange for this Agreement (“Bonus Agreement”) which may
provide Selling Shareholder the ability to receive a bonus from the business (“Bonus
Program”) as described herein; and

 

WHEREAS, this Agreement sets forth the parties
full and complete understanding of the Bonus Program.

 

NOW THEREFORE
IT IS AGREED AS FOLLOWS:

 

1.                                       That
this Agreement shall be governed by all terms and conditions of the Purchase
Agreement dated September 14, 2007 and no provision of the Purchase Agreement
is being modified, altered or waived by this Agreement. This Agreement is in
addition to the terms of the Purchase Agreement.

 

2.                                       Seller
Shareholder agrees to assist VCG in the operation of the Business for up to 6
months following the closing of the sale of the Business to VCG (the “Bonus
Period”). During the bonus period, Selling Shareholder shall be given
reasonable                                                                                                                                     (INITIALED: KW, MO)

operational control over the Business, subject, however, to VCG’s
ultimate control over the Business. At all time, the business shall be operated
within the bounds of all applicable laws, rules, and regulations governing the
business. The failure of Selling Shareholder to comply with all rules, laws,
and regulations governing the business shall be cause for VCG

 

 

to terminate this Agreement and VCG shall have no obligation to make
any payments to Selling Shareholder, whether under the bonus program or for any
other matter.

 

3.                                       That
during the Bonus Period, the following the following Bonus Program shall apply:

 

a.               If
the Business averages at least One Hundred Ten Thousand ($110,000.00) Dollars
per week in gross revenue for a consecutive 3-month period of time and during
this same 3-month period of time has a net profit of at least Three Hundred
Seventy Five Thousand ($375,000.00) Dollars, then VCG shall pay Seller
Shareholder an additional Five Hundred Thousand ($500,000.00) Dollars;

 

b.              If
the Business averages at least One Hundred Twenty Thousand ($120,000.00)
Dollars per week in gross revenue for a consecutive 3-month period of time and
during this same 3 month period of time has a net profit of at least Four
Hundred Eight Thousand ($408,500.00) Dollars, then VCG shall pay Seller
Shareholder an additional Two Hundred Fifty Thousand ($250,000.00) Dollars.
This payment shall be in addition to the bonus set forth in paragraph 3(a)
above.

 

c.               For purposes of
computing the bonus audit period set forth in paragraphs a & b above, VCG
shall accept any consecutive 3-month period contained in the bonus period and
will consider the bonus requirement satisfied if the business meets the

 

(INITIALED: KW, MO)

 

weekly revenue and net profit requirement as described herein. Seller
shall have six months from the date of the closing to demonstrate the revenue
requirements set forth in paragraphs a & b above.

 

d.              If
the Business does not meet the revenue requirements described in Bonus Program
during the Bonus Period, then no additional consideration shall be due the
Seller

 

	
   

  	
  Landlord’s Initials 

  	
  KW

  
	
   

  	
   

  
	
   

  	
  Tenant’s Initials

  	
  MO

  

 

 

Shareholder and the obligation of VCG to pay a Bonus to Seller
Shareholder shall forever be discharged and VCG will have no further
obligations under the Bonus Program.

 

e.               Prior
to expiration of the Bonus Period, VCG shall have the right to terminate this
Agreement for any reason or for no reason at all, including terminating Selling
Shareholders authority to manage the business on behalf of VCG. (“Cancellation
Provision”) In the event that VCG elects to terminate this Agreement, then VCG
shall pay Selling Shareholder  as
follows:

 

1.                                       If
VCG terminates this Agreement during the first 2 months of this Agreement, then
VCG shall pay Selling Shareholder the sum of $100,000.00;

 

2.                                       If
VCG terminates this Agreement during the 3rd and 4th
month of this Agreement, then VCG shall pay Selling Shareholder the amount due
under subparagraphs 3(a & b) above if said funds are due and owing, or the
sum of $200,000.00, whichever is greater;

 

3.                                       If
VCG terminates this Agreement during the 5th and 6th
month of this Agreement, then VCG shall pay Selling Shareholder the amount due
under

 

(INITIALED: KW, MO)

 

subparagraphs 3(a & b) above if said funds are due and owing, or
the sum of $300,000.00, whichever is greater.

 

4.                                       During
the Bonus Period, VCG may cancel this contract without liability under
subparagraph 3(a & b) and 3(e)(1-3) in the event the average gross revenue
for any consecutive 4 week period during the months Selling Shareholder is
operating the Business following the closing of the sale between Sellers and

 

 

VCG is not at least equal to 90% of the gross revenues in the one month
period proceeding the date of the execution of this Agreement.

 

5.                                       In
the event that Selling Shareholder elects to terminate this Agreement, then no
funds shall be due under the Bonus Program or the Cancellation Provisions.
However, if the Selling Shareholder’s termination is as a result of VCG’s
failure to allow him to operate the club as he reasonably and customarily
operates, then upon termination, VCG shall pay the termination fees due under
Section 3(e) above.

 

6.                                       In
the event that both Troy Lowrie and Micheal Ocello are no longer associated
with management of the VCG, then Selling Shareholder may terminate this
agreement and be paid the amounts which would be due under section 3(e) above.

 

f.                 In
calculating net revenue, the net revenue shall be determined in accordance with
VCG’s standard revenue calculations and prepared in accordance with U.S. GAAP.

 

(INITIALED: KW, MO)

 

4.                                       That
in the event that a dispute arises regarding the Bonus Program, including a
dispute regarding whether the gross revenue requirement have been met, then
such dispute shall be decided via binding arbitration pursuant to the Rules of
Commercial Arbitration of the American Arbitration Association. The Arbitration
shall take place in Dade County, Florida, or such other location as the parties
mutually agree. Any award rendered on an award may be enforced in a court of
competent jurisdiction. The laws and rules of procedure of the State of Florida
shall govern any such arbitration.

 

	
   

  	
  Landlord’s Initials 

  	
  KW

  
	
   

  	
   

  
	
   

  	
  Tenant’s Initials

  	
  MO

  

 

 

	
  SELLER
  SHAREHOLDER

  	
   

  	
  PURCHASER
  - VCG HOLDING CORP

  
	
   

  	
   

  	
   

  
	
  /s/ G.
  Kenwood Gaines

  	
   

  	
  /s/ Micheal
  L. Ocello

  	
   

  
	
  Gregory
  Kenwood Gaines

  	
   

  	
  By: Micheal
  Ocello

  
	
  Dated:
  10/29/07

  	
   

  	
  Its:
  President

  
	
   

  	
   

  	
  Dated:
  10/29/07

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