Document:

Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (“Agreement”) is entered into effective as of January 16, 2012 (the “Effective Date”) by and between Venoco, Inc., a Delaware corporation (“Company”), and Edward J. O’Donnell (“Employee”).

 

WHEREAS, Employee is currently employed by the Company as a Senior Vice President pursuant to the terms of that certain Employment Agreement dated March 28, 2007 (the “2007 Agreement”);

 

WHEREAS, the Company would like to promote Employee to the position of Chief Operating Officer of the Company, relocate him to Denver, Colorado and enter into a new employment agreement on the terms and conditions contained herein;

 

WHEREAS, Employee would like to accept the promotion, relocate to Denver, Colorado and enter into a new employment agreement on the terms and conditions contained herein.

 

NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements contained herein, and for other valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows:

 

1.                                       Employment.  The Company hereby employs Employee and Employee hereby accepts employment by the Company as its Chief Operating Officer as of the Effective Date on the terms and conditions set forth in this Agreement.  The 2007 Agreement shall terminate as of the Effective Date.

 

2.                                       Term of Employment.  Subject to the provisions for earlier termination provided in the Agreement, the term of this Agreement (the “Term”) shall commence on the Effective Date and shall terminate on December 31, 2013; provided, however, commencing on January 1, 2013 and on each January 1 thereafter, the term of this Agreement shall automatically be extended one additional year unless, not later than September 30 of the preceding year, the Board of Directors of the Company (the “Board”) shall give written notice to Employee that the Term of the Agreement shall cease to be so extended; provided, further, that if a Change in Control, as defined in Section 8, shall have occurred during the original or extended Term of this Agreement, the Term shall continue in effect for a period of not less than 36 months beyond the date of such Change in Control.  In no event, however, shall the Term of this Agreement extend beyond the end of the calendar month in which Employee’s 65th birthday occurs.  Notwithstanding any provision of this Agreement to the contrary, termination of this Agreement shall not alter or impair any rights or benefits of Employee (or Employee’s estate or beneficiaries) that have arisen under this Agreement on or prior to such termination, including, without limitation, the provisions of Sections 9(c), 15 and 18.

 

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3.                                       Employee’s Duties.  Employee shall serve as Chief Operating Officer of the Company, based in Denver, Colorado with such customary duties and responsibilities as may from time to time be assigned to him by the Chief Executive Officer (the “CEO”) and the Board, provided that such duties are at all times consistent with the duties of such position.  On or before August16, 2012 Employee and Company anticipate that the Board will appoint Employee the CEO of the Company and Employee will accept such appointment.

 

Employee agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the duties and responsibilities assigned to Employee hereunder, to use reasonable best efforts to perform faithfully and efficiently such duties and responsibilities.

 

4.                                       Base Compensation.  For services rendered by Employee as Chief Operating Officer the Company shall pay to Employee a base salary (“Base Compensation”) of $403,000 per annum, payable in accordance with the Company’s customary payroll practice for its executive officers.  The amount of Base Compensation shall be reviewed periodically and may be increased to reflect inflation or such other adjustments as the Board may deem appropriate but Base Compensation, as increased, may not be decreased thereafter.  Employee’s initial Base Compensation in the position of CEO shall not be less than 90% of the base compensation of the CEO he succeeds.

 

5.                                       Incentive Compensation.  Employee shall be eligible to participate in the Company’s incentive compensation plans under which cash and stock awards bonuses are paid to senior executives based upon the performance of both the Company and the employee.  The target annual stock bonus and cash bonus for the positions of Chief Operating Officer and CEO shall be 120% of Base Compensation. The annual bonus awards will be determined by the Board’s Compensation Committee each year for performance during the prior year and paid on March 15 of the year in which it is determined. The amount of the bonus shall be based on performance of the Employee and the Company as measured against goals established by the Compensation Committee.

 

6.                                       Relocation Reimbursement.  The Company will pay the Employee’s reasonable expenses to relocate his residence to Denver.  Reimbursable relocation expenses are described in Exhibit “A”  hereto.  In addition, the Company will purchase Employee’s current residence in Santa Barbara County, California for an amount equal to the appraised value.  To the extent Employee will suffer a capital loss on the residence, the Company will reimburse Employee for such loss (the “Loss Reimbursement”).  As used herein, the term “capital loss”  refers to the amount by which the cost to employee of his residence plus all capital improvements made to the residence since the date of acquisition exceeds the appraised value.  The Employee acknowledges that the Loss Reimbursement payment may be a taxable wage payment subject to income and employment tax withholding.  If Company makes a Loss Reimbursement payment to Employee and Employee voluntarily resigns from the Company, Employee shall repay the Company a 

 

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portion of the Loss Reimbursement equal to the Loss Reimbursement multiplied by a fraction in which the numerator is 60 minus the number of months Employee has worked under this Agreement and the denominator is 60; provided, however, that Employee shall have no obligation to repay the Loss Reimbursement or any portion thereof if Employee resigns (i) following a Change in Control, (ii) for reasons described in Section 9(c)(iv), or (iii) following receipt of written notice from the Board that it is not extending this Agreement.

 

7.                                       Additional Benefits.  In addition to the other compensation and benefits provided for in this Agreement, Employee shall be entitled to receive all fringe benefits and perquisites offered by the Company to its executive officers.  Such benefits shall include, without limitation, five weeks paid vacation per year; participation in the Company’s 401(k) Plan; participation in other incentive and benefit plans offered generally to key employees; participation in various employee benefit plans or programs provided to the employees of the Company in general, subject to the regular eligibility requirements with respect to each of such benefit plans or programs; and such other benefits or perquisites as may be approved by the Board during the Term of this Agreement. Nothing in this paragraph shall be deemed to prohibit the Company from making any changes in any plans, programs or benefits described in this Section 7, provided the change similarly affects all executives of the Company similarly situated.

 

8.                                       Change in Control.

 

For purposes of this Agreement, a “Change in Control” shall mean the occurrence of one of the following events:

 

(i)                                     Any “person” (as such term is used in Section 13(d) and 14(d) of the Exchange Act) other than Timothy M. Marquez, Bernadette B. Marquez, their respective legal representatives, devisees, donees and heirs and any Trust for the benefit of either or both of Timothy M. Marquez and Bernadette B. Marquez and/or the issue of either of them (the “Marquez Family”) becomes a “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company’s then outstanding securities, or the outstanding securities of a successor entity in the event of a business combination between the Company and another entity; provided that for purposes of this paragraph a “person” shall not include the entity with which the Company may consummate a business combination;

 

 (ii)                               the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets.  For purposes of this clause (ii), the term “the sale or disposition by the Company of all or substantially all of the Company’s assets” shall mean a sale or other disposition transaction or series of related transactions (other than transactions related to the creation of a master limited partnership or royalty trust in which the Company continues its 

 

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corporate existence), involving assets of the Company or of any direct or indirect subsidiary of the Company (including the stock of any direct or indirect subsidiary of the Company) in which the value of the assets or stock being sold or otherwise disposed of (as measured by the purchase price being paid therefor or by such other method as the Board determines is appropriate in a case where there is no readily ascertainable purchase price) constitutes more than two-thirds of the “fair market value of the Company” (as hereinafter defined).  For purposes of the preceding sentence, the “fair market value of the Company” shall be the aggregate market value of the Company’s outstanding common stock (on a fully diluted basis) plus the aggregate market value of the Company’s other outstanding equity securities.  The aggregate market value of the Company’s equity securities shall be determined by multiplying the number of shares of the Company’s common stock (on a fully diluted basis) outstanding on the date of the execution and delivery of a definitive agreement with respect to the transaction or series of related transactions (the “Transaction Date”) by the average closing price of such security for the ten trading days immediately preceding the Transaction Date, or if not publicly traded, by such other method as the Board shall determine is appropriate;  or

 

(iii)                         the Marquez Family is no longer the largest beneficial owner of the Company’s outstanding voting securities and Timothy Marquez is no longer the CEO or Chairman of the Board.

 

9.                                       Termination.  This Agreement may be terminated prior to the end of its Term as set forth below.

 

(a)                                  Resignation.  Employee may resign, including by reason of retirement, his position at any time.  In the event of such resignation, except in the case of resignation on or following a Change in Control for Good Reason (as defined below), Employee shall not be entitled to further compensation pursuant to this Agreement.

 

(b)                                 Death.  If Employee’s employment is terminated due to his death, the Company shall pay Employee’s beneficiaries or legal representatives (i) within 15 days, any Base Compensation and vacation pay which had accrued hereunder at the date of Employee’s death; and (ii) the same benefits that Employee would receive in the event of Discharge following a Change in Control as described in Section 9(c)(i), below, as though Employee has been terminated following a Change in Control.

 

(c)                                  Discharge.

 

(i)                                     The Company may terminate this Agreement and Employee’s employment for any reason deemed sufficient by the Company upon notice as provided in Section 12.  However, in the event that Employee’s employment is terminated during the Term by the Company on 

 

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or following a Change in Control and for any reason other than his Misconduct (as defined in Section 9(c)(ii) below) then: (A) the Company shall pay in a lump sum, in cash, to Employee, within 15 days of the Date of Termination, an amount equal to three times the sum of (1) Employee’s Base Compensation, (2) an amount equal to the highest incentive award paid or payable, as the case may be, to Employee under the Company’s Incentive Compensation Plan during the current year and the three years prior to termination, (3) an amount equal to the amount of contributions that the Company would have made on behalf of Employee under the Company’s 401(k) Plan during the prior year disregarding any limitations on benefits or covered compensation imposed by I.R.C. Sections 401(a)(17), 401(k), 401(m) or 415; (B) for the 36-month period after such Date of Termination, the Company shall provide or arrange to provide Employee (and Employee’s dependents) with group health insurance benefits substantially similar to those which Employee (and Employee’s dependents) were receiving immediately prior to the Notice of Termination, with the Employee charged a monthly premium(s) for such coverage(s) that does not exceed the premium(s) charged to an active employee for comparable coverage(s); benefits otherwise receivable by Employee pursuant to this clause (B) shall be reduced to the extent comparable benefits are actually received by Employee (and Employee’s dependents) during the 36-month period following Employee’s termination, and any such benefits actually received by Employee shall be reported to the Company (to the extent coverage and/or benefits received under a self-insured health plan of the Company (any successor or affiliate) are taxable to Employee, the Company shall make Employee “whole” on a net after tax basis, with such make whole payments to be made during the month of the related health care coverage); (C) within 30 days of the Date of Termination or, if later, the first date on which such payment would not subject Employee to suit under Section 16(b) of the Securities Exchange Act of 1934, if applicable, the Company shall offer to pay to Employee for cancellation of all outstanding stock-based awards then held by Employee on the Date of Termination (collectively, “Awards”), a lump sum amount in cash equal to the sum of the value (with respect to an option or stock appreciation right, the “spread”; and with respect to restricted stock or phantom stock, the value of an unrestricted share) of all such Awards, calculated, where applicable, as if all corporate performance goals had been achieved (thus warranting full value of the Award) and in the case where the Company’s stock is not publicly traded, using a fair market value on the Date of Termination as determined by an independent third party agreeable to the Company and Employee; and (D) within 30 days after the Date of Termination, the Company shall pay to Employee an amount equal to 36 times the excess of (i) the monthly premium payable immediately prior to the Notice of Termination for life, disability and accident benefits 

 

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substantially similar to those which employee (and Employee’s dependents) were receiving at such time, over (ii) the aggregate monthly premiums(s) charged to the Executive for such coverage at such time.  Each of the payments described in Section (A) — (D) of this Section shall be deemed to be separate payments for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).

 

(ii)                                  Notwithstanding the foregoing provisions of this Section 9, in the event Employee is terminated because of Misconduct, the Company shall have no compensation obligations pursuant to this Agreement after the Date of Termination.  As used herein, “Misconduct” means (a) the willful and continued failure by Employee to substantially perform his duties with the Company (other than any such failure resulting from Employee’s incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by Employee for Good Reason), after a written demand for substantial performance is delivered to Employee by the Board, which demand specifically identifies the manner in which the Board believes that Employee has not substantially performed his duties, or (b) the willful engaging by Employee in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise.  For purposes hereof, no act, or failure to act, on Employee’s part shall be deemed “willful” unless done, or omitted to be done, by Employee not in good faith and without reasonable belief that Employee’s action or omission was in the best interest of the Company.  Notwithstanding the foregoing, Employee shall not be deemed to have been terminated for Misconduct unless and until there shall have been delivered to Employee a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to Employee and an opportunity for Employee, together with Employee’s counsel, to be heard before the Board), finding that in the good faith opinion of the Board Employee was guilty of conduct set forth above and specifying the particulars thereof in detail.

 

(iii)   If the Company terminates this Agreement and Employee’s employment before the expiration of the Term, other than following a Change in Control and other than for Misconduct, then, instead of the severance amount described in Section 9(c)(1)(A), the severance amount shall be equal to two times the sum of (1) Employee’s Base Compensation and (2) an amount equal to the greater of $483,600 or the highest cash incentive award paid or payable, as the case may be, during the three years prior to termination, payable at the same time and in the same form as the severance amount set forth in Section 9(c)(1)(A) (cash lump sum within 15 days of the Date of Termination).  The Employee shall not be entitled to any of the other payments or benefits described in Sections 9(c)(1)(B) — (D) 

 

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above.

 

(iv)   If the Company fails to appoint Employee as the CEO of the Company on or before August 16, 2012 and Employee resigns after August 16, 2012 and before September 16, 2012, then, instead of the severance amount described in Section 9(c)(i)(A), the severance amount shall be $1,500,000, payable at the same time and in the same form as the severance amount set forth in Section 9(c)(i)(A) (cash lump sum within 15 days of the Date of Termination).  The Employee shall not be entitled to any of the other payments or benefits described in Sections 9(c)(i)(B) — (D) above.

 

(d)                                 Disability.

 

(i)                                     If Employee shall have been absent from the full-time performance of Employee’s duties with the Company for six consecutive months as a result of Employee’s incapacity due to physical or mental illness, as determined by Employee’s physician, and within 30 days after written Notice of Termination is given by the Company Employee shall not have returned to the full-time performance of Employee’s duties, Employee’s employment may be terminated by the Company for “Disability” and Employee shall upon such termination be entitled to receive the payments described in Section 9(c)(i)  as though Employee has been terminated following a Change in Control.

 

(ii)                                  If Employee fails during any period during the Term to perform Employee’s full-time duties with the Company as a result of incapacity due to physical or mental illness, as determined by Employee’s physician, Employee shall continue to receive his Base Compensation, together with all compensation payable to Employee under the Company’s Long Term Disability Plan or other similar plan during such period until this Agreement is terminated.

 

(e)                                  Resignation for Good Reason.  In the event of a Change in Control, Employee shall be entitled to terminate his employment for Good Reason as defined herein.  If Employee terminates his employment for Good Reason, Employee shall be entitled to the compensation and benefits provided in Paragraph 9(c)(i) hereof.  “Good Reason” shall mean (1) the breach of any of the Company’s obligations under this Agreement without Employee’s express written consent or (2) the occurrence of any of the following circumstances without Employee’s express written consent unless such breach or circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination pursuant to Subsection 9(f) given in respect thereof:

 

(i)                                     the assignment to Employee of any duties that, in the good faith opinion of Employee, are inconsistent with the position in the 

 

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Company that Employee held immediately prior thereto, or an adverse alteration (as determined in good faith by Employee) in the nature or status of Employee’s office, title, responsibilities, including reporting responsibilities, or the conditions of Employee’s employment from those in effect immediately prior thereto or a failure to maintain Employee as Chief Operating Officer or CEO, as the case may be;

 

(ii)                                  a reduction in Employee’s Base Compensation;

 

(iii)                               the failure by the Company to pay to Employee any portion of Employee’s current compensation or to pay to Employee any portion of an installment of deferred compensation under any deferred compensation program of the Company within seven days of the date such compensation is due;

 

(iv)                              the failure by the Company to continue in effect any compensation plan in which Employee participates that is material to Employee’s total compensation unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue Employee’s participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of Employee’s participation relative to other participants, as existed at the time of the Change in Control;

 

(v)                                 the failure by the Company to continue to provide Employee with benefits substantially similar to those enjoyed by Employee under any of the Company’s life insurance, medical, health and accident, or disability plans in which Employee was participating at the time of this Agreement; the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive Employee of any material fringe benefit enjoyed by Employee at the time of this Agreement, or the failure by the Company to provide Employee with the number of paid vacation days to which Employee is entitled on the basis of years of service with the Company (and its predecessors) in accordance with the Company’s normal vacation policy in effect at the time of the Change in Control;

 

(vi)                              the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 14 hereof;

 

(vii)                           the amendment, modification or repeal of any provision of the Certificate of Incorporation, or the Bylaws of the Company which was in effect immediately prior to the Effective Date, if such amendment, modification or repeal would materially adversely effect Employee’s right to indemnification by the Company; or

 

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(viii)                        any purported termination of Employee’s employment that is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection (f) hereof, which purported termination shall not be effective for purposes of this Agreement.

 

Notwithstanding anything in this Agreement to the contrary, if Employee’s employment with the Company terminates prior to, but within six months of, the date on which a Change in Control occurs and it is reasonably demonstrated by Employee that such termination of employment was (i) by the Company in connection with or anticipation of the Change in Control or (ii) by Employee under circumstances which would have constituted Good Reason if the circumstances arose on or after the Change in Control, then, for purposes of this Agreement, Employee shall be deemed to have continued employment with the Company until the date of the Change in Control and then terminated his employment on such date for Good Reason.

 

Employee’s right to terminate employment pursuant to this subsection shall not be affected by Employee’s incapacity due to physical or mental illness.  In addition, Employee’s continued employment following any event, act or omission, regardless of the length of such continued employment, shall not constitute Employee’s consent to, or a waiver of Employee’s rights with respect to, such event, act or omission constituting a Good Reason circumstance hereunder.

 

(f)                                    Notice of Termination.  On and after a Change in Control, any purported termination of Employee’s employment by the Company or by Employee shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 12 hereof.  For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall set forth in reasonable detail the reason for termination of Employee’s employment, or in the case of resignation for Good Reason, said notice must specify in reasonable detail the basis for such resignation.  No purported termination which is not effected pursuant to this Section 9(f) shall be effective.

 

(g)                                 Date of Termination.  “Date of Termination” shall mean the date the employee incurs a “separation from service” within the meaning of Code Section 409A.  Either party may, within 15 days after any Notice of Termination is given, provide notice to the other party pursuant to Section 12 hereof that a dispute exists concerning the termination.  Notwithstanding the pendency of any such dispute, the Company will continue to pay Employee his full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, Base Compensation) and continue Employee as a participant in all compensation, benefit and insurance plans in which Employee was participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with Section 18 hereof, but in no event past the expiration date of this Agreement.  All

 

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payments pursuant to this Section shall be made at the same time or times as otherwise specified in this Agreement or pursuant to the terms of such plan or plans.  Any payments and benefits provided during such period of dispute shall not reduce any other payments or benefits due Employee under this Agreement nor shall Employee be liable to repay the Company for such payments and benefits if it is finally determined the Employee is not entitled to payments under the other provisions of this Agreement following Employee’s termination of employment.

 

(h)                                 Mitigation.  Except as otherwise provided in Section 9(c)(i) with regard to group health benefits, Employee shall not be required to mitigate the amount of any payment provided for in this Section 9 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Agreement be reduced by any compensation earned by Employee as a result of employment by another employer, self-employment earnings, by retirement benefits, by offset against any amount claimed to be owing by Employee to the Company, or otherwise.  No amounts payable to Employee under any plan or program of the Company shall reduce or offset any amounts payable to Employee under this Agreement.

 

(i)                                     Section 280G.

 

(1)                                  To provide Employee with adequate protection in connection with his ongoing employment with the Company, this Agreement provides Employee with various benefits in the event of termination of Employee’s employment with the Company.  If Employee’s employment is terminated following a “change in control” of the Company, within the meaning of Section 280G of the Code, a portion of those benefits could be characterized as “excess parachute payments” within the meaning of Section 280G of the Code.  With respect to issues related to excess parachute payments, the parties have agreed as set forth herein.

 

(2)                                  Anything in this Agreement to the contrary notwithstanding, the payments and distributions by the Company or any other person to or for the benefit of Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a “Payment”)) shall be reduced so that no such Payment shall be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties would be incurred by Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), if the Company shall determine that the amount of the Payments that Employee would retain on any after-tax, present value basis would be increased as a result of such reduction by $5,000 or more.

 

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(3)  In the event that a reduction in Payments is required pursuant to the immediately preceding paragraph, then, except as provided below with respect to Payments that consist of health and welfare benefits, the reduction in Payments shall be implemented by determining the “Parachute Payment Ratio” (as defined below) for each Payment and then reducing the Payments in order beginning with the Payment with the highest Parachute Payment Ratio.  For Payments with the same Parachute Payment Ratio, such Payments shall be reduced based on the time of payment of such Payments, with amounts being paid furthest in the future being reduced first.  For Payments with the same Parachute Payment Ratio and the same time of payment, such Payments shall be reduced on a pro-rata basis (but not below zero) prior to reducing Payments next in order for reduction.  For purposes of this Section, “Parachute Payment Ratio” shall mean a fraction, the numerator of which is the value of the applicable Payment as determined for purposes of Code Section 280G, and the denominator of which is the financial present value of such Parachute Payment, determined at the date such payment is treated as made for purposes of Code Section 280G (the “Valuation Date”).  In determining the denominator for purposes of the preceding sentence (1) present values shall be determined using the same discount rate that applies for purposes of discounting payments under Code Section 280G; (2) the financial value of payments shall be determined generally under Q&A 12, 13 and 14 of Treasury Regulation 1.280G-1; and (3) other reasonable valuation assumptions as determined by the Company shall be used.  Notwithstanding the foregoing, Payments that consist of health and welfare benefits shall be reduced after all other Payments, with health and welfare Payments being made furthest in the future being reduced first.

 

(j)  Section 409A.

 

(1)  Anything in this Agreement to the contrary notwithstanding, if (1) on the date of termination of Employee’s employment with the Company, any of the Company’s stock is publicly traded on an established securities market or otherwise (within the meaning of Section 409A(a)(2)(B)(i) of the Code) and (2) as a result of such termination, the Employee would receive any payment that, absent the application of this paragraph 9(j), would be subject to interest and additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(2)(B)(i) of the Code, then no such payment shall be payable prior to the date that is the earliest of (i) 6 months after the Employee’s termination date, (ii) the Employee’s death or (iii) such other date as will cause such payment not to be subject to such interest and additional tax.

 

(2)  It is the intention of the parties that payments or benefits payable under this Agreement not be subject to the additional tax imposed pursuant to Section 409A of the Code and this Agreement shall be

 

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interpreted accordingly.  To the extent such potential payments or benefits could become subject to such Section, the parties shall cooperate to amend this Agreement with the goal of giving Employee the economic benefits described herein in a manner that does not result in such tax being imposed.

 

(3)  All taxable expenses or other reimbursements or in-kind benefits under this Agreement shall be made on or prior to the last day of the taxable year following the taxable year in which such expenses were incurred by Employee, (ii) any right to reimbursement or in kind benefits is not subject to liquidation or exchange for another benefit, and (iii) no such reimbursement, expenses eligible for reimbursement, or in-kind benefits provided in any taxable year shall in any way affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year.

 

(4)  The Employee shall have no right to designate the date of any payment hereunder.

 

(5)  Each payment provided for in this Agreement shall, to the extent permissible under Code Section 409A, be deemed a separate payment for purposes of Code Section 409A.

 

10.                                 Non-exclusivity of Rights.  Nothing in this Agreement shall prevent or limit Employee’s continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company or any of its affiliated companies and for which Employee may qualify, nor shall anything herein limit or otherwise adversely affect such rights as Employee may have under any stock option or other agreements with the Company or any of its affiliated companies.

 

11.                                 Assignability.  The obligations of Employee hereunder are personal and may not be assigned or delegated by him or transferred in any manner whatsoever, nor are such obligations subject to involuntary alienation, assignment or transfer.  The Company shall have the right to assign this Agreement and to delegate all rights, duties and obligations hereunder, either in whole or in part, to any parent, affiliate, successor or subsidiary organization or company of the Company, so long as the obligations of the Company under this Agreement remain the obligations of the Company.

 

12.                                 Notice.  For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Company at its principal office address, directed to the attention of the Board with a copy to the Secretary of the Company, and to Employee at Employee’s residence address on the records of the Company or to such other address as either party may have furnished to the other in writing in accordance herewith except that notice of change of address shall be effective

 

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only upon receipt.

 

13.                                 Validity.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

 

14.                                 Successors; Binding Agreement.

 

(a)                                  The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.  As used herein, the term “Company” shall include any successor to its business and/or assets as aforesaid which executes and delivers the Agreement provided for in this Section 14 or which otherwise becomes bound by all terms and provisions of this Agreement by operation of law.

 

(b)                                 This Agreement and all rights of Employee hereunder shall inure to the benefit of and be enforceable by Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.  If Employee should die while any amounts would be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Employee’s devisee, legatee, or other designee or, if there be no such designee, to Employee’s estate.

 

15.                                 Indemnification.  In consideration of the premises and of the mutual agreements set forth in this Agreement, the parties hereto further agree as follows:

 

(a)                                  The Company shall pay on behalf of Employee and Employee’s executors, administrators or assigns, any amount which Employee is or becomes legally obligated to pay as a result of any claim or claims made against Employee by reason of the fact that Employee served as an employee, director and/or officer of the Company or its affiliates or because of any actual or alleged breach of duty, neglect, error, misstatement, misleading statement, omission or other act done, or suffered or wrongfully attempted by Employee in Employee’s capacity as an employee, Director and/or Officer of the Company or its affiliates.  The payments that the Company will be obligated to make hereunder shall include (without limitation) damages, judgments, settlements, costs and expenses of investigation, costs and expenses of defense of legal actions, claims and proceedings and appeals therefrom, and costs of attachments and similar bonds; provided, however, that the Company shall not be obligated to pay fines or other obligations or fees imposed by law or otherwise that it is prohibited by applicable law from paying as indemnity or for any other reason.

 

(b)                                 Costs and expenses (including, without limitation, attorneys’ fees) incurred by Employee in defending or investigating any action, suit, proceeding or

 

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claim shall be paid by the Company in advance of the final disposition of such matter upon receipt of a written undertaking by or on behalf of Employee to repay any such amounts if it is ultimately determined that Employee is not entitled to indemnification under the terms of this Agreement.

 

(c)                                  If a claim under this Agreement is not paid by or on behalf of the Company within ninety days after a written claim has been received by the Company, Employee may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim and, if successful in whole or in part, Employee shall also be entitled to be paid the expense of prosecuting such claim.

 

(d)                                 In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Employee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights.

 

(e)                                  The Company shall not be liable under this Agreement to make any payment in connection with any claim made against Employee:

 

(1)                                  for which payment is actually made to Employee under an insurance policy maintained by the Company, except in respect of any excess beyond the amount of payment under such insurance;

 

(2)                                  for which Employee is indemnified by the Company otherwise than pursuant to this Agreement;

 

(3)                                  based upon or attributable to Employee gaining in fact any personal profit or advantage to which Employee was not legally entitled;

 

(4)                                  for an accounting of profits made from the purchase or sale by Employee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto; or

 

(5)                                  brought about or contributed to by the dishonesty of Employee; provided, however, that notwithstanding the foregoing, Employee shall be protected under this Agreement as to any claims upon which suit may be brought alleging dishonesty on the part of Employee, unless a judgment or other final adjudication thereof adverse to Employee shall establish that Employee committed acts of active and deliberate dishonesty with actual dishonest purpose and intent, which acts were material to the cause of action so adjudicated.

 

(f)                                    Employee, as a condition precedent to his right to be indemnified under this Agreement, shall give to the Company notice in writing as soon as practicable of any claim made against him for which indemnity will or could be sought under this Agreement.  Notice to the Company shall be directed to the Company, Attention: Secretary (or such other address as the Company shall designate in writing to Employee).  Notice shall be deemed received if sent by

 

14

 

prepaid mail properly addressed, the date of such notice being the date postmarked.  In addition, Employee shall give the Company such information and cooperation as it may reasonably require and as shall be within Employee’s power.

 

(g)                                 Nothing herein shall be deemed to diminish or otherwise restrict Employee’s right to indemnification under any provision of the Certificate of Incorporation or Bylaws of the Company or under Delaware law.

 

(h)                                 During the Term and for a period of six years thereafter, the Company shall cause Employee to be covered by and named as an insured under a policy or contract of insurance obtained by it to insure its directors and officers against personal liability for acts or omissions in connection with service as an officer or director of the Company or its affiliates or service in other capacities at the request of the Company.  The coverage provided to Employee pursuant to this Section shall be of a scope and on terms and conditions at least as favorable as the coverage provided to Employee on the termination date of this Agreement.

 

16.                                 Miscellaneous.  No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Employee and such officer as may be specifically authorized by the Board.  No waiver by either party hereto at any time of any breach by the other party hereto of, or in compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.  This Agreement is an integration of the parties agreement; no agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement.  The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware.

 

17.                                 Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

 

18.                                 Arbitration.  Employee shall be permitted (but not required) to elect that any dispute or controversy arising under or in connection with this Agreement be settled by arbitration in Denver, Colorado or in the city in which Employee then resides in accordance with the rules of the American Arbitration Association then in effect.  Judgment may be entered on the arbitrator’s award in any court having jurisdiction.

 

19.                                 Prior Agreements.  This agreement supersedes and replaces in full any previously existing employment agreement (written or oral) between the parties.

 

20.                                 Knowledge of Terms and Conditions.  Employee has received a copy of this Agreement in advance of his execution hereof and has consulted with his own attorney with respect to the terms and conditions hereof and the transactions contemplated under this Agreement.  Employee has executed this Agreement with full knowledge of the terms and conditions contained herein and acknowledges that he has had the opportunity to obtain information regarding the Company and concerning the terms and conditions of this

 

15

 

Agreement.  In making his decision to enter into this Agreement, Employee has relied solely upon independent investigations he made and acknowledges that he is not relying on the Company, any affiliate of the Company or any officer, director or employee of the Company for advice with respect to any tax or other economic considerations involved in the transactions contemplated under this Agreement, including those arising under Section 409A of the Internal Revenue Code of 1986, as amended.

 

IN WITNESS WHEREOF, the parties have executed this Agreement effective for all purposes as of January 16, 2012.

 

 

	
 
    	
Venoco, Inc.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Timothy M. Marquez
    
	
 
    	
 
    	
Timothy   M. Marquez
    
	
 
    	
 
    	
Chief   Executive Officer
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Employee
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/ Edward J. O’Donnell
    
	
 
    	
 
    	
Edward J. O’Donnell
    

 

16

 

Exhibit “A”

 

Relocation Allowance

 

	
Included or reimbursable items
    	
 
    	
Estimated
   Cost
    	
 
    
	
Temporary Housing and associated costs in Denver   up to 120 Days 
    	
 
    	
$
    	
18,000
    	
 
    
	
Assisted house hunting in Denver for up to five   trips 
    	
 
    	
$
    	
8,000
    	
 
    
	
Area tour of Denver with professional assistance
    	
 
    	
$
    	
1,500
    	
 
    
	
Household goods, vehicle transportation, storage   up to 120 days, final move
    	
 
    	
$
    	
20,000
    	
 
    

 

17[Execution Version]

STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement (the “Agreement”) is made and entered into this 11th day of January, 2012, by and among Green Star, Inc., a Texas corporation (“Green Star”), Fine Dining Club, Inc., a Texas corporation (“Fine Dining”), (Green Star and Fine Dining are collectively referred to as the “Companies”), Thanasi Mantas, an individual (the “Seller”), Adelphi Group Ltd., a Texas limited Partnership (“Adelphi”), PNYX Limited Partnership, a Texas limited partnership (“PNYX”), RCI Dining Services (Stemmons), Inc., a Texas corporation (“RCI Stemmons”), RCI Dining Services (Stemmons 2), Inc., a Texas corporation (“RCI Dining,” and collectively with RCI Stemmons,  the “Purchasers”) and RCI Holdings, Inc., a Texas corporation (“RCI Holdings”).  The Companies, Seller, Purchasers, Adelphi, PNYX and RCI Holdings are sometimes hereinafter collectively referred to as the “Parties”.

WHEREAS, the Parties hereto (except for RCI Holdings), as well as Blue Star Entertainment, Inc. (“Blue Star”) and RCI Dining Services (Inwood), Inc. (“RCI Inwood”) previously entered into a Stock Purchase Agreement on or about November 18, 2011 (the “Prior Agreement”);

WHEREAS, the Prior Agreement was amended on or about December 28, 2011;

WHEREAS, the Parties hereto, with the acknowledgement of and notice to Blue Star and RCI Inwood wish to terminate the Prior Agreement, as amended, and enter into this Agreement on the terms and conditions as set forth herein;

WHEREAS, by their execution hereof the Parties hereby terminate the Prior Agreement and enter into this Agreement on the terms and conditions set forth herein;

WHEREAS, the Seller owns 100% of the shares of common stock of Green Star and Fine Dining;

WHEREAS, Green Star owns and operates an adult cabaret known as Silver City Cabaret (“Silver City”) located at 7501 N. Stemmons Freeway, Dallas, Texas 75247 (the “Silver City Premises”) pursuant to a Sexually Oriented Business license issued by the city of Dallas for 7501 N. Stemmons Freeway, Dallas, Texas;

WHEREAS, Fine Dining has a concession to provide alcohol sales and services to Green Star at the Silver City Premises;

WHEREAS, Adelphi owns the real properties commonly known as 7501 N. Stemmons Freeway, Dallas, Texas 75247 and 7600 John West Carpenter Freeway, Dallas, Texas 75247, and the improvements, including building and fixtures, located on the properties (collectively, the “Adelphi Real Property”) as more fully described on Exhibit “A” attached hereto and where Silver City is located;

WHEREAS, PNYX owns the real property commonly known as 7506 John West Carpenter Freeway, Dallas, Texas 75247, and the improvements, including building and fixtures, located on the properties (collectively, the “PNYX Real Property”) as more fully described on Exhibit “B” attached hereto;

  

 

  

WHEREAS, the Seller desires to sell his shares of common stock of Green Star to RCI Stemmons and his shares of Fine Dining to RCI Dining, all on the terms and conditions set forth herein;

WHEREAS, RCI Stemmons desires to purchase the shares of common stock of Green Star and RCI Dining desires to purchase the shares of common stock of Fine Dining all on the terms and conditions set forth herein;

WHEREAS, the acquisitions of 100% of the shares of common stock of Green Star and  Fine Dining by the Purchasers will sometimes be referred to collectively herein as the “Acquisition”.

WHEREAS, in connection with this Acquisition, (i) Adelphi desires to sell the Adelphi Real Property to RCI Holdings, a wholly owned subsidiary of Rick’s Cabaret International, Inc. (“Rick’s”), free and clear of all liens, claims or encumbrances and (ii) PNYX desires to sell the PNYX Real Property to RCI Holdings, free and clear of all liens, claims or encumbrances; and

WHEREAS, RCI Holdings desires to purchase the Adelphi Real Property and the PNYX Real Property from Adelphi and PNYX, respectively.

NOW, THEREFORE, in consideration of the premises, the mutual covenants and agreements and the respective representations and warranties herein contained, and on the terms and subject to the conditions herein set forth, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE I

PURCHASE AND SALE OF THE SHARES

Section 1.1           Sale of the Green Star Shares.  Subject to the terms and conditions set forth in this Agreement, at the Closing (as hereinafter defined), the Seller hereby agrees to sell, transfer, convey and deliver to RCI Stemmons all of the shares of common stock of Green Star, free and clear of all encumbrances, which represents all of the outstanding capital stock of Green Star (the “Green Star Shares”), and shall deliver to RCI Stemmons stock certificates representing the Green Star Shares, duly endorsed to RCI Stemmons.

Section 1.2           Sale of the Fine Dining Shares.  Subject to the terms and conditions set forth in this Agreement, at the Closing, the Seller hereby agrees to sell, transfer, convey and deliver to RCI Dining all of the shares of common stock of Fine Dining, free and clear of all encumbrances, which represents all of the outstanding capital stock of Fine Dining (the “Fine Dining Shares”), and shall deliver to RCI Dining stock certificates representing the Fine Dining Shares, duly endorsed to RCI Dining.

Section 1.3           Purchase Price.  As consideration for the purchase of the Green Star Shares and the Fine Dining Shares (collectively, the “Shares”), the Purchasers shall pay to Seller aggregate consideration of $1,500,000 (the “Purchase Price”).  The Purchase Price shall be payable at Closing, as follows:

 

Stock Purchase Agreement - Page 2

 

  

 

  

	
  

	
(i)

	
RCI Stemmons shall pay or cause to be paid $1,400,000 to the Seller as consideration for the Green Star Shares pursuant to a promissory note (the “Green Star Note”) executed by RCI Stemmons; and

	
  

	
(ii)

	
RCI Dining shall pay or cause to be paid $100,000 to the Seller as consideration for the Fine Dining Shares pursuant to a promissory note (the “Fine Dining Note”) executed by RCI Dining.

The Green Star Note and the Fine Dining Note are hereinafter collectively referred to as the “Purchasers’ Note”.  Each of the Purchasers’ Notes shall bear interest, initially, at the rate of five and one-half percent (5 1⁄2%) per annum, the terms and conditions of which are as follows:

	 	
(a)

	
Payments of interest only for months one (1) through twelve (12);

	 	
(b)

	
Thereafter, one hundred and nineteen (119) equal monthly installments of  principal and interest, based upon a fifteen (15) year amortization schedule, with a balloon payment of all outstanding principal and  interest due thereon on the one hundred and thirty second (132nd)  month from the date of execution of the Purchasers’ Note, provided however, that the payee will have a one time right, effective the sixty-  first (61st) month after the date of execution of the Purchasers’ Note, to adjust the existing interest rate from five and one-half percent  (5.5%) to prime plus two and one-half percent (2.5%), but in no event to exceed nine percent (9%) per annum;

The Purchasers’ Notes shall contain, among other usual and customary default provisions, the following default provisions:

A.           A default under the Adelphi Promissory Note (as defined in Section 2.3(i) below), the PNYX Promissory Note (as defined in Section 2.3(iii) below) or  any of the Purchasers’ Notes will be deemed to be a default under all of the Purchasers’ Notes; and

B.           In the event that RCI Holdings or any of its affiliates, directly or indirectly, acquire any interest in any real property located within a 1,000 foot radius of the Adelphi Real Property or the PNYX Real Property and an application or “prospective” application for a sexually oriented business license for the acquired property is or has been filed with the City of Dallas, then such event will be deemed a default under the Purchasers’ Notes.

The Purchasers’ Notes shall also contain a provision that in the event that RCI Stemmons is notified that there is a cause to suspend, revoke or not renew its then existing sexually oriented business license then they shall give written notice of same to Seller within ten (10) days and will undertake to keep Seller informed regarding the actions taken by RCI Stemmons.

 

Stock Purchase Agreement - Page 3

 

  

 

  

ARTICLE II

CLOSING

Section 2.1           The Closing.  The closing of the transactions contemplated by this Agreement shall take place on the later of January 13, 2012 (the “Closing”), or five (5) business days after the Purchasers have obtained all required approvals and authorizations for  (a) a revised RM Mixed Beverage License in the name of Fine Dining and/or such other entity as Purchasers may select reflecting the change in corporate control resulting from the sale of the Fine Dining Shares to RCI Dining for the sale of alcoholic beverages on the Silver City Premises located at 7501 N. Stemmons Freeway;  (b) a sexually oriented business license issued by the City of Dallas for Suite A, 7501 N. Stemmons Freeway to operate an adult cabaret featuring adult topless entertainment in the name of Green Star, Inc. d/b/a Silver City based upon the revised application which reflects the sale of the Green Star Shares to RCI Stemmons; and (c) a dance hall license issued by the City of Dallas for Suite A, 7501 N. Stemmons Freeway (the “Closing Date”).  With the assistance of Seller and Seller’s counsel, Purchasers have filed the necessary revised applications or the requests with the TABC and/or the City of Dallas and shall diligently pursue same.  The Closing will take place at the law office of Axelrod, Smith & Kirshbaum, 5300 Memorial Drive, Suite 700, Houston, Texas, 77007, or at such other place as agreed upon among the parties hereto.  Notwithstanding the foregoing, in the event that the Purchasers are unable to obtain the approval and authorizations as set forth herein by February 1, 2012, then either party hereto may terminate this Agreement by giving written notice to the other parties as provided for in Section 12.2, and this Agreement shall be of no further force or effect.

Section 2.2           Delivery and Execution.  At the Closing: (a) the Seller shall deliver to RCI Stemmons and RCI Dining certificates evidencing the Green Star Shares and the Fine Dining Shares, respectively, free and clear of any liens, claims, equities, charges, options, rights of first refusal or encumbrances, duly endorsed to the Purchasers or accompanied by duly executed stock powers in form and substance satisfactory to the Purchasers against delivery by the Purchasers to the Seller of payment in an amount equal to the Purchase Price of the shares being purchased in the manner set forth in Section 1.3 above; and (b) the Related Transactions (as defined below) shall be consummated concurrently with the Closing.

Section 2.3           Related Transactions.  In addition to the purchase and sale of the Shares, the following actions must take place contemporaneously at the Closing (collectively, the "Related Transactions"):

	
  

	
(i)

	
Sale of the Adelphi Real Property.  At the Closing, Adelphi shall sell, transfer, convey and deliver by Special Warranty Deed, which will convey good and marketable title to the Adelphi Real Property to RCI Holdings, free and clear of liens, claims and encumbrances.  As consideration for the purchase of the Adelphi Real Property, RCI Holdings shall pay to Adelphi at Closing (x) $300,000 by cashier’s check, certified funds or wire transfer and (y) $6,200,000 pursuant to a Secured Promissory Note (the “Adelphi Promissory Note”) executed by and obligating RCI Holdings, bearing interest, initially, at the rate of five and one-half percent (5.5%) per annum, the terms and conditions of which are as follows:

 

Stock Purchase Agreement - Page 4

 

  

 

  

	 	
(a)

	
Payments of interest only for months one (1) through twelve (12);

	 	
(b)

	
Thereafter, one hundred and nineteen (119) equal monthly installments of  principal and interest, based upon a fifteen (15) year amortization schedule, with a balloon payment of all outstanding principal and interest due thereon on the one hundred and thirty second (132nd) month from the date of execution of the Adelphi Promissory Note, provided however, that

	 	
(1) 

	
The payee will have a one time right, effective the sixty-first (61st) month after the date of execution of the Adelphi Promissory Note, to adjust the existing interest rate from five and one-half percent (5.5%) to prime plus two and one-half percent (2.5%), but in no event to exceed nine percent (9%) per annum;

	 	
(2)

	
At the end of the forty-eighth (48th) month, the payee will have the right, with one hundred and eighty (180) days notice to the maker, to require a principal draw down payment of $500,000 (the “Initial Draw Down”); and

	 	
(3)

	
Thirty-six (36) months after the payment of the Initial Draw Down of principal, the payee will have the right, with one hundred and eighty (180) days notice to the maker, to require an additional principal draw down payment  of $500,000.

In the event that any draw down principal payments are made, then the monthly principal and interest payments due thereafter will be adjusted to reflect the then outstanding principal balance of the Adelphi Promissory Note.  The initial monthly payment for the Adelphi Promissory Note shall be due thirty (30) days after the date of Closing of the Acquisition, with each subsequent monthly payment due thereafter.

The Adelphi Promissory Note shall be secured by the Adelphi Real Property as well as the Green Star Shares and the Fine Dining Shares.  In addition, the Adelphi Promissory Note shall contain, among other usual and customary default provisions, the following default provisions:

(A)           A default under the PNYX Promissory Note or any of the Purchasers’ Notes will be deemed to be a default under the Adelphi Promissory Note; and

 

Stock Purchase Agreement - Page 5

 

  

 

  

(B)           In the event that RCI Holdings or any of its affiliates directly or indirectly acquire any interest in any real property located within a 1,000 foot radius of the Adelphi Real Property and an application or “prospective” application for a sexually oriented business license for the acquired property is or has been filed with the City of Dallas, then such event will be deemed a default under the Adelphi Promissory Note, the PNYX Promissory Note and all of the Purchasers’ Notes.

	
  

	
The Adelphi Promissory Note shall also contain a provision that in the event that  RCI Stemmons is notified that there is a cause to suspend, revoke or not renew its then existing sexually oriented business license then they shall give written notice of same to Seller within ten (10) days and will undertake to keep Seller informed regarding the actions taken by RCI Stemmons.

	
  

	
(ii)

	
Adelphi and RCI Holdings shall execute the Real Estate Purchase Agreement, which will provide for the terms and conditions for the conveyance of good and marketable title of the Adelphi Real Property, which Real Estate Purchase Agreement will be submitted to a title company mutually acceptable to RCI Holdings and Adelphi.

	
  

	
(iii)

	
Sale of the PNYX Real Property.  At the Closing, PNYX shall sell, transfer, convey and deliver by Special Warranty Deed, which will convey good and marketable title to the PNYX Real Property to RCI Holdings, free and clear of liens, claims and encumbrances.  As consideration for the purchase of the PNYX Real Property, RCI Holdings shall pay to PNYX at Closing (x) $700,000 by cashier’s check, certified funds, or wire transfer and (y) $300,000 pursuant to a Promissory Note (the “PNYX Promissory Note”) executed by and obligating RCI Holdings, bearing interest, initially, at the rate of five and one-half percent (5.5%) per annum, the terms and conditions of which are as follows:

	 	
(a)

	
Payments of interest only for months one (1) through twelve (12);

	
  

	
(b)

	
Thereafter, one hundred and nineteen (119) equal monthly installments of  principal and interest, based upon a fifteen (15) year amortization schedule, with a balloon payment of all outstanding principal and interest due thereon on the one hundred and thirty second (132nd) month from the date of execution of the PNYX Promissory Note, provided however, that the payee will have a one time right, effective the sixty-first (61st) month after the date of execution of the PNYX Promissory Note to adjust the existing interest rate from five and one-half percent (5.5%) to prime plus two and one-half percent (2.5%), but in no event to exceed nine percent (9%) per annum;

The initial monthly payment for the PNYX Promissory Note will be due thirty (30) days after the date of Closing of the Acquisition, with each subsequent monthly payment due thereafter.

 

Stock Purchase Agreement - Page 6

 

  

 

  

The PNYX Promissory Note shall be secured by the PNYX Real Property.  In addition, the PNYX Promissory Note shall contain, among other usual and customary default provisions, the following default provisions:

(A)           A default under the Adelphi Promissory Note or any of the Purchasers’ Notes will be deemed to be a default under the PNYX Promissory Note; and

(B)           In the event that RCI Holdings or any of its affiliates directly or indirectly acquire any interest in any real property located within a 1,000 foot radius of the PNYX Real Property and an application or “prospective” application for a sexually oriented business license for the acquired property is or has been filed with the City of Dallas, then such event will be deemed a default under the PNYX Promissory Note and all of the Purchasers’ Notes.

	
  

	
The PNYX Promissory Note shall also contain a provision that in the event that RCI Stemmons is notified that there is a cause to suspend, revoke or not renew its then existing sexually oriented business license then they shall give written notice of same to Seller within ten (10) days and will undertake to keep Seller informed regarding the actions taken by RCI Stemmons.

	
  

	
(iv)

	
PNYX and RCI Holdings shall execute the Real Estate Purchase Agreement, which will provide for the terms and conditions for the conveyance of good and marketable title of the PNYX Real Property, which Real Estate Purchase Agreement will be submitted to a title company mutually acceptable to RCI Holdings and PNYX.

	
  

	
  (v)

	
Covenant Not to Compete.  As partial consideration for the Purchasers entering into this Agreement, the Seller shall enter into a Non-Competition Agreement pursuant to the terms of which the Seller will agree for a period of five (5) years not to compete, either directly or indirectly, with the Purchasers, Green Star or Fine Dining or any of their affiliates, by owning, participating or operating an establishment featuring live female nude or semi-nude adult entertainment, whether serving alcoholic beverages or not, within Dallas County and all contiguous counties thereto, except that the Non-Competition Agreement shall specifically exclude the property located at 1449 Inwood Road, Dallas, Texas 75247.  A copy of the form of Non-Competition Agreement is attached hereto as Exhibit 2.3(v).

	
  

	
(vi)

	
Termination of Existing Lease Agreements.  Any lease agreements relating to the Adelphi Real Property will be terminated at Closing.  All rights of Lessor under any such lease agreements shall remain Lessor’s sole property and likewise all liabilities under any such lease agreements shall remain Lessor’s sole obligation.

 

Stock Purchase Agreement - Page 7

 

  

 

  

ARTICLE III

REPRESENTATIONS AND WARRANTIES

OF THE SELLER, GREEN STAR AND FINE DINING

The Seller, Green Star and Fine Dining hereby represent and warrant to the Purchasers as follows:

Section 3.1.          Organization, Good Standing and Qualification.

(a)           Each of the Companies (i) is a Texas corporation duly organized, validly existing and in good standing under the laws of the state of Texas, (ii) has all requisite power and authority to carry on its business, and (iii) is duly qualified to transact business and is in good standing in all jurisdictions where its ownership, lease or operation of property or the conduct of its business requires such qualification, except where the failure to do so would not have a material adverse effect to the Seller, the Purchasers, Green Star or Fine Dining.

(b)           At Closing, the authorized capital stock of Green Star consists of 100,000 shares of common stock, $.01 par value, of which 6,000 shares are validly issued and outstanding.  There are no shares of preferred stock authorized or issued and there is no other class of capital stock authorized or issued by Green Star.  All of the issued and outstanding shares of common stock of Green Star are owned by the Seller and are fully paid and non-assessable.  None of the Green Star Shares issued are in violation of any preemptive rights.  Green Star has no obligation to repurchase, reacquire, or redeem any of its outstanding capital stock.  There are no outstanding securities convertible into or evidencing the right to purchase or subscribe for any shares of capital stock of Green Star, there are no outstanding or authorized options, warrants, calls, subscriptions, rights, commitments or any other agreements of any character obligating Green Star to issue any shares of its capital stock or any securities convertible into or evidencing the right to purchase or subscribe for any shares of such stock, and there are no agreements or understandings with respect to the voting, sale, transfer or registration of any shares of capital stock of Green Star.

(c)           At Closing, the authorized capital stock of Fine Dining consists of 1,000 shares of common stock, $1.00 par value, of which 1,000 shares are validly issued and outstanding.  There are no shares of preferred stock authorized or issued and there is no other class of capital stock authorized or issued by Fine Dining.  All of the issued and outstanding shares of common stock of Fine Dining are owned by the Seller and are fully paid and non-assessable.  None of the Fine Dining Shares issued are in violation of any preemptive rights.  Fine Dining has no obligation to repurchase, reacquire, or redeem any of its outstanding capital stock.  There are no outstanding securities convertible into or evidencing the right to purchase or subscribe for any shares of capital stock of Fine Dining, there are no outstanding or authorized options, warrants, calls, subscriptions, rights, commitments or any other agreements of any character obligating Fine Dining to issue any shares of its capital stock or any securities convertible into or evidencing the right to purchase or subscribe for any shares of such stock, and there are no agreements or understandings with respect to the voting, sale, transfer or registration of any shares of capital stock of Fine Dining.

 

Stock Purchase Agreement - Page 8

 

  

 

  

Section 3.2           Subsidiaries.  None of the Companies have any subsidiaries.

Section 3.3           Ownership of the Shares.  The Seller owns, beneficially and of record, all of the Shares of Green Star and Fine Dining, free and clear of any liens, claims, equities, charges, options, rights of first refusal, or encumbrances.

Section 3.4           Authorization.  All corporate action on the part of Green Star and Fine Dining necessary for the authorization, execution, delivery and performance of this Agreement by Green Star and Fine Dining has been taken or will be taken prior to the Closing.  Green Star and Fine Dining each have the requisite corporate power and authority to execute, deliver and perform this Agreement.  This Agreement, when duly executed and delivered in accordance with its terms, will constitute a valid and binding obligation of Green Star and Fine Dining, enforceable against each in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, and other similar laws of general application relating to or affecting creditors’ rights and to general equitable principles.

Section 3.5           No Breaches or Defaults.  The execution, delivery, and performance of this Agreement by the Companies does not:  (i) conflict with, violate, or constitute a breach of or a default under any other outstanding agreements or the charter or bylaws of any of the Companies, (ii) result in the creation or imposition of any lien, claim, or encumbrance of any kind upon the Shares, or (iii) require any authorization, consent, approval, exemption, or other action by or filing with any third party or Governmental Authority under any provision of:  (a) any applicable Legal Requirement, or (b) any credit or loan agreement, promissory note, or any other agreement or instrument to which the Seller, Green Star or Fine Dining is a party or by which the Shares may be bound or affected.  For purposes of this Agreement, "Governmental Authority" means any foreign governmental authority, the United States of America, any state of the United States, and any political subdivision of any of the foregoing, and any agency, department, commission, board, bureau, court, or similar entity, having jurisdiction over the parties hereto or their respective assets or properties.  For purposes of this Agreement, "Legal Requirement" means any law, statute, injunction, decree, order or judgment (or interpretation of any of the foregoing) of, and the terms of any license or permit issued by, any Governmental Authority.

Section 3.6           Consents.  No permit, consent, approval or authorization of, or designation, declaration or filing with, any Governmental Authority or any other person or entity is required on the part of the Seller, Green Star or Fine Dining in connection with the execution and delivery by the Seller, Green Star or Fine Dining of this Agreement or the consummation and performance of the transactions contemplated hereby.

 

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Section 3.7           Pending Claims.   Except as set forth in Exhibit 3.7, there is no claim, suit, arbitration, investigation, action, litigation or other proceeding, whether judicial, administrative or otherwise, now pending or, to the Seller’s, Green Star’s or Fine Dining’s knowledge, contemplated or threatened against the Seller, Green Star or Fine Dining before any court, arbitration, administrative or regulatory body or any governmental agency which may result in any judgment, order, award, decree, liability or other determination which will or could reasonably be expected to have any material effect upon the Seller, Green Star or Fine Dining or the transfer by the Seller to the Purchasers of the Shares under this Agreement, nor is there any basis known to the Seller, Green Star or Fine Dining for any such action.  No litigation is pending, or, to the Seller’s, Green Star’s or Fine Dining’s knowledge, threatened against the Seller, Green Star or Fine Dining, or their assets or properties which seeks to restrain or enjoin the execution and delivery of this Agreement or any of the documents referred to herein or the consummation of any of the transactions contemplated thereby or hereby.  Neither the Seller, Green Star nor Fine Dining is subject to any judicial injunction or mandate or any quasi-judicial or administrative order or restriction directed to or against them or which would affect Green Star or Fine Dining or the Shares to be transferred under this Agreement.

Section 3.8           Taxes.  Each of the Companies has timely and accurately prepared and filed all federal, state, foreign and local tax returns and reports required to be filed prior to such dates and have timely paid all taxes shown on such returns as owed for the periods of such returns, including all sales taxes and withholding or other payroll related taxes shown on such returns.  None of the Companies is delinquent in the payment of any tax or governmental charge of any nature.  The Seller has no knowledge of any liability for any tax to be imposed by any taxing authorities as of the date of this Agreement and as of the Closing that is not adequately provided for.  No assessments or notices of deficiency or other communications have been received by the Seller or any of the Companies with respect to any tax return which has not been paid, discharged or fully reserved against and no amendments or applications for refund have been filed or are planned with respect to any such return.  None of the federal, state, foreign and local tax returns of any of the Companies has been audited by any taxing authority.  The Seller has no knowledge of any additional assessments, adjustments or contingent tax liability (whether federal or state) of any nature whatsoever, whether pending or threatened against any of the Companies for any period, nor of any basis for any such assessment, adjustment or contingency.  There are no agreements between any of the Companies and any taxing authority, including, without limitation, the Internal Revenue Service, waiving or extending any statute of limitations with respect to any tax return.

Section 3.9           Financial Statements.  The Seller and each of the Companies has or will deliver to the Purchasers the unaudited balance sheets of each of the Companies as of September 30, 2011, together with the related unaudited statements of income, for the periods then ended (collectively referred to as the “Financial Statements”). Such Financial Statements, including the related notes, are in accordance with the books and records of each of the Companies and fairly represent the financial position of each of the Companies and the results of operations and changes in financial position of each of the Companies as of the dates and for the periods indicated, in each case in conformity with generally accepted accounting principles applied on a consistent basis.  Except as, and to the extent reflected or reserved against in the Financial Statements, each of the Companies, as of the date of the Financial Statements, has no material liability or obligation of any nature, whether absolute, accrued, continued or otherwise, not fully reflected or reserved against in the Financial Statements.

 

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Section 3.10         No Material Adverse Change.  Since the dates of the Financial Statements, each of the Companies has conducted its business in the ordinary course, consistent with past practice, and there has been no (i) change that has had or would reasonably be expected to have a material adverse effect upon the assets, properties or business or the financial condition or other operations of any of the Companies; (ii) acquisition or disposition of any material asset by any of the Companies or any contract or arrangement therefore, otherwise then for fair value in the ordinary course of business; (iii) material change in any of the Companies’ accounting principles, practices or methods; (iv) incurrence of any material indebtedness or lending of money to any person or entity; (v) acceleration, termination, modification or cancellation or any agreement, contract, lease or license (or series of related agreements, contracts, leases or licenses) involving more than $5,000, either individually or in the aggregate to which any of the Companies is a party; or (vi) delay or postponement in the payment of any accounts payable or other liabilities.

Section 3.11         Labor Matters. None of the Companies is a party or otherwise subject to any collective bargaining agreement with any labor union or association.  There are no discussions, negotiations, demands or proposals that are pending or have been conducted or made with or by any labor union or association, and there are not pending or threatened against any of the Companies any labor disputes, strikes or work stoppages.  To the best of Seller’s and each of the Companies’ knowledge, each of the Companies is in compliance with all federal and state laws respecting employment and employment practices, terms and conditions of employment and wages and hours, and, to their knowledge, is not engaged in any unfair labor practices.  Neither the Companies nor the Seller is aware of any claim of alleged misclassification of entertainers as independent contractors by any individual or government agency.  None of the Companies is a party to any written or oral contract, agreement or understanding for the employment of any officer, director or employee of any of the Companies.

Section 3.12         Compliance with Laws.  Each of the Companies is, and at all times prior to the date hereof has been in compliance with all statutes, orders, rules, ordinances and regulations applicable to it or to the ownership of its assets or the operation of its businesses, except for failures to be in compliance that would not have a material adverse effect on the business, properties, condition (financial or otherwise) or prospects of such company.  Neither the Seller nor any of the Companies has any basis to expect, nor has is received, any order or notice of any such violation or claim of violation of any such statute, order, rule, ordinance or regulation by such company.  Exhibit 3.12 sets forth all licenses and permits held by each of the Companies used in the operation of its businesses, all of which are in good standing and in effect as of the Closing Date.  These licenses and permits represent all of the licenses and permits required by each of the Companies for the operation of its business.

Section 3.13         Title to Properties; Encumbrances.  Each of the Companies has good and marketable title to all of its properties and assets, real and personal, tangible and intangible, that are material to the condition (financial or otherwise), business, operations or prospects of such company, free and clear of all mortgages, claims, liens, security interests, charges, leases, encumbrances and other restrictions of any kind and nature, except (i) as disclosed in the Financial Statements of the Companies, (ii) statutory liens not yet delinquent, and (iii) such liens consisting of zoning or planning restrictions, imperfections of title, easements and encumbrances, if any, as do not materially detract from the value or materially interfere with the present use of the property or assets subject thereto or affected thereby.   At the time of Closing, the assets of each of the Companies will include, but will not be limited to, the assets set forth in each of the Companies’ 2010 corporate income tax return, along with all equipment and fixtures located on the Silver City Premises as of the Closing Date.

 

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Section 3.14         No Liabilities.  As of the Closing Date, each of the Companies does not and will not have any obligation or liability (contingent or otherwise) or unpaid bill to any third party except as expressly set forth herein in Exhibit 3.7 and Article X.

Section 3.15         Contracts and Leases.  Except as disclosed on Exhibit 3.15, each of the Companies does not (i) have any leases of personal property relating to the assets of such company, whether as lessor or lessee and (ii) have any contractual or other obligations relating to the assets of such company, whether written or oral.  Each of the Companies has not given any power of attorney to any person or organization for any purpose relating to the business or assets of such company.  Green Star has an existing real estate lease agreement with Adelphi covering the real property where Silver City operates its adult entertainment cabaret located at Suite A, 7501 N. Stemmons Freeway, Dallas, Texas 75247.  Each of the Companies shall provide to the Purchasers prior to Closing each and every contract, lease or other document relating to its assets to which it is subject or is a party or a beneficiary.  To the Seller’s and the Companies’ knowledge, such contracts, leases or other documents are valid and in full force and effect according to their terms and constitute legal, valid and binding obligations of Green Star or Fine Dining and the other respective parties thereto and are enforceable in accordance with their terms.  The Seller and the Companies have no knowledge of any default or breach under such contracts, leases or other documents or of any pending or threatened claims under any such contracts, leases or other documents.  Neither the execution of this Agreement, nor the consummation of all or any of the transactions contemplated under this Agreement, will constitute a breach or default under any such contracts, leases or other documents which would have a material adverse effect on the financial condition of any of the Companies or the operation of Silver City after Closing.

Section 3.16         No Pending Transactions.  Except for the transactions contemplated by this Agreement and the Related Transactions contemplated in Section 2.3 herein, neither the Seller nor any of the Companies is a party to or bound by or the subject of any agreement, undertaking, commitment or discussions or negotiations with any person that could result in: (i) the sale, merger, consolidation or recapitalization of any of the Companies; (ii) the sale of any of the assets of any of the Companies; (iii) the sale of any outstanding capital stock or other securities of any of the Companies; (iv) the acquisition by any of the Companies of any operating business or the capital stock of any other person or entity; (v) the borrowing of money; (vi) any agreement with any of the respective officers, managers or affiliates of any of the Companies; or (vii) the expenditure of more than $5,000, in the aggregate, or the performance by any of the Companies extending for a period more than one year from the date hereof, other than in the ordinary course of business.

Section 3.17        Material Agreements; Action.    Except for the transactions contemplated by this Agreement and the Related Transactions contemplated in Section 2.3 herein, there are no material contracts, agreements, commitments, understandings or proposed transactions, whether written or oral, to which the Seller or any of the Companies are a party or by which they are bound that involve or relate to (i) any of the respective officers, directors or stockholders of any of the Companies or (ii) covenants of the Seller or any of the Companies not to compete in any line of business or with any person in any geographical area or covenants of any other person not to compete with any of the Companies in any line of business or in any geographical area.

 

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Section 3.18         Insurance Policies.  Copies of all insurance policies maintained by any of the Companies will be delivered to the Purchasers prior to Closing.  The policies of insurance held by any of the Companies are in such amounts, and insure against such losses and risks, as each of the Companies reasonably deems appropriate for its property and business operations.  All such insurance policies are in full force and effect, and all premiums due thereon have been paid.  Valid policies for such insurance will be outstanding and duly in force at all times prior to the Closing.

Section 3.19         No Default.  Neither the Seller nor any of the Companies is in default under any term or condition of any instrument evidencing, creating or securing any indebtedness of any of the Companies, and there has been no default in any material obligation to be performed by the Seller or any of the Companies under any other contract, lease, agreement, commitment or undertaking to which any of the Companies is a party or by which it or its assets or properties are bound, nor has the Seller or any of the Companies waived any material right under any such contract, lease, agreement, commitment or undertaking.

Section 3.20         Books and Records.  The books of account, minute books, stock record books and other records of each of the Companies, all of which will be made available to the Purchasers prior to Closing, are and will be accurate and complete and have been maintained in accordance with sound business practices.  Upon Closing, all books and records will be in the possession of the Purchasers.

Section 3.21         Banks and Brokerage Accounts.  Exhibit 3.21 sets forth (a) a true and complete list of the names and locations of all banks, trust companies, securities brokers and other financial institutions at which any of the Companies has an account or safe deposit box or maintains a banking, custodial, trading or other similar relationship, and (b) a true and complete list and description of each such account, box and relationship, indicating in each case the account number and the names of the respective officers, employees, agents or other similar representatives having signatory power with respect thereto.

Section 3.22         Environmental.  To the best of the Seller’s and the Companies’ knowledge, the Silver City Premises is not in violation of any state, local or federal statutes, laws, regulations, ordinances or rules pertaining to health or the environment requirements affecting the Silver City Premises. Neither the Seller, Green Star nor Fine Dining has received any citation, directive, letter or other communication, written or oral, or any notice of any proceeding, claim or lawsuit relating to any environmental issue arising out of the ownership or occupation of the Silver City Premises, and there is no basis known to the Seller, Green Star or Fine Dining for any such action.

 

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Section 3.23         Notices.  Neither the Seller nor the Companies or any representative of the Seller or the Companies have received any written notice (i) from any insurance companies, governmental agencies or from any other parties of any condition, defects or inadequacies with respect to the Silver City Premises which, if not corrected, would result in termination of insurance coverage or increase its cost, (ii) from any governmental agencies or any other third parties with respect to any violations of any building codes and/or zoning ordinances or any other governmental laws, regulations or orders affecting the Silver City Premises, including, without limitation, the Americans With Disabilities Act, (iii) of any pending or threatened condemnation proceedings with respect to the Silver City Premises, or (iv) of any proceedings which could or would cause the change, redefinition or other modification of the zoning classification of the Silver City Premises.

Section 3.24         Proceedings Relating to the Silver City Premises.  Except as set forth in Exhibit 3.24, there is no pending, or to the best knowledge of the Seller or the Companies or any representative of the Seller or the Companies, contemplated or threatened judicial, municipal or administrative proceedings with respect to, or in any manner affecting the Silver City Premises or any portion thereof, including, without limitation, proceedings for or involving tenant evictions, collections, condemnations, eminent domain, alleged building code or zoning violations, personal injuries or property damage alleged to have occurred on the Silver City Premises or by reason of the use and operation of the Silver City Premises, or written notice of any attachments, executions, assignments for the benefit of creditors, receiverships, conservatorships or voluntary or involuntary proceedings in bankruptcy or pursuant to any other debtor relief laws pending or threatened against the Seller or the Companies or the Silver City Premises itself, or the taking of the Silver City Premises for public needs.

Section 3.25         Public Improvements.  None of the Seller, the Companies or any representative of the Seller or the Companies has knowledge of any existing or proposed public improvements which involve or which may result in any charge being levied or assessed against the Silver City Premises or which will or could result in the creation of any lien upon the Silver City Premises or any part thereof.

Section 3.26         Certificates.  To the best knowledge of the Seller, the Companies or any representative of the Seller or the Companies, all certificates of occupancy, licenses, permits, authorizations and approvals required by law or by any governmental authority having jurisdiction over the Silver City Premises have been obtained and are in full force and effect.

Section 3.27         Material Defect.  To the best knowledge of the Seller, the Companies or any representative of the Seller or the Companies, there are no material defects to the Silver City Premises which have not been disclosed in writing to the Purchaser.

Section 3.28         Flooding.  To the best knowledge of the Seller, the Companies or any representative of the Seller or the Companies no flooding has occurred on the Silver City Premises.

Section 3.29         Necessary Permits and Licenses.  Except for (a) a revised RM Mixed Beverage License in the name of Fine Dining and/or such other entity as Purchasers may select reflecting the change in corporate control resulting from the sale of the Fine Dining Shares to RCI Dining for the sale of alcoholic beverages on the Silver City Premises located at 7501 N. Stemmons Freeway;  (b) a sexually oriented business license issued by the City of Dallas for Suite A, 7501 N. Stemmons Freeway to operate an adult cabaret featuring adult topless entertainment in the name of Green Star, Inc. d/b/a Silver City based upon the revised application which reflects the sale of the Green Star Shares to RCI Stemmons; and (c) a dance hall license issued by the City of Dallas for Suite A, 7501 N. Stemmons Freeway.  There are no other specialized licenses or permits required to allow the Purchasers to operate, conduct and manage their business in a manner identical to the operation, conduct and management presently conducted on the Silver City Premises.

 

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Section 3.30         Disclosure.  No representation or warranty of the Seller or any of the Companies contained in this Agreement (including the exhibits hereto) contains any untrue statement or omits to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading.

Section 3.31         Employee Benefit Plans.  None of the Companies is a party to any employee-benefit plan.

Section 3.32         Brokerage Commission.  No broker or finder has acted on behalf of the Seller or any of the Companies in connection with this Agreement or the transactions contemplated hereby and no person is entitled to any brokerage or finder’s fee or compensation in respect thereto based in any way on agreements, arrangements or understandings made by or on behalf of the Sellers or any of the Companies.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

OF THE SELLER

The Seller hereby makes the following representations and warranties to the Purchasers, which representations and warranties shall be true and correct on the date hereof and on and as of the Closing Date:

Section 4.1           Ownership of the Shares.  The Seller owns, beneficially and of record, all of the Shares, free and clear of any liens, claims, equities, charges, options, rights of first refusal, or encumbrances.  The Seller has the unrestricted right and power to transfer, convey and deliver full ownership of the Shares without the consent or agreement of any other person and without any designation, declaration or filing with any governmental authority.  Upon the transfer of the Shares to the Purchasers as contemplated herein, the Purchasers will receive good and valid title thereto, free and clear of any liens, claims, equities, charges, options, rights of first refusal, encumbrances or other restrictions (except those imposed by applicable securities laws).

Section 4.2           Authorization.  The Seller represents that he is a person of full age of majority, with full power, capacity, and authority to enter into this Agreement and perform the obligations contemplated hereby by and for himself and his spouse.  All action on the part of the Seller necessary for the authorization, execution, delivery and performance of this Agreement by him has been taken, or will be taken by him prior to the Closing Date.  This Agreement, when duly executed and delivered in accordance with its terms, will constitute legal, valid and binding obligations of the Seller enforceable against him in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization and other similar laws of general application affecting creditors’ rights generally or by general equitable principles.

 

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Section 4.3           Consents.  No consent, approval or authorization of, or designation, declaration or filing with, any other person or entity (other than governmental entities) is required on the part of the Seller in connection with the execution and delivery by the Seller of this Agreement or the consummation and performance of the transactions contemplated hereby.

Section 4.4           No Solicitation or Pending Transactions.  Except for the transactions contemplated by this Agreement, the Seller is not a party to or bound by or the subject of any agreement, undertaking, commitment or discussions or negotiations with any person that could result in the sale of any of the Shares.  The Seller agrees that from the date of his execution of this Agreement until the Closing Date, he will not offer to sell or solicit any offer to purchase or engage in any discussions or activities of any nature whatsoever, directly or indirectly, involving in any manner the actual or potential sale, transfer, encumbrance, pledge, collateralization or hypothecation of the Shares, or any assets of any of the Companies.  The Seller hereby agrees to advise the Purchasers of any contact from any third party regarding the acquisition of the Shares or other investment in any of the Companies, or of any contact which would relate to the transactions contemplated by this Agreement.

Section 4.5           Disclosure.  No representation or warranty of the Seller contained in this Article IV contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein in light of the circumstances under which they were made, not misleading.

ARTICLE V

REPRESENTATIONS AND WARRANTIES

OF THE PURCHASERS AND RCI HOLDINGS

The Purchasers and RCI Holdings hereby represent and warrant, jointly and severally, to the Seller and the Companies as follows:

Section 5.1           Organization, Good Standing and Qualification.  Each of the Purchasers and RCI Holdings (i) is an entity duly organized, validly existing and in good standing under the laws of the state of Texas, (ii) has all requisite power and authority to carry on its business, and (iii) is duly qualified to transact business and is in good standing in all jurisdictions where its ownership, lease or operation of property or the conduct of its business requires such qualification, except where the failure to do so would not have a material adverse effect to the Purchasers.

Section 5.2           Authorization.  All corporate action on the part of each of the Purchasers and RCI Holdings necessary for the authorization, execution, delivery and performance of this Agreement by it has been taken and will be taken prior to Closing.  Each of the Purchasers and RCI Holdings has the requisite corporate power and authority to execute, deliver and perform this Agreement.  This Agreement, when duly executed and delivered in accordance with its terms, will constitute legal, valid, and binding obligations of each of the Purchasers enforceable against each in accordance with its terms, except as may be limited by bankruptcy, insolvency, and other similar laws affecting creditors' rights generally or by general equitable principles.

 

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Section 5.3           No Breaches or Defaults.  The execution, delivery, and performance of this Agreement by each of the Purchasers and RCI Holdings does not: (i) conflict with, violate, or constitute a breach of or a default under or (ii) require any authorization, consent, approval, exemption, or other action by or filing with any third party or Governmental Authority under any provision of:  (a) any applicable Legal Requirement, or (b) any credit or loan agreement, promissory note, or any other agreement or instrument to which either of the Purchasers is a party.

Section 5.4           Consents.  No permit, consent, approval or authorization of, or designation, declaration or filing with, any Governmental Authority or any other person or entity is required on the part of either of the Purchasers and RCI Holdings in connection with the execution and delivery by the Purchasers of this Agreement or the consummation and performance of the transactions contemplated hereby other than as required under the federal securities laws.

Section 5.5           Disclosure.  No representation or warranty of either of the Purchasers and RCI Holdings contained in this Agreement (including the exhibits hereto) contains any untrue statement or omits to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading.

Section 5.6           Brokerage Commission.  No broker or finder has acted on behalf of the Purchasers and RCI Holdings in connection with this Agreement or the transactions contemplated hereby, and no person is entitled to any brokerage or finder’s fee or compensation in respect thereto based in any way on agreements, arrangements or understandings made by or on behalf of either of the Purchasers.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES

OF ADELPHI AND PNYX

AND WITH RESPECT TO SECTION 6.6

OF ADELPHI, PNYX AND THE SELLER

Adelphi and PNYX hereby represent and warrant to the Purchasers and RCI Holdings as follows and with respect to Section 6.6, Adelphi, PNYX and Seller hereby represent and warrant, jointly and severally, to the Purchasers and RCI Holdings as follows:

Section 6.1           Organization, Good Standing and Qualification.  Each of Adelphi and PNYX  (i) is a Texas limited partnership duly organized, validly existing and in good standing under the laws of the state of Texas, (ii) has all requisite power and authority to carry on its business, and (iii) is duly qualified to transact business and is in good standing in all jurisdictions where its ownership, lease or operation of property or the conduct of its business requires such qualification, except where the failure to do so would not have a material adverse effect to either Adelphi or PNYX.

 

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Section 6.2          Authorization.  All action on the part of Adelphi and PNYX necessary for the authorization, execution, delivery and performance of this Agreement by it has been taken and will be taken prior to Closing.  Each of Adelphi and PNYX has the requisite power and authority to execute, deliver and perform this Agreement.  This Agreement, when duly executed and delivered in accordance with its terms, will constitute legal, valid, and binding obligations of Adelphi and PNYX enforceable against each in accordance with its terms, except as may be limited by bankruptcy, insolvency, and other similar laws affecting creditors' rights generally or by general equitable principles.

 

Section 6.3           No Breaches or Defaults.  The execution, delivery, and performance of this Agreement by each of Adelphi and PNYX does not: (i) conflict with, violate, or constitute a breach of or a default under or (ii) require any authorization, consent, approval, exemption, or other action by or filing with any third party or Governmental Authority under any provision of:  (a) any applicable Legal Requirement, or (b) any credit or loan agreement, promissory note, or any other agreement or instrument to which either Adelphi or PNYX is a party.

Section 6.4           Consents.  No permit, consent, approval or authorization of, or designation, declaration or filing with, any Governmental Authority or any other person or entity is required on the part of either of Adelphi or PNYX in connection with the execution and delivery by Adelphi or PNYX of this Agreement or the consummation and performance of the transactions contemplated hereby other than as required under the federal securities laws.

Section 6.5           Disclosure.  No representation or warranty of either Adelphi or PNYX contained in this Agreement (including the exhibits hereto) contains any untrue statement or omits to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading.

Section 6.6           Asbestos.  Adelphi, PNYX  and Seller represent and warrant that the Adelphi Real Property and the PNYX Real Property may contain asbestos materials.  In the event that asbestos material is discovered and identified on/in the Adelphi Real Property or the PNYX Real Property then Adelphi, PNYX and Seller shall immediately take all necessary action to remove any asbestos material that may be present and remediate the property.  Seller, Adelphi and PNYX shall pay the cost of  the removal and remediation of the Adelphi Real Property and/or PNYX Real Property and shall provide written verification that the properties are free from any asbestos material.

ARTICLE VII

CONDITIONS TO CLOSING OF

SELLER, THE COMPANIES, ADELPHI AND PNYX

Each obligation of the Seller, each of the Companies, Adelphi and PNYX to be performed on the Closing Date shall be subject to the satisfaction of each of the conditions stated in this Article VII, except to the extent that such satisfaction is waived by the Seller, the Companies, Adelphi and PNYX in writing.

Section 7.1           Representations and Warranties Correct.  The representations and warranties made by each of the Purchasers and RCI Holdings contained in this Agreement will be true and correct as of the Closing Date.

 

Section 7.2           Covenants.  All covenants, agreements and conditions contained in this Agreement to be performed by the Purchasers and RCI Holdings on or prior to the Closing Date will have been performed or complied with in all respects.

 

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Section 7.3           Delivery of Certificate.  Each of the Purchasers and RCI Holdings shall provide to the Seller, the Companies, Adelphi and PNYX certificates, dated the Closing Date and signed by the President of each of the Purchasers, to the effect set forth in Section 7.1 and 7.2 for the purpose of verifying the accuracy of such representations and warranties and the performance and satisfaction of such covenants and conditions.

Section 7.4           Payment of Purchase Price.  The Purchasers shall have tendered the Purchase Price for the Shares as referenced in Section 1.3 to the Seller concurrently with the Closing.

Section 7.5           Related Transactions.  The Related Transactions set forth in Section 2.3 will be consummated concurrently with the Closing.

Section 7.6           Corporate Resolutions.  Each of the Purchasers shall provide corporate resolutions of the Board of Directors of each of the Purchasers which approve the transactions contemplated herein and authorize the execution, delivery and performance of this Agreement and the documents referred to herein to which it is or is to be a party dated as of the Closing Date.

Section 7.7           Absence of Proceedings.  No action, suit or proceeding by or before any court or any governmental or regulatory authority shall have been commenced and no investigation by any governmental or regulatory authority shall have been commenced seeking to restrain, prevent or challenge the transactions contemplated hereby or seeking judgments against either of the Purchasers.

ARTICLE VIII

CONDITIONS TO CLOSING OF

THE PURCHASERS AND RCI HOLDINGS

Each obligation of each of the Purchasers and RCI Holdings to be performed on the Closing Date will be subject to the satisfaction of each of the conditions stated in this Article VIII, except to the extent that such satisfaction is waived by each of the Purchasers and RCI Holdings in writing.

Section 8.1           Representations and Warranties Correct.  The representations and warranties made by the Seller and each of the Companies, Adelphi and PNYX hereof shall be true and correct as of the Closing Date.

Section 8.2           Covenants.  All covenants, agreements and conditions contained in this Agreement to be performed by the Seller and each of the Companies, Adelphi and PNYX on or prior to the Closing Date will have been performed or complied with in all respects.

 

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Section 8.3           Delivery of Certificate.  The Seller and each of the Companies, Adelphi and PNYX will each provide to the Purchasers and RCI Holdings certificates, dated the Closing Date and signed by the Seller and by the President of each of the Companies or their General Partner, respectively, to the effect set forth in Section 8.1 and 8.2 for the purpose of verifying the accuracy of such representations and warranties and the performance and satisfaction of such covenants and conditions.

Section 8.4           Delivery of Shares.  The Seller shall have delivered certificates evidencing the Shares of the Companies duly endorsed to the Purchasers or accompanied by duly executed stock powers in form and substance satisfactory to the Purchasers.

Section 8.5           Corporate Resolutions.  Each of the Companies and the limited partnerships shall provide to the Purchasers and RCI Holdings a corporate or partnership resolution of the Board of Directors of each of the Companies or the limited partnership, respectively, which approve all of the transactions contemplated herein and authorizes the execution, delivery and performance of this Agreement and the documents referred to herein to which it is or is to be a party dated as of the Closing Date.

Section 8.6           Consents; Status of Permits and Licenses.  The Purchasers shall have obtained all required approvals and authorizations to conduct their business as is presently being conducted on the Silver City Premises by the Companies, including  (a) a revised RM Mixed Beverage License in the name of Fine Dining and/or such other entity as Purchasers may select reflecting the change in corporate control resulting from the sale of the Fine Dining Shares to RCI Dining for the sale of alcoholic beverages on the Silver City Premises located at 7501 N. Stemmons Freeway;  (b) a sexually oriented business license issued by the City of Dallas for Suite A, 7501 N. Stemmons Freeway to operate an adult cabaret featuring adult topless entertainment in the name of Green Star, Inc. d/b/a Silver City based upon the revised application which reflects the sale of the Green Star Shares to RCI Stemmons; and (c) a dance hall license issued by the City of Dallas for Suite A, 7501 N. Stemmons Freeway.

Section 8.7           Related Transactions.  The Related Transactions set forth in Section 2.3 will be consummated concurrently with the Closing.

Section 8.8           Ability to Audit.  Within the Due Diligence Period, the financial records of each of the Companies will be maintained and exist in such a manner as to allow for a certified audit as determined by the Purchasers.

Section 8.9           Satisfactory Diligence.  Within the Due Diligence Period (as defined in Section 9.2 below), each of the Purchasers will have concluded its due diligence investigation of the Companies and the business of Silver City and the Companies’ respective assets and properties and all other matters related to the foregoing, and will be satisfied, in their sole discretion, with the results thereof.

Section 8.10         Resignations.  All of the officers and directors of each of the Companies shall have provided to the Purchasers their written resignations.

 

Section 8.11         Termination of Existing Leases.   Any and all existing leases for the Silver City Premises will have been terminated.

 

Stock Purchase Agreement - Page 20

  

 

  

 

Section 8.12         No Liabilities Outstanding.  None of the Companies will have any obligations or liabilities (contingent or otherwise) or unpaid bill to any third party as of the Closing Date.

 

Section 8.13         Absence of Proceedings.  No action, suit or proceeding by or before any court or any governmental or regulatory authority will have been commenced and no investigation by any governmental or regulatory authority will have been commenced seeking to restrain, prevent or challenge the transactions contemplated hereby or seeking judgments against any of the Companies or any of their assets.

 

ARTICLE IX

COVENANTS OF THE SELLER

 AND THE COMPANIES

Section 9.1           Stand Still.  To induce the Purchasers to proceed with this Agreement, the Seller and each of the Companies agree that until the Closing Date or the termination of this Agreement, no representative of any of the Companies or any representative of the Seller will offer to sell or solicit any offer to purchase or engage in any discussions or activities of any nature whatsoever, directly or indirectly, involving in any manner the actual or potential sale, transfer, encumbrance, pledge, collateralization or hypothecation of any ownership interest in or assets of the any of the Companies or Silver City.  The Seller and each of the Companies hereby agree to advise the Purchasers of any contact from any third party regarding the acquisition or other investment in any of the Companies, or of any contact which would relate to the transactions contemplated by this Agreement.

Section 9.2           Access; Due Diligence.  Between the date of this Agreement and January 13, 2012 (the “Due Diligence Period”), the Seller shall cause each of the Companies to (a) provide the Purchasers and their authorized representatives reasonable access to all its plants, offices, warehouse and other facilities and properties, and to its books and records; (b) permit the Purchasers to make inspections thereof; and (c) cause its officers and advisors to furnish the Purchasers with such financial and operating data and other information with respect to its business and properties and to discuss with the Purchasers and their authorized representatives its affairs as the Purchasers may from time to time reasonably request.

Section 9.3           Conduct of Business.  From the date of the execution hereof until the Closing Date, each of the Companies shall operate itself and Silver City in the ordinary course consistent with past practices, and:

	
  

	
(a)

	
None of the Companies will authorize, declare, pay or effect any dividends or liquidate or distribute any common stock or other equity interest or undertake any direct or indirect redemption, purchase or other acquisition of any equity interest;

 

	
  

	
(b)

	
None of the Companies will make any changes in its condition (financial or otherwise), liabilities, assets, or business or in any of its business relationships, including relationships with suppliers or customers, that, when considered individually or in the aggregate, might reasonably be expected to have a material adverse effect on it;

 

Stock Purchase Agreement - Page 21

 

  

 

  

 

	
  

	
(c)

	
None of the Companies will increase the salary or other compensation payable or to become payable by it to any employee, or the declaration, payment, or commitment or obligation of any kind for the payment by it of a bonus or other additional salary or compensation to any such person except in the normal course of business, consistent with its past practices;

	
  

	
(d)

	
None of the Companies will sell, lease, transfer or assign any of their assets, tangible or intangible, other than inventory for a fair consideration, in the ordinary course of business;

	
  

	
(e)

	
None of the Companies will accelerate, terminate, modify or cancel any agreement, contract, lease or license (or series of related agreements, contracts, leases and licenses) involving more than $5,000, either individually or in the aggregate, to which it is a party, absent the consent of the respective Purchaser;

	
  

	
(f)

	
None of the Companies will make any loans to any person or entity, or guarantee any loan, absent the consent of the Purchasers;

	
  

	
(g)

	
None of the Companies will waive or release any right or claim held by it, absent the consent of the Purchasers;

	
  

	
(h)

	
Each of the Companies will operate its business in the ordinary course and consistent with past practices so as to preserve its business organization intact, to retain the services of their employees and to preserve their goodwill and relationships with suppliers, creditors, customers, and others having business relationships with them;

	
  

	
(i)

	
None of the Companies will issue any note, bond or other debt security or create, incur or assume, or guarantee any indebtedness for borrowed money or capitalized lease obligations;

	
  

	
(j)

	
None of the Companies will delay or postpone the payment of accounts payable and other liabilities outside the ordinary course of business;

	
  

	
(k)

	
None of the Companies will make any loan to, enter into an employment agreement with, or enter into any other transaction with, any of its directors, officers, and employees;

	
  

	
(l)

	
None of the Companies will make any change in any method, practice, or principle of accounting involving its business or assets;

	
  

	
(m)

	
None of the Companies will issue, sell or otherwise dispose of any of its capital stock or create, sell or dispose of any options, rights, conversion rights or other agreements or commitments of any kind relating to the issuance, sale or disposition of any of its equity interests;

 

Stock Purchase Agreement - Page 22

 

  

 

  

 

	
  

	
(n)

	
None of the Companies will reclassify, split up or otherwise change any of its common stock or capital structure;

	
  

	
(o)

	
None of the Companies will be a party to any merger, consolidation or other business combination; and

	
  

	
(p)

	
Each of the Companies shall perform in all material respects all of its obligations under material contracts, leases and other documents relating to or affecting any of its assets, property or its business or the business of Silver City.

ARTICLE X

TAX COVENANTS; CLOSING ADJUSTMENTS

Section 10.1         Tax Covenants.

(a)           The Seller shall be responsible for, and shall pay or cause to be paid, and shall indemnify and hold each of the Companies and Purchasers harmless from and against any and all federal, state and local income and property (real and personal) taxes, including penalties and interest, if any, thereon, and for any taxes or obligations or liabilities that may be due pursuant to the Patron Tax, which Patron Tax was implemented by the Texas legislature, or any obligations or liabilities pursuant to any amendments or legislation passed in connection therewith relating to the obligation of any of the Companies to make payment of the Patron Tax (individually, a “Tax” and collectively, “Taxes”) that may be imposed on or assessed against any of the Companies and/or Purchasers on account of taxes imposed upon any of the Companies or its assets prior to the Closing Date, including all taxes due on income received by any of the Companies prior to the Closing Date and real property taxes due under any lease agreement for the Silver City Premises.  The Seller shall also pay or cause to be paid and shall indemnify and hold harmless each of the Companies and Purchasers against all losses, damages and reasonable third party costs and expenses (including reasonable attorney, accountant and expert witness fees and disbursements) (“Related Costs”) incurred in connection with the Taxes for which the Seller indemnifies each of the Companies and Purchasers pursuant to this Section 10.1 (a)(or any asserted deficiency, claim demand or assessment, including the defense or settlement thereof) or the enforcement of this Section 10.1(a).  Any payment required to be made by the Seller pursuant to this Section 10.1(a) shall be made within 30 days of written notice from the Purchasers.

(b)           The Purchasers shall be responsible for, and shall pay or cause to be paid, and shall indemnify and hold the Seller harmless from and against, any and all Taxes that may be imposed on or assessed against the Seller on account of Taxes imposed on any of the Companies or its assets following the Closing Date, including all taxes due on income received by any of the Companies beginning after the Closing Date.  The Purchasers shall also pay or cause to be paid and shall indemnify and hold harmless the Seller from and against all Related Costs of the Sellers incurred in connection with the Taxes for which the Purchasers indemnify the Seller pursuant to this Section 10.1(b) (or any asserted deficiency, claim, demand or assessment, including the defense or settlement thereof) or the enforcement of this Section 10.1(b).  Any payment required to be made by the Purchasers pursuant to this Section 10.1(b) shall be made within 30 days of written notice from the Seller.

 

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(c)           For purposes of this Article X, Taxes for the period up to and including the Closing Date (“Sellers’ Taxes”) shall be determined on the basis of an interim closing of the books as of the Closing Date; provided, however, that in the case of any Tax not based on income or receipts, such Sellers’ Taxes shall be equal to the amount of such Tax for the taxable year multiplied by a fraction, the numerator of which shall be the number of days from the beginning of the taxable year through the day prior to the Closing Date, and the denominator of which shall be the number of days in the taxable year.

(d)           The Purchasers shall be responsible for filing or causing to be filed all tax returns required to be filed by or on behalf of the Companies after the Closing Date (other than tax returns for periods ending on or before the Closing Date but not due until after the Closing Date).

(e)           The Seller and the Purchasers shall cooperate fully with each other and make available to each other in a timely fashion such Tax data and other information and personnel as may be reasonably required for the payment of any estimated Taxes and the preparation of any tax returns required to be prepared hereunder.  The Seller and the Purchasers shall make available to the other, as reasonably requested, all information, records or documents in their possession relating to Tax liabilities of any of the Companies for all taxable periods thereof ending on, before or including the Closing Date and shall preserve all such information, records and documents until the expiration of any applicable Tax statute of limitations or extensions thereof; provided, however, that if a proceeding has been instituted for which the information, records or documents are required prior to the expiration of the applicable statute of limitations, then such information, records or documents shall be retained until there is a final determination with respect to such proceeding.

(f)           The Purchasers and the Seller shall promptly notify each other in writing upon receipt by the Purchasers or the Seller, as the case may be, of any notice of any tax audits of or assessments against any of the Companies for taxable periods ending on or before the Closing Date.  The failure of one party promptly to notify the other party of any such audit or assessment shall not forfeit the right to indemnity except to the extent that a party is materially prejudiced as a result.  The Purchasers shall have the right to represent any of the Companies’ interests in any tax proceeding relating to such tax audits or assessments and to employ counsel of its choice at its expense provided, however, that the Seller may, at his own cost and expense, participate in such proceedings relating to such tax audits or assessments.  The Purchasers, on the one hand, and the Seller, on the other, each agree to cooperate fully with the other and its or their respective counsel in the defense against or compromise of any claim in any tax proceeding.

(g)           Notwithstanding anything to the contrary contained elsewhere in this Agreement, all obligations under this Article X will survive the Closing hereunder and continue until 30 days following the expiration of the statute of limitations on assessment of the relevant Tax.

 

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Section 10.2         Closing Adjustments.  The Seller, each of the Companies and each of the Purchasers agree that there will be an adjustment made within ninety (90) days of the Closing Date to adjust for any liabilities that are found to exist of any of the Companies as of the Closing Date so that the Seller shall be responsible and liable to the Purchasers for the liabilities of the Companies that exist as of the Closing Date, less any credit which the Seller would be entitled to for cash on hand, credit card receivables or pro rata portion of prepaid items.

ARTICLE XI

INDEMNIFICATION

Section 11.1         Indemnification from Seller, Adelphi and PNYX.  Seller, Adelphi and PNYX, jointly and severally, agree to and shall indemnify, defend (with legal counsel reasonably acceptable to the Purchasers), and hold each of the Purchasers and RCI Holdings, its officers, directors, employees, affiliates, parent, agents, legal counsel, successors and assigns (collectively, the "Purchaser Group") harmless at all times after the date of this Agreement, from and against any and all actions, suits, claims, demands, debts, liabilities, obligations, losses, damages, costs, expenses, penalties or injury  (including reasonable attorneys= fees and costs of any suit related thereto) suffered or incurred by any of the Purchaser Group arising from: (a) any misrepresentation by, or breach of any covenant or warranty of the Seller, Adelphi, PNYX or the Companies contained in this Agreement, or any exhibit, certificate, or other instrument furnished or to be furnished by Seller, Adelphi, PNYX or any of the Companies hereunder; (b) any nonfulfillment of any agreement on the part of the Seller, Adelphi, PNYX or any of the Companies under this Agreement; (c) any liability or obligation due to any third party by any of the Companies incurred at or prior to the Closing Date; (d) any suit, action, proceeding, claim or investigation against the Purchasers which arises from or which is based upon or pertaining to Seller’s or any of the Companies’ conduct or the operation or liabilities of the business of any of the Companies prior to the Closing Date, including, but not limited to any claim of alleged misclassification of entertainers as independent contractors by any individual or governmental agency or any other claim alleging violations of any labor laws by any individual or government agency or (e) any suit, action, proceeding, claim or investigation against any of the Purchaser Group arising out of or resulting in any claims by any landlord that the any of the Companies failed to fulfill any of its obligations under any lease agreement at any time prior to the Closing Date of this Agreement.

Section 11.2         Indemnification from Purchasers.  The Purchasers, jointly and severally, agree to and shall indemnify, defend (with legal counsel reasonably acceptable to the Seller) and hold the Seller and his affiliates, agents, legal counsel, successors and assigns (collectively, the "Seller Group") harmless at all times after the date of the Agreement from and against any and all actions, suits, claims, demands, debts, liabilities, obligations, losses, damages, costs, expenses, penalties or injury (including reasonable attorneys’ fees and costs of any suit related thereto)  suffered or incurred by any of the Seller Group, arising from (a) any misrepresentation by, or breach of any covenant or warranty of any of the Purchasers contained in this Agreement or any exhibit, certificate, or other agreement or instrument furnished or to be furnished by Purchaser hereunder; (b) any nonfulfillment of any agreement on the part of any of the Purchasers under this Agreement; (c) any liability or obligation due to any third party by any of the Companies which arose from any activities which occurred subsequent to the Closing Date; or (d) any suit, action, proceeding, claim or investigation against the Seller which arises from or which is based upon or pertaining to the Purchasers’ conduct or the operation of the business of any of the Companies and occurred subsequent to the Closing Date.

 

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Section 11.3         Defense of Claims.  If any lawsuit, enforcement action or any attempt to collect on an alleged liability is filed against any party entitled to the benefit of indemnity hereunder, written notice thereof shall be given to the indemnifying party within ten (10) business days after receipt of  notice or other date by which action must be taken; provided that the failure of any indemnified party to give timely notice shall not affect rights to indemnification hereunder except to the extent that the indemnifying party demonstrates damage caused by such failure.  After such notice, the indemnifying party shall be entitled, if it so elects, to take control of the defense and investigation of such lawsuit or action and to employ and engage attorneys of its own choice to handle and defend the same, at the indemnifying party's cost, risk and expense; and such indemnified party shall cooperate in all reasonable respects, at its cost, risk and expense, with the indemnifying party and such attorneys in the investigation, trial and defense of such lawsuit or action and any appeal arising therefrom; provided, however, that the indemnified party may, at its own cost, participate in such investigation, trial and defense of such lawsuit or action and any appeal arising therefrom, but the fees and expenses of such counsel shall be at the expense of such indemnified party, except to the extent that (i) the employment thereof has been specifically authorized by the indemnifying party in writing, (ii) the indemnifying party has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict of any material issue between the position of the indemnifying party and the position of such indemnified party, in which case the indemnifying party shall be responsible for the reasonable fees and expenses of no more than one such separate counsel.  The indemnifying party shall not, without the prior written consent of the indemnified party, effect any settlement of any proceeding in respect of which any indemnified party is a party and indemnity has been sought hereunder unless such settlement of a claim, investigation, suit, or other proceeding only involves a remedy for the payment of money by the indemnifying party and includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding.

Section 11.4         Default of Indemnification Obligation.  If an entity or individual having an indemnification, defense and hold harmless obligation, as above provided, shall fail to assume such obligation, then the party or entities or both, as the case may be, to whom such indemnification, defense and hold harmless obligation is due shall have the right, but not the obligation, to assume and maintain such defense (including reasonable counsel fees and costs of any suit related thereto) and to make any settlement or pay any judgment or verdict as the individual or entities deem necessary or appropriate in such individuals or entities absolute sole discretion and to charge the cost of any such settlement, payment, expense and costs, including reasonable attorneys= fees, to the entity or individual that had the obligation to provide such indemnification, defense and hold harmless obligation and same shall constitute an additional obligation of the entity or of the individual or both, as the case may be.

 

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Section 11.5         Right to Offset.  In the event that any of the Companies, the Purchasers or RCI Holdings are entitled to indemnification in accordance with Article X, Section 11.1 and/or Section 11.3 hereof, including the payment by the Purchasers of any debts of liabilities resulting from the purchase of the Shares which were incurred prior to the Closing Date, including any obligations or liabilities to pay the Patron Tax, then Purchasers, the Companies or RCI Holdings, an affiliate of the Purchasers, who has entered into certain Related Transactions contemporaneously with the Closing of the Acquisition, shall have the right to offset any such amount from any obligations that are then due and payable to either the Seller, Adelphi or PNYX.  Notwithstanding the foregoing, neither the Companies nor the Purchasers may effect any settlement or compromise of any tax liability which would be owed by Seller as set forth in Article X for which the Companies or the Purchasers would be entitled to a right of offset under this Section 11.5 without the prior written consent of the Seller.

Section 11.6         Survival of Representations and Warranties.  The respective representations, warranties and indemnities given by the parties to each other pursuant to this Agreement shall survive the Closing for a period ending thirty-six (36) months from the Closing Date except with respect to Section 6.6, which survivability of such representation and warranty shall not begin to run until the Purchasers are advised that the removal of any asbestos on/in the Adelphi Real Property and/or the PNYX Real Property is necessary for the health and/or safety of Purchasers’ personnel (“Survival Date”).  Notwithstanding anything to the contrary contained herein, no claim for indemnification may be made against the party required to indemnify (the “Indemnitor”) under this Agreement unless the party entitled to indemnification (the “Indemnitee”) shall have given the Indemnitor written notice of such claim as provided herein on or before the Survival Date.  Any claim for which notice has been given prior to the expiration of the Survival Date shall not be barred hereunder.

ARTICLE XII

MISCELLANEOUS

Section 12.1         Amendment; Waiver.  Neither this Agreement nor any provision hereof may be amended, modified or supplemented unless in writing, executed by all the parties hereto.  Except as otherwise expressly provided herein, no waiver with respect to this Agreement shall be enforceable unless in writing and signed by the party against whom enforcement is sought.  Except as otherwise expressly provided herein, no failure to exercise, delay in exercising, or single or partial exercise of any right, power or remedy by any party, and no course of dealing between or among any of the parties, shall constitute a waiver of, or shall preclude any other or further exercise of, any right, power or remedy.

Section 12.2         Notices.  Any notices or other communications required or permitted hereunder shall be sufficiently given if in writing and delivered in Person or sent by registered or certified mail (return receipt requested) or nationally recognized overnight delivery service, postage pre-paid, addressed as follows, or to such other address has such party may notify to the other parties in writing:

	
(a)

	
If to the Seller:

	
Thanasi Mantas

	  	  	
7203 John Carpenter Freeway

	  	  	
Dallas, Texas 75247

 

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with a copy to:

	
Roger Albright

	  	  	
3301 Elm Street

	  	  	
Dallas, Texas 75226-2562

	
(b)

	
If to Green Star,

	
Green Star, Inc.

	  	
or Fine Dining:

	
Fine Dining Club, Inc.

	  	  	
Attn:  Thanasi Mantas, President

	  	  	
7203 John Carpenter Freeway

	  	  	
Dallas, Texas 75247

	  	  	  
	  	
with a copy to:

	
Roger Albright

	  	  	
3301 Elm Street

	  	  	
Dallas, Texas 75266-2562

	  	  	  
	
(c)

	
If to Adelphi or PNYX:

	
Adelphi Group, Ltd. or

	  	  	
PNYX Limited Partnership

	  	  	
7203 John Carpenter Freeway

	  	  	
Dallas, Texas 75247

	  	  	  
	  	
With copy to:

	
Roger Albright

	  	  	
3301 Elm Street

	  	  	
Dallas, Texas 75226-2562

	  	  	  
	
(d)

	
If to RCI Stemmons or

	
RCI Dining Services (Stemmons), Inc.

	  	
RCI Dining or

	
RCI Dining Services (Stemmons 2), Inc.

	  	
RCI Holdings:

	
RCI Holdings, Inc.

	  	  	
Attn:  Eric Langan, President

	  	  	
10959 Cutten Road

	  	  	
Houston, Texas  77066

	  	  	  
	  	
with a copy to:

	
Robert D. Axelrod

	  	  	
Axelrod, Smith & Kirshbaum

	  	  	
5300 Memorial Drive, Suite 700

	  	  	
Houston, Texas  77007

A notice or communication will be effective (i) if delivered in Person or by overnight courier, on the business day it is delivered and (ii) if sent by registered or certified mail, three (3) business days after dispatch.

Section 12.3         Severability.  Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement.

 

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Section 12.4         Assignment; Successors and Assigns.  Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors and permitted assigns of the parties hereto.  No party hereto may assign its rights or delegate its obligations under this Agreement without the prior written consent of the other parties hereto, which consent will not be unreasonably withheld.

Section 12.5         Public Announcements.   The parties hereto agree that prior to making any public announcement or statement with respect to the transactions contemplated by this Agreement, the party desiring to make such public announcement or statement shall consult with the other parties hereto and exercise their best efforts to agree upon the text of a public announcement or statement to be made by the party desiring to make such public announcement; provided, however, that if any party hereto is required by law to make such public announcement or statement, then such announcement or statement may be made without the approval of the other parties.

Section 12.6         Entire Agreement.  This Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subject matter hereof and thereof and supersede and cancel all prior representations, alleged warranties, statements, negotiations, undertakings, letters, acceptances, understandings, contracts and communications, whether verbal or written among the parties hereto and thereto or their respective agents with respect to or in connection with the subject matter hereof.

Section 12.7         Choice of Law.  This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas, without regard to principles of conflict of laws.  In any action between or among any of the parties, whether arising out of this Agreement or otherwise, each of the parties irrevocably consents to the exclusive jurisdiction and venue of the federal and state courts located in Harris County, Texas.

Section 12.8         Execution.  This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

Section 12.9         Costs and Expenses.   Each party shall pay their own respective fees, costs and disbursements incurred in connection with this Agreement.

Section 12.10       Section Headings.  The section and subsection headings in this Agreement are used solely for convenience of reference, do not constitute a part of this Agreement, and shall not affect its interpretation.

 

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Section 12.11       No Third-Party Beneficiaries.  Nothing in this Agreement will confer any third party beneficiary or other rights upon any person (specifically including any employees of The Company) or any entity that is not a party to this Agreement.

Section 12.12       Validity.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect.

Section 12.13       Further Assurances.  Each party covenants that at any time, and from time to time, after the Closing Date, it will execute such additional instruments and take such actions as may be reasonably requested by the other parties to confirm or perfect or otherwise to carry out the intent and purposes of this Agreement.

Section 12.14       Exhibits Not Attached.  Any exhibits not attached hereto on the date of execution of this Agreement shall be deemed to be and shall become a part of this Agreement as if executed on the date hereof upon each of the parties initialing and dating each such exhibit, upon their respective acceptance of its terms, conditions and/or form.

Section 12.15       Termination of Agreement.  This Agreement shall terminate and be of no force and effect and all other agreements executed herewith shall be of no force and effect if:  (i) the transactions contemplated by this Agreement are not consummated on or before February 1, 2012, unless all of the parties hereto agree in writing to extend the Agreement or (ii) all of the parties agree in writing to terminate this Agreement sooner.

Section 12.16       Attorney Review - Construction.  In connection with the negotiation and drafting of this Agreement, the parties represent and warrant to each other that they have had the opportunity to be advised by attorneys of their own choice and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments hereto.

Section 12.17       Gender.  All personal pronouns used in this Agreement shall include the other genders, whether used in the masculine, feminine or neuter gender and the singular shall include the plural and vice versa, wherever appropriate.

[SIGNATURES ON FOLLOWING PAGE]

 

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IN WITNESS WHEREOF, the undersigned have executed this Stock Purchase Agreement to become effective as of the date first set forth above.

	  	
RCI DINING SERVICES (STEMMONS), INC.

	  	  
	  	
/s/ Eric Langan

	  	
By:  Eric Langan, President

	  	  
	  	
RCI DINING SERVICES (STEMMONS 2), INC.

	  	  
	  	
/s/ Eric Langan

	  	
By:  Eric Langan, President

	  	  
	  	
RCI HOLDINGS, INC.

	  	  
	  	
/s/ Eric Langan

	  	
By:  Eric Langan, President

	  	  
	  	
GREEN STAR, INC.

	  	  
	  	
/s/ Thanasi Mantas

	  	
By:  Thanasi Mantas, President

	  	  
	  	
FINE DINING CLUB, INC.

	  	  
	  	
/s/ Thanasi Mantas

	  	
By:  Thanasi Mantas, President

	  	  
	  	
SELLER:

	  	  	  
	  	
By:

	
/s/ Thanasi Mantas

	  	  	
Thanasi Mantas, Individually

	  	  	  
	  	
ADELPHI GROUP LTD.

	  	  	  
	  	
By:

	
/s/ Alexi Mantas

	  	  	
Althkos, Inc., General Partner

	  	  	
By:     Alexi Mantas, President

	  	  	  
	  	
PNYX LIMITED PARTNERSHIP

	  	  	  
	  	
By:

	
/s/ Alexi Mantas

	  	  	
Althkos, Inc., General Partner

	  	  	
By:     Alexi Mantas, President

 

  

 

  

EXHIBIT “A”

Address: 7501 North Stemmons Freeway   Dallas, Texas 75247

BEING, a part of the James McLaughlin Survey, Abstract No. 845, and being a part of Block E-1/7940 of Empire Central Addition, an addition to the City of Dallas, according to the plat recorded in Volume 34 at page 203 of the Map Records of Dallas County, Texas, and being more particularly described as follows:

BEGINNING, at a point in the Southwest line of Stemmons Freeway (Interstate Highway No. 35E), said point being the most Easterly corner of said Block E-1/7940, an X cut for corner;

THENCE, South 70 Degrees, 58 Minutes, 27 Seconds West, along the dividing line between said Block E-1/7940 and Block E-4/7940 of said Empire Central Addition, a distance of 306.84 feet, an iron rod found for corner;

THENCE, North 51 Degrees, 51 Minutes West, a distance of 470.05 feet to the most Southerly corner of a tract of land conveyed to J.L. Williams and Sanders H. Campbell by deed filed 9/20/65 in the Deed Records of Dallas County, Texas, an iron rod found for corner;

THENCE, North 70 Degrees, 58 Minutes, 27 Seconds East, along the South line of said Campbell tract, a distance of 568.9 feet to a point in said Southwest line of Stemmons Freeway, an iron rod found for corner;

THENCE, South 17 Degrees, 01 Minutes, 33 Seconds East, continuing along said Southwest line, a distance of 176.92 feet to the Place of Beginning.

 

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EXHIBIT “A” (CONTINUED)

Address: 7600 John Carpenter Freeway, Dallas TX 75247

BEING a part of Block E-3/7940 of EMPIRE CENTRAL ADDITION, an addition to the City of Dallas, Dallas County, Texas, recorded in Volume 34, Page 203 of the Map Records of Dallas County, Texas, and also being a part of that same tract of land described in deed to Cresticon, Inc., recorded in Volume 84149, Page 2888 of the Deed Records of Dallas County, Texas, and said easement being more particularly described as follows:

COMMENCING at the westernmost corner of a corner cut-off line at the present intersection of the northwest R.O.W. line of Mockingbird Lane (a 135' R.O.W.) with the northeast R.O.W. line of John W. Carpenter Freeway (State Highway 183- a variable width R.O.W.); THENCE North 51 Degrees, 51 Minutes, 00 Seconds West, 467.00 feet to a point; THENCE North 53 Degrees, 45 Minutes, 33 Seconds West, 300.17 feet to a point; THENCE North 51 Degrees, 51 Minutes, 00 Seconds West, 66.00 feet to the POINT OF BEGINNING:

THENCE North 38 Degrees, 09 Minutes, 00 Seconds West, 386.14 feet to a point for corner:

THENCE North 19 Degrees, 01 Minutes, 33 Seconds West, 83.88 feet to a point for corner in the south line of that same tract of land described in deed to J.L Williams, recorded in Volume 85089, Page 1248 of the Deed of Records of Dallas County, Texas;

THENCE South 70 Degrees, 58 Minutes, 27 Seconds West, 12.00 feet along the south line of said Williams property to a point for corner;

THENCE South 19 Degrees, 01 Minutes, 33 Seconds East, 77.35 feet to a point for corner;

THENCE South 38 Degrees, 09 Minutes, 00 Seconds East, 379.60 feet to a point for corner in the northeast line of John W. Carpenter Freeway;

THENCE South 51 Degrees, 51 Minutes, 00 Seconds East, 12.00 feet along the northeast line of John W. Carpenter Freeway to the point of beginning and containing 5561.81 square feet or 0.1277 acres of land.

 

Stock Purchase Agreement - Page 33

  

 

  

EXHIBIT “B”

Address: 7506 John Carpenter Freeway, Dallas, Texas 75247

BEING a tract of land out of the James McLaughlin Survey, Abstract No. 845, and being a park of Block E-3/7940 of Empire Central, as recorded in Volume 34, Page 203 of the Dallas County Plat Book Records, said tract of land being more particularly described as follows:

BEGINNING at a point in the Northeast line of John W. Carpenter (Empire) Freeway, said point being the most Southerly corner of Block E-3/7940;

THENCE, North 38 Degrees, 09 Minutes East, a distance of 169.6 feet to the most Easterly corner of Block E-3/7940;

THENCE, North 51 Degrees, 51 Minutes West, along Northeast line of Block E-3/7940, a distance of 152.91 feet to a point for corner;

THENCE, South 38 Degrees, 09 Minutes West, a distance of 374.7 feet to a point for a corner in the Northeast line of John W. Carpenter (Empire) Freeway;

THENCE, South 53 Degrees, 45 Minutes, 33 Seconds East, along Northeast line of John W. Carpenter (Empire) Freeway, a distance of 153.0 feet to the Place of Beginning.

 

Stock Purchase Agreement - Page 34

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