Securities and Exchange Commission
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant To Section 13 or 15(d) Of
The Securities Exchange Act of 1934
Date of Report: January 24, 2005
RICK'S CABARET INTERNATIONAL, INC.
(Exact Name of Registrant As Specified in Its Charter)
Texas 0-26958 76-0037324
(State Or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
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10959 Cutten Road
Houston, Texas 77066
(Address Of Principal Executive Offices, Including Zip Code)
(281) 397-6730
(Registrant's Telephone Number, Including Area Code)
505 North Belt, Suite 630
Houston, Texas 77060
(281) 820-1181
(Registrant's previous office/phone)
ITEM 2.01 COMPLETION OF ACQUISITION OF ASSETS.
On January 18, 2005, our wholly owned subsidiary, RCI Entertainment (New York) Inc., a New York corporation ("RCI New York") completed the acquisition of Peregrine Enterprises, Inc., a New York corporation ("Peregrine") pursuant to a Stock Purchase Agreement with Peregrine's sole shareholder, Philip Eisenberg (the "Stock Purchase Agreement"). Under the terms of the Stock Purchase Agreement, RCI New York purchased all of the shares of common stock of Peregrine for a total purchase price of $7,625,000, payable $2,500,000 in cash at closing and $5,125,000 payable in a secured convertible promissory note bearing simple interest at the rate of 4.0% per annum (the "Secured Convertible Note"). As part of the transaction, Mr. Eisenberg also entered a five-year covenant not to compete with Peregrine, RCI New York or Rick's Cabaret International, Inc.
After extensive remodeling of the site at 33rd Street and Broadway near Penn Station and Madison Square Garden, we intend to re-open the club in the summer of 2005 as an upscale gentlemen's club. The club will operate on three levels and will utilize approximately the maximum allowable 10,000 square feet, with an additional 4,000 square feet to be used for office space. We are in the process of finalizing building permits and completing other details typical of transactions of this type.
The terms and conditions of the Stock Purchase Agreement were the result of extensive arm's length negotiations between the parties. A copy of the press release related to this transaction is attached hereto as Exhibit 99.1.
ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION.
As part of the acquisition of Peregrine, RCI New York executed the Secured Convertible Note in the principal amount of $5,125,000 bearing simple interest at the rate of 4.0% per annum which is payable commencing 151 days after Closing as follows: (a) the payment of $58,333.33 per month for twenty-four (24) consecutive months; (b) the payment of $63,333.33 for twenty-four (24) consecutive months; (c) the payment of $68,333.33 for twelve (12) consecutive months; and (d) a lump sum payment of the remaining balance to be paid on the sixty-first (61st) month. Pursuant to the terms of the Secured Convertible Note, $2,000,000 of the principal amount is convertible into shares of our restricted common stock at prices as follows:
(1) $200,000 of the Principal Amount shall be convertible at $4.00 per
share;
(2) $225,000 of the Principal Amount shall be convertible at $4.50 per
share;
(3) $250,000 of the Principal Amount shall be convertible at $5.00 per
share;
(4) $275,000 of the Principal Amount shall be convertible at $5.50 per
share;
(5) $300,000 of the Principal Amount shall be convertible at $6.00 per
share;
(6) $325,000 of the Principal Amount shall be convertible at $6.50 per
share;
(7) $350,000 of the Principal Amount shall be convertible at $7.00 per
share;
(8) $75,000 of the Principal Amount shall be convertible at $7.50 per
share.
Pursuant to the terms of the Secured Convertible Note, we are obligated to file a registration statement to register the shares underlying the conversion rights.
Additionally, the parties entered a Stock Pledge Agreement and Security Agreement to secure the Secured Convertible Note.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
The financial statements and pro forma financial information required by Items 9.01(a) and 9.01(b) are not available. Such financial statements will be filed no later than April 4, 2005.
(c) Exhibits
Exhibit Number Description
10.1 Stock Purchase Agreement
10.2 Secured Convertible Promissory Note
99.1 Press release dated January 19, 2005
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 8-K to be signed on its behalf by the undersigned hereunto duly authorized.
RICK'S CABARET INTERNATIONAL, INC.
By: /s/ Eric Langan
Date: January 24, 2005 Eric Langan
Chairman, President, Chief
Executive Officer and Acting Chief
Accounting Officer
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This Stock Purchase Agreement (the "Agreement") is made and entered into this 14th day of September, 2004, by and among Peregrine Enterprises, Inc., a New York corporation (the "Company" or "Peregrine"), Philip Eisenberg, individually ("Eisenberg" or "Seller"), RCI Entertainment (New York) Inc., a New York corporation ("Purchaser" or "RCI New York"), and Rick's Cabaret International, Inc., a Texas corporation ("Rick's").
WHEREAS, Seller owns 100 shares of common stock, no par value (the "Shares") of the Company, which Shares represent all of the shares of capital stock of Peregrine presently outstanding; and
WHEREAS, Eisenberg serves as President to the Company; and
WHEREAS, Peregrine owns and operates an adult entertainment cabaret known as The Paradise Club ("The Paradise Club") located at 50 West 33rd Street, New York, New York (the "Premises").
WHEREAS, Seller desires to sell the Shares of Peregrine to RCI New York on the terms and conditions set forth herein; and
WHEREAS, RCI New York desires to purchase the Shares of Peregrine from Seller on the terms and conditions set forth herein.
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
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(i) $2,500,000 payable to Seller by cashier's check, certified funds or wire transfer at the Closing (as hereinafter defined); and
(ii) $5,125,000 as evidenced by a Promissory Note (part of which is convertible as set forth below) bearing simple interest of 4.00% per annum (the "Promissory Note") payable commencing 120 days after the Closing as follows: (a) the payment of $58,333.33 per month for twenty-four (24) consecutive months; (b) the payment of $63,333.33 for twenty-four (24) consecutive months; (c) the payment of $68,333.33 for twelve (12) consecutive months; and (d) a lump sum payment of the remaining balance to be paid on the sixty-first (61st) month. All payments shall be credited first to accrued interest and thereafter to principal on the Promissory Note. $2,000,000 of the principal amount of the Promissory Note is convertible into shares of restricted common stock of Rick's Cabaret International, Inc. ("Rick's Common Stock") as follows: (1) $200,000 convertible at $4.00 per share; (2) $225,000 convertible at $4.50 per share; (3) $250,000 convertible at $5.00 per share; (4) $275,000 convertible at $5.50 per share; (5) $300,000 convertible at $6.00 per share; (6) $325,000 convertible at $6.50 per share; (7) $350,000 convertible at $7.00 per share; and (8) $75,000 convertible at $7.50 per share. RCI New York shall not have the right to force conversion of the Promissory Note. The Promissory Note shall be secured by the shares and the assets of RCI New York and Peregrine, including a collateral reassignment of the lease for the business premises at 50 West 33rd Street, New York, New York. A copy of the Form Promissory Note is attached hereto as Exhibit 1.2.
If the NYS liquor authority for the State of New York denies the addition of a representative of Purchaser to the existing Liquor License which allows for the sale of liquor on the Premises (the "Liquor License") by December 1, 2004, then the Purchaser or Peregrine will have the right at any time thereafter, by written notice to the other party to terminate this Agreement and the Purchaser shall be refunded all funds then held in Escrow except for $150,000, which shall have been or be paid to Peregrine. The Purchaser and Peregrine will use their best efforts on the date of execution hereof to cause a representative of the Purchaser to be added to the existing Liquor License. If the Closing does occur then the $800,000 held in Escrow will be paid to Peregrine and credited against the $2,500,000 due at Closing. If Purchaser, through no fault of Peregrine, fails to close the transaction by December 1, 2004, time being of the essence, Peregrine shall be entitled, as its sole legal or equitable remedy, to terminate this Agreement and receive and retain $250,000 deposited into Escrow by Purchaser as and for its liquidated damages. The balance of the funds then held in Escrow ($550,000) shall be refunded to the Purchaser. If Peregrine, through no fault of the Purchaser, fails to the close the transaction by December 1, 2004, time being of the essence, Purchaser shall have the right, in
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lieu of any other legal or equitable remedy, to either seek specific performance of this Agreement or to terminate this Agreement and receive back all sums deposited into Escrow. In no event shall any party be liable to the other for any consequential, special or punitive damages.
ARTICLE II
CLOSING
(i) Seller will enter into a five (5) year covenant not to compete pursuant to the terms of which Seller will agree not to compete, either directly of indirectly, with Peregrine, the Paradise Club, RCI New York or Rick's by operating an establishment featuring live female nude or semi-nude entertainment within the corporate limits of the city of New York, New York;
(ii) The Landlord shall consent in writing to the transfer of the Shares to the Purchaser at the time of Closing and to the continuation of the existing lease with the Purchaser as the owner of the Shares. If requested by the Landlord, Rick's or a creditworthy principal of Rick's satisfactory to the Landlord will execute a "good-guy" guaranty similar to that signed by Philip Eisenberg which guaranties the lease payments during the period of actual use and occupancy of the premises by RCI New York;
(iii) The estoppel certificate to Purchaser from Peregrine shall have been executed and the Landlord shall consent and execute a Non-Disturbance Agreement in a form acceptable to Purchaser; and
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(iv) Purchaser, Rick's and Peregrine, as applicable, shall execute and deliver the Promissory Note, Stock Pledge Agreements and Security Agreement securing the Promissory Note and execute and deliver the other documents required thereby. The form of Stock Pledge Agreement and Security Agreement are as annexed hereto as Exhibit 2.3 (i, ii and iii).
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF SELLER AND PEREGRINE
Seller and Peregrine, jointly and severally, hereby represent and warrant to RCI New York and Rick's as follows:
At Closing, the authorized capital stock of Peregrine consists of 200 shares of common stock, no par value, of which 100 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 Peregrine. All of the issued and outstanding shares of common stock of Peregrine are owned by Seller and are fully paid and non-assessable. None of the shares issued are in violation of any preemptive rights. Peregrine 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 Peregrine, there are no outstanding or authorized options, warrants, calls, subscriptions, rights, commitments or any other agreements of any character obligating Peregrine 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 Peregrine.
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All corporate action on the part of Peregrine necessary for the authorization, execution, delivery and performance of this Agreement by Peregrine has been taken or will be taken prior to the Closing. As a New York corporation, Peregrine 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 a valid and binding obligation of Peregrine, enforceable against Peregrine 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.
Additionally, Seller understands that any sale of any Rick's Common Stock issued, under current law, will require either (a) the registration of the Rick's Common Stock under the Act and applicable state securities acts; (b) compliance with Rule 144 of the Act; or (c) the availability of an exemption from the registration requirements of the Act and applicable state securities acts. Seller
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understands that Rick's intends to file a Registration Statement to register the Rick's Common Stock that may be issued to Seller as contemplated herein within sixty (60) days after the Closing.
To assist in implementing the above provisions, Seller hereby consents to the placement of the legend, or a substantially similar legend, set forth below, on all certificates representing ownership of the Rick's Common Stock acquired hereby until the Rick's Common Stock has been sold, transferred, or otherwise disposed of, pursuant to the requirements hereof. The legend shall read substantially as follows:
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the Shares under this Agreement, nor is there any basis known to Seller for any such action. No litigation is pending, or, to Seller's or Peregrine's knowledge, threatened against Seller or Peregrine, 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 Seller nor Peregrine 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 Peregrine or the Shares to be transferred under this Agreement.
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Peregrine is not a party to any written or oral contract, agreement or understanding for the employment of any officer, director or employee of Peregrine.
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are valid and in full force and effect according to their terms and constitutes a legal, valid and binding obligation of Peregrine and the other respective parties thereto and are enforceable in accordance with their terms. Seller and Peregrine 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 Peregrine for the operation of its business after the Closing.
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pay, insurance, or other benefits except as set forth in Schedule 3.22. Schedule 3.22 is a list of each employee and consultant and the compensation paid to each employee and consultant.
(a) suffered the damage or destruction of any of its properties or assets
(whether or not covered by insurance) which is materially adverse to
the business or financial condition of Peregrine, taken as a whole, or
made any disposition of any of its material properties or assets other
than in the ordinary course of business;
(b) made any change or amendment in each of their respective certificate
of incorporation and or formation or Bylaws, or other governing
instruments;
(c) issued or sold any equity securities or other securities, acquired,
directly or indirectly, by redemption or otherwise, any such equity
securities, reclassified, split-up or otherwise changed any such
equity security, or granted or entered into any options, warrants,
calls or commitments of any kind with respect thereto;
(d) paid, discharged or satisfied any material claim, liability or
obligation (absolute, accrued, contingent or otherwise), other than in
the ordinary course of business except as described on Exhibit
3.23(d);
(e) prepaid any material obligation having a maturity of more than ninety
(90) days from the date such obligation was issued or incurred;
(f) cancelled any material debts or waived any material claims or rights,
except in the ordinary course of business;
(g) made any capital expenditures or additions to property, plant or
equipment or acquired any other property or assets (other than
materials and supplies) at a cost in excess of $5,000 in the
aggregate;
(h) except as described on Exhibit 3.23(h), written off or been required
to write off any notes or accounts receivable.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF RCI NEW YORK AND RICK'S
RCI New York and Rick's hereby represents and warrants to Seller and Peregrine as follows:
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obligations contemplated hereby. All action on the part of RCI New York necessary for the authorization, execution, delivery and performance of this Agreement by it has been taken and will be taken prior to Closing. This Agreement, when duly executed and delivered in accordance with its terms, will constitute legal, valid, and binding obligations of RCI New York enforceable against RCI New York 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.
Rick's is a corporation duly organized in the state of Texas and has full power, capacity, and authority to enter into this Agreement and perform the obligations contemplated hereby. All action on the part of Rick's necessary for the authorization, execution, delivery and performance of this Agreement by it has been taken and will be taken prior to Closing. This Agreement, when duly executed and delivered in accordance with its terms, will constitute legal, valid, and binding obligations of Rick's enforceable against Rick's 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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ARTICLE V
CONDITIONS TO CLOSING OF SELLER
AND PEREGRINE
Each obligation of Seller and Peregrine to be performed on the Closing Date shall be subject to the satisfaction of each of the conditions stated in this Article V, except to the extent that such satisfaction is waived by Seller and Peregrine in writing.
Section 5.5 Related Transactions. The Related Transactions as set forth
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in Section 2.3 shall be consummated concurrently with the Closing.
Section 5.7 Corporate Resolutions. RCI New York and Rick's shall provide
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corporate resolutions of the Board of Directors of RCI New York and Rick's, respectively, 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.
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challenge the transactions contemplated hereby or seeking judgments against RCI New York or Rick's.
ARTICLE VI
CONDITIONS TO CLOSING OF
RCI NEW YORK AND RICK'S
Each obligation of RCI New York and Rick's to be performed on the Closing Date shall be subject to the satisfaction of each of the conditions stated in this Article VI, except to the extent that such satisfaction is waived by RCI New York and Rick's in writing.
(a) the Cabaret License issued by the New York City Department of
Consumer Affairs, shall be in full force and effect; and
(b) Seller shall have obtained the written consent of the landlord
for the transfer of the Shares to the Purchaser at the time of
Closing and the continuation of the existing lease with the
Purchaser as the owner of the Shares.
(c) A representative of Purchaser shall have been added to the
permanent Liquor License duly issued and approved by the NYS
Liquor
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Authority, which will allow for the sale of liquor by the
Purchaser on the Premises.
(d) Purchaser shall have obtained all necessary permits and other
authorizations which may be needed to conduct topless
entertainment on the Premises, which will serve liquor.
Section 6.7 Related Transactions. The Related Transactions as set forth
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in Section 2.3 shall be consummated concurrently with the Closing.
Section 6.8 Resignation. The Officers and Directors of Peregrine shall
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have provided to RCI New York their written resignations.
ARTICLE VII
COVENANTS OF SELLER AND PURCHASER
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(ii) the Company will not 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 the Company;
(iii) the Company will not increase the salary or other compensation payable or to become payable by the Company to any employee, or the declaration, payment, or commitment or obligation of any kind for the payment by the Company of a bonus or other additional salary or compensation to any such person except in the normal course of business, consistent with past practices of the Company;
(iv) the Company will not sell, lease, transfer or assign any of their assets, tangible or intangible, other than for a fair consideration in the ordinary course of business;
(v) the Company will not 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 to which the Company is a party;
(vi) the Company will not make any loans to any person or entity, or guarantee any loan;
(vii) the Company will not waive or release any right or claim held by the Company;
(viii) the Company 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 its employees and to preserve its goodwill and relationships with suppliers, creditors, customers, and others having business relationships with it;
(ix) the Company will not issue any note, bond or other debt security or create, incur or assume, or guarantee any indebtedness for borrowed money or capitalized lease obligations;
(x) the Company will not delay or postpone the payment of accounts payable and other liabilities outside the ordinary course of business;
(xi) the Company will not make any loan to, or enter into any other transaction with, any of its directors, officers, and employees, outside the ordinary course of business;
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(xii) the Company will not make any change in any method, practice, or principle of accounting involving the business or assets of Peregrine;
(xiii) the Company will not issue, sell or otherwise dispose of any of its equity securities, 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 securities;
(xiv) the Company will not reclassify, split up or otherwise change any of its equity securities;
(xv) the Company will not be a party to any merger, consolidation or other business combination; and
(xvi) the Company will not agree to take any action described in this
Section 7.1(c).
ARTICLE VIII
INDEMNIFICATION
If any action is brought against RCI New York or Rick's (the "Indemnified Party") in respect of which indemnity may be sought against Seller or Peregrine pursuant to the foregoing paragraph,
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the Indemnified Party shall promptly notify Seller and Peregrine in writing of the institution of such action (but the omission to so notify Seller or Peregrine shall not relieve it from any liability that it may have to such Indemnified Party except to the extent Seller and Peregrine are materially prejudiced or otherwise forfeits substantive rights or defenses by reason of such failure), and Seller and Peregrine shall assume the defense of such action, including the employment of counsel to be chosen by Seller to be reasonably satisfactory to the Indemnified Party, and payment of expenses. The Indemnified Party shall have the right to employ the counsel chosen by Seller or their own counsel in any such case, but the fees and expenses of such counsel shall be at the Indemnified Party's expense, unless the employment of such counsel shall have been authorized in writing by Seller in connection with the defense of such action, or Seller shall not have employed counsel to take charge of the defense of such action, or counsel employed by Seller shall not be diligently defending such action, or the Indemnified Party shall have reasonably concluded that there may be defenses available to it which are different from or additional to those available to Seller, or that representation of such Indemnified Party and Seller and Peregrine by the same counsel would be inappropriate under applicable standards of professional conduct due to actual or potential differing interests between them (in which case Seller shall not have the right to direct the defense of such action on behalf of the Indemnified Party), in any of which event such fees and expenses shall been borne by Seller. Anything in this paragraph to the contrary notwithstanding, Seller shall not be liable for any settlement of, or any expenses incurred with respect to, any such claim or action effected without Seller's written consent, which consent shall not be unreasonably withheld. Neither Seller nor Peregrine shall, without the prior written consent of the Indemnified Party, effect any settlement of any proceeding in respect of which the Indemnified Party is a party and indemnity has been sought hereunder unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such proceeding.
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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. 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.
ARTICLE IX
TERMINATION
This Agreement shall terminate upon the occurrence of any of the following events:
(i) the transactions contemplated by this Agreement are not consummated on or before the Closing Date (as defined in Section 2.1 (unless extended by all of the parties hereto in writing). In the event of termination as a result of this Section 9.1, then the funds held by the Escrow Agent will be disbursed in accordance with Section 1.3;
(ii) all of the parties mutually agree in writing to terminate this Agreement;
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(iii) if the NYS liquor authority for the state of New York denies the addition of a representative of Purchaser to the existing Liquor License to sell alcohol on the Premises by December 1, 2004 then the Purchaser or Peregrine will have the right at any time by written notice to the other party to terminate this Agreement and the Purchaser shall be refunded $650,000 then held in Escrow and Peregrine will receive $150,000 then held in Escrow; or
(iv) any state or federal agency having jurisdiction over approval of this transaction shall disapprove of any part of the proposed transaction.
ARTICLE X
MISCELLANEOUS
(a) if to the Seller or Peregrine: Philip Eisenberg 38 Evergreen Pl.
Demarest, New Jersey 07627
with a copy to:
Jaffe and Asher
600 Third Avenue
New York, New York 10016
(b) if to RCI New York or Rick's:
Eric Langan
10959 Cutten Road
Houston, Texas 77066
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with a copy to: Robert D. Axelrod
Axelrod, Smith & Kirshbaum
5300 Memorial Drive, Suite 700
Houston, Texas 77007
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A notice or communication will be effective (i) if delivered in Person or by overnight courier, on the business day it is delivered, (ii) if transmitted by telecopier, on the business day of actual confirmed receipt by the addressee thereof, and (iii) if sent by registered or certified mail, three (3) business days after dispatch.
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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 ENTERTAINMENT (NEW YORK). INC.
/s/ Eric Langan ---------------------------------------- By: Eric Langan, President |
RICK'S CABARET INTERNATIONAL, INC.
/s/ Eric Langan ---------------------------------------- By: Eric Langan, President |
PEREGRINE ENTERPRISES, INC.
/s/ Phillip Eisenberg ---------------------------------------- By: Philip Eisenberg, President /s/ Phillip Eisenberg ---------------------------------------- Philip Eisenberg, Individually |
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EXHIBITS
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THIS SECURED CONVERTIBLE NOTE (THE "NOTE") HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. THIS NOTE MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR DELIVERY TO RCI ENTERTAINMENT (NEW YORK) INC. OF AN OPINION OF LEGAL COUNSEL SATISFACTORY TO RCI ENTERTAINMENT (NEW YORK) INC. THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR ANY APPLICABLE STATE SECURITIES LAWS.
SECURED CONVERTIBLE NOTE
OF
RCI ENTERTAINMENT (NEW YORK), INC.
January 18, 2005
FOR VALUE RECEIVED, RCI ENTERTAINMENT (NEW YORK), INC., a New York corporation (the "Company" or "Debtor"), which is a wholly owned subsidiary of RICK'S CABARET INTERNATIONAL, INC., a Texas corporation ("Rick's"), unconditionally promises to pay to Philip Eisenberg whose address is 38 Evergreen Place, Demarest, New Jersey, 07627, or the registered assignee (the "Registered Holder" or "Holder") at the office of the Company, the principal amount of $5,125,000 (the "Principal Amount"), together with the accrued and unpaid interest thereon and other sums as hereinafter provided, subject to the terms and conditions as set forth below.
The initial twenty-four (24) monthly installments shall be in an amount of $58,333.33; for months twenty-five (25) through forty-eight (48) the monthly installments shall be in an amount of $63,333.33; for months forty-nine (49) through sixty (60) the monthly installments shall be in an amount of $68,333.33; and a lump sum payment of the remaining balance shall be paid on or before June 18, 2010 (the 61st month), such date hereafter sometimes referred to as the "Maturity Date".
All payments shall be credited first to accrued interest and thereafter to principal on the Note. Accrual of interest on the outstanding Principal Amount, payable in cash, shall commence on the
Closing and shall continue until payment in full of the outstanding Principal Amount has been made hereunder.
(a) The Holder will have the right, at the Holder's option, to convert up to $2,000,000 of the Principal Amount of this Note into shares of common stock, par value $.01 per share of
Rick's ("Rick's Common Stock") at any time prior to Maturity (unless earlier
redeemed or otherwise paid) at the Conversion Prices as set forth below in
Section 4(b) (subject to adjustment as described herein). The right of the
Holder to convert the Note, if called for redemption, will terminate at the
close of business on the business day prior to the Redemption Date for the Note,
unless the Company subsequently fails to pay the applicable Redemption Price.
The Holder of this Note shall be entitled to convert up to $2,000,000 of the Principal Amount of this Note into shares of Rick's Common Stock by (i) giving written notice to Rick's that such Holder elects to convert into Rick's Common Stock, (ii) stating in such written notice the denominations in which such Holder wishes the certificate or certificates for Rick's Common Stock to be issued and (iii) surrendering this Note to the Company (compliance in full with Sections 4(a)(i),(ii) and (iii) shall collectively be the "Conversion Date"). This Note or the portion thereof, shall be deemed to have been converted immediately prior to the close of business on the Conversion Date. Rick's will, as soon as practicable thereafter, cause to be issued and delivered to the Holder certificates for the number of full shares of Rick's Common Stock to which the Holder shall be entitled and, if necessary, a new Note representing any unconverted portion of this Note. Rick's shall not issue fractional shares of Rick's Common Stock upon conversion, but the number of shares of Rick's Common Stock to be received by the Holder upon conversion shall be rounded down to the next whole number and the Holder shall be entitled to payment of the remaining principal amount by company check.
(b) The Conversion Prices of the Rick's Common Stock into which this Note is convertible (subject to adjustment as described herein) shall be as follows:
(1) $200,000 of the Principal Amount shall be convertible at $4.00
per share;
(2) $225,000 of the Principal Amount shall be convertible at $4.50
per share;
(3) $250,000 of the Principal Amount shall be convertible at $5.00
per share;
(4) $275,000 of the Principal Amount shall be convertible at $5.50
per share;
(5) $300,000 of the Principal Amount shall be convertible at $6.00
per share;
(6) $325,000 of the Principal Amount shall be convertible at $6.50
per share;
(7) $350,000 of the Principal Amount shall be convertible at $7.00
per share;
(8) $75,000 of the Principal Amount shall be convertible at $7.50 per
share.
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(c) In case of any reclassification, consolidation or merger of Rick's with or into another entity or any merger of another entity with or into Rick's, or in the case of any sale, transfer or conveyance of all or substantially all of the assets of Rick's (computed on a consolidated basis), the Note then outstanding will, without the consent of any Holder, become convertible only into the kind and amount of securities, cash or other property receivable upon such reclassification, consolidation, merger, sale, transfer or conveyance by a Holder of the number of shares of common stock into which the Note was convertible immediately prior thereto, after giving effect to any adjustment event.
(d) The Conversion Price will be adjusted as follows:
(i) If the number of shares of Rick's Common Stock outstanding at any time after the date hereof is increased by a subdivision or split of Rick's Common Stock, or by
the declaration of a dividend on the Rick's Common Stock, which dividend is wholly or partially in the form of additional shares of Rick's Common Stock or any other securities of Rick's, then immediately after the effective date of such subdivision or split-up, or the record date with respect to such dividend, as the case may be, the Conversion Price shall be appropriately reduced so that the holder of this Note thereafter exchanged shall be entitled to receive the percentage of shares of Rick's Common Stock which such holder would have owned immediately following such action had this Note been exchanged immediately prior thereto;
(ii) If the number of Rick's Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding Rick's Common Stock or reverse split, then, immediately after the effective date of such combination, the Conversion Price shall be appropriately increased so that the holder of this Note thereafter exchanged shall be entitled to receive the percentage of shares of Rick's Common Stock which such holder would have owned immediately following such action had this Note been exchanged immediately prior thereto;
(e) Rick's shall at all times reserve for issuance and maintain available, out of its authorized but unissued Rick's Common Stock, solely for the purpose of effecting the conversion of the Note, the full number of shares of Rick's Common Stock deliverable upon the conversion of the Note from time to time outstanding. The Company shall from time to time (subject to obtaining necessary director and stockholder action), in accordance with the laws of the State of Texas, increase the authorized number of shares of its Rick's Common Stock if at any time the authorized number of shares of Rick's Common Stock remaining unissued shall not be sufficient to permit the conversion of the Note.
(f) Any shares of Rick's Common Stock to be issued to the Holder pursuant to the terms of this Note are restricted securities and may only be sold, under current law, either by (a) the registration of the Rick's Common Stock under the Act and applicable state securities acts; (b) compliance with Rule 144 of the Act; or (c) the availability of an exemption from the registration requirements of the Act and applicable state securities acts. Rick's will use its best efforts to maintain current information by complying with its reporting requirements under the Securities Act of 1934, as amended.
(i) the outstanding shares of capital stock of Peregrine Enterprise, Inc. ("Peregrine"); (ii) the outstanding shares of capital stock of the Company; and
(iii) all of the assets of both the Company and/or Peregrine (including the assets of The Paradise Club or any successor business operating at 50 West 33rd Street or such other location to which such business shall be relocated, whether now owned or hereinafter acquired, including: chattel paper, inventory, equipment, instruments, including promissory notes owed to Debtor, accounts receivable, investment property, documents, furniture, fixtures and general intangibles including, but not limited to, goodwill, tradenames and licenses of either the Company or Peregrine, and payment intangibles, supporting obligations and to the extent not listed above, the proceeds and products of the foregoing and (iv) the lease and tenancy rights of Peregrine for the premises located at 50 West 33rd Street, New York, New York (collectively the "Collateral").
judgments not covered by insurance aggregating in excess of $50,000, at any one time rendered against the Company and not stayed, bonded or discharged within 75 days.
required to be given by any statute or rule of law and any defense of any kind based on any such notice, except any notices required under this Note, including but not limited to all demands for payment, presentation for payment, notices of intention to accelerate maturity, notices of acceleration of maturity, protest, and notices of protest, all to the extent permitted by law.
(a) Rick's agrees to file a Registration Statement within sixty (60) days
from the date of execution hereof with the Securities and Exchange Commission
("SEC") on Form SB-2 or Form S-3 or other similar form (except for Form S-8 or
Form S-4) to register for resale by the Holder the shares underlying the
Conversion Rights of this Note. Rick's shall use its best efforts to cause the
Registration Statement to become effective under the Act as promptly as is
practicable and to keep the Registration Statement continuously effective under
the Act for a period of the earlier of (i) five years from the effective date or
(ii) until all of the shares which were registered for resale have been sold.
(b) From time to time, the Company shall prepare and file with the SEC a post-effective amendment to the Registration Statement or a supplement to the related Prospectus or a supplement or amendment to any document incorporated therein by reference or any other required document, so that such Registration Statement will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and so that, as thereafter delivered to purchasers of the securities being sold thereunder, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provide the Holder copies of any documents filed in such numbers as the Holder shall reasonably request; and inform the Holder that the Company has complied with its obligations and that the Registration Statement and related Prospectus may be used for the purpose of selling all or any of such securities (or that, if the Company has filed a post-effective amendment to the Registration Statement which has not yet been declared effective, the Company will notify the Holder to that effect, will use its best efforts to secure promptly the effectiveness of such post-effective amendment and will immediately so notify the Holder when the amendment has become effective).
Upon any consolidation or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing, the successor entity formed by such consolidation or into which the Company is merged or to which such transfer is made, shall succeed to, and be substituted for, and may exercise every right and power of the Company under the Note with the same effect as if such successor entity had been named therein as the
Company, and the Company will be released from its obligations under the Notes, except as to any obligations that arise from or as a result of such transaction.
any provisions to the contrary in this Note, in no event shall such Note require the payment or permit the collection of interest (which term, for purposes hereof, shall include any amount which, under New York law, is deemed to be interest, whether or not such amount is characterized by the parties as interest) in excess of the maximum amount permitted by the laws of the State of New York. If any excess of interest is unintentionally contracted for, charged or received under this Note, or in the event the maturity of the indebtedness evidenced by the Note is accelerated in whole or in part, or in the event that all of part of the Principal Amount or interest of this Note shall be prepaid, so that the amount of interest contracted for, charged or received under this Note, on the amount of the Principal Amount actually outstanding from time to time under this Note shall exceed the maximum amount of interest permitted by the applicable usury laws, then in any such event (i) the provisions of this paragraph shall govern and control, (ii) neither the Company nor any other person or entity now or hereafter liable for the payment thereof, shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted by such applicable usury laws, (iii) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal amount thereof or refunded to the Company at the Holder's option, and (iv) the effective rate of interest shall be automatically reduced to the maximum lawful rate of interest allowed under the applicable usury laws as now or hereafter construed by the courts having jurisdiction thereof. It is further agreed that without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under the Note which are made for the purpose of determining whether such rate exceeds the maximum lawful rate of interest, shall be made, to the extent permitted by applicable laws, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the Note evidenced thereby, all interest at any time contracted for, charged or received from the Company or otherwise by the Holders in connection with this Note.
permissible hereunder shall be made only at the principle office of the Company upon surrender of this Note for cancellation and upon the payment of any transfer tax or other government charge connected therewith, and upon any such transfer a new Note or Notes will be issued to the transferee in exchange therefor.
(a) If to the Company, to it at the following address:
RCI Entertainment (New York), Inc.
10959 Cutten Road
Houston, Texas 77066
With a Copy to:
Robert D. Axelrod
Axelrod, Smith & Kirshbaum
5300 Memorial Drive, Ste. 700
Houston, Texas 77007
(b) If to Holder:
Philip Eisenberg
38 Evergreen Pl.
Demarest, NJ 07627
With a Copy to:
Jaffe & Asher
600 Third Avenue
New York, New York 10016
A notice or communication will be effective (i) if delivered in Person or by overnight courier, on the business day it is delivered, (ii) if transmitted by telecopier, on the business day of actual confirmed receipt by the addressee thereof, and (iii) if sent by registered or certified mail, three (3) business days after dispatch.
IN WITNESS WHEREOF, RCI ENTERPRISES (NEW YORK), INC. has caused this Note to be duly executed in its corporate name by the manual signature of its President and attested by the manual signature of its Secretary.
RCI ENTERTAINMENT (NEW YORK), INC.
By: /s/ Eric Langan
------------------------------------------
Eric Langan
Title: President
Attest:
/s/ Travis Reese
------------------------------
Travis Reese, Secretary
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FOR PURPOSES OF ENFORCEABILTY AS TO
THE PROVISIONS OF SECTIONS 5 and 8 ONLY:
RICK'S CABARET INTERNATIONAL, INC.
By: /s/ Eric Langan
-------------------------
Eric Langan
Title: President
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RICK'S
CABARET
[LOGO OMITTED]
RICK'S CABARET INTERNATIONAL, INC. COMPLETES ACQUISITION OF MIDTOWN MANHATTAN GENTLEMEN'S CLUB THAT WILL BECOME ITS FLAGSHIP LOCATION
HOUSTON - (January 19, 2005) - RICK'S CABARET INTERNATIONAL [NASDAQ: RICK], has completed (Jan. 18, 2005) the acquisition of the Paradise Club in Midtown Manhattan (50 West 33rd Street). When renovations are completed, RICK'S CABARET-NYC will become one of the premiere gentlemen's clubs in New York City and will be the company's flagship establishment.
After extensive remodeling of the three-level site near Penn Station and Madison Square Garden, Rick's Cabaret-NYC will open with a gala launch in the summer of 2005. Rick's currently operates or licenses clubs in Texas, Minnesota and Louisiana.
ERIC LANGAN, CEO of Houston-based Rick's Cabaret, said: "Rick's Cabaret NYC will be one of the finest venues in New York for adult entertainment, and we expect to differentiate ourselves in this exciting market by a combination of the most beautiful entertainers, an unprecedented level of friendly customer service, fine food, and a luxurious atmosphere unique to the city."
Mr. Langan said the company expects to begin work next week on a $2 million remodeling project. The club will utilize the maximum allowable 10,000 square feet, with an additional 4,000 square feet in the building to be used for office space. The company is in the process of finalizing building permits and completing other details typical of transactions of this type.
"Rick's Cabaret NYC will be without peer as a gentlemen's club in New York," Mr. Langan said. "We're known for our beautiful and gracious entertainers and I assure you that customers will be amazed at the welcome they get at the New York Rick's Cabaret. We will have full restaurant service until 2 a.m., making if one of the few places in the city where you can get a great meal after midnight."
Rick's Cabaret paid a total of $7.625 million for the assets and stock of the former Paradise Club, which had operated on the site for more than a decade. The transaction consisted of $2.5 million in cash and $5.125 million in a promissory note bearing simple interest at the rate of 4.0% per annum, part of which is convertible to restricted shares of Rick's Cabaret common stock at prices ranging from $4.00 to $7.50 per share (Rick's Cabaret shares closed at $4.14 on the NASDAQ SmallCap exchange on January 18).
Rick's Cabaret reported income from operations of $1,065,569 for its 2004 fiscal year ending September 30, 2004, nearly three times the $357,947 reported in the previous year. The company reported revenue of $15,959,684 for 2004 compared with $15,059,569 and net income of $775,253 compared with $438,294 in 2003. Earnings were 21 cents per share compared to 12 cents per share in 2003.
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Since its launch in the mid-1980s, Rick's Cabaret's upscale nightclubs have enjoyed a reputation for offering high quality entertainment featuring beautiful women and fine restaurant service in Houston, Minneapolis, San Antonio and Austin. ANNA NICOLE SMITH met her wealthy husband while dancing at a Rick's Cabaret and 13 performers from the clubs have become PENTHOUSE PETS (three have been named "Pet of the Year") while three have become PLAYBOY PLAYMATES. The company went public in 1995 and was the first gentlemen's club to be listed on a major U.S. stock exchange.