OPTION TO PURCHASE AGREEMENT
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This Option to Purchase Agreement ("Option Agreement") is made and entered
into on this 13th day of February, 2005, by and among RICK'S CABARET
INTERNATIONAL, INC., a Texas corporation ("Rick's"), TOP SHELF ENTERTAINMENT,
LLC, a North Carolina limited liability company ("Top Shelf") and XXXX XXXX,
being the registered and beneficial holder of all of the issued and outstanding
membership interests of Top Shelf ("Xxxx").
W I T N E S S E T H:
WHEREAS, Rick's desires to purchase, through a wholly owned subsidiary of
Rick's (the "Purchaser"), all of the issued and outstanding membership interests
of Top Shelf which owns an adult nightclub known as The Manhattan Club located
at 0000 Xxx Xxxxxxxxx Xxxx, Xxxxxxxxx, Xxxxx Xxxxxxxx 00000 (the "Club" or
"Manhattan Club"); and
WHEREAS, Xxxx, being the sole owner of the membership interests of Top
Shelf desires to sell his membership interests in Top Shelf to Purchaser; and
WHEREAS, simultaneously with the execution hereof, Top Shelf has entered
into a Management Agreement with RCI Entertainment (North Carolina), Inc., a
North Carolina corporation ("RCI"), which is wholly owned by Rick's, to manage,
operate, maintain and market the Club; and
WHEREAS, the Management Agreement provides that Top Shelf is responsible
for any and all losses incurred during the term of the Management Agreement; and
WHEREAS, Top Shelf desires to avoid the risk of loss at the Club during the
term of the Management Agreement; and
WHEREAS, Rick's, in consideration of entering into this Option Agreement is
willing to assume the risk of loss at the Club during the term of the Management
Agreement; and
WHEREAS, Xxxx, in consideration of Rick's assuming the risk of loss during
the term of the Management Agreement, is willing to grant to Rick's this Option
Agreement; and
WHEREAS, Rick's is willing to grant to Top Shelf limited license rights
during the term of this Option Agreement; and
WHEREAS, Rick's and Xxxx have agreed upon the terms and conditions of this
Option Agreement, as set forth below.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained and for other good and valuable consideration, the
receipt
and sufficiency of which are hereby acknowledged, the parties hereto mutually
agree as follows:
1. OPTION TO PURCHASE. In consideration of Rick's assuming any and all
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losses incurred by Top Shelf at the Club during the term of the Management
Agreement, Xxxx hereby grants Rick's an option to purchase all of the issued and
outstanding membership interests of Top Shelf, free and clear of any liens,
claims or other encumbrances for the term set forth herein and to be more fully
recited in the Definitive Agreement to be executed upon the exercise of this
Option Agreement by Rick's as provided for in Section 10 hereof.
2. THE PURCHASE PRICE. The Purchaser shall acquire all of the
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membership interests of Top Shelf for $1,000,000 (the "Purchase Price"), payable
as follows:
(i) 180,000 shares of common stock of Rick's (the "Shares") to be valued
as set forth below; and
(ii) the balance of the Purchase Price due, if any, after calculating the
value of the Shares, shall be evidenced by a seven (7) year promissory
note bearing simple interest of seven percent (7%) per annum (the
"Promissory Note") payable in eighty-four (84) equal monthly payments,
with the first payment due thirty (30) days from the Effective Date of
the Rick's Registration Statement (as defined below). The Promissory
Note shall be secured by the assets of the Purchaser.
For purposes of computing the valuation of the Shares for the Purchase Price,
the Shares shall be valued at the average closing price of Rick's for the five
(5) days preceding the Effective Date of the Registration Statement (the "Value
of the Shares") to be filed by Rick's as provided for in Section 3 below. In
the event that the Value of the Shares exceeds $1,000,000, then the Purchase
Price shall be deemed to be paid in full and the Purchaser shall not issue a
Promissory Note as contemplated in Section 2(ii) above. If, however, the Value
of the Shares declines subsequent to the Effective Date of the Registration
Statement, then Xxxx shall have the right to "put" the Shares back to the
Purchaser on terms and conditions to be negotiated by the Purchaser and Xxxx and
set forth in the Definitive Agreement. It is further agreed herein that once
Xxxx has received the Value of the Shares, then his "put" rights shall
immediately terminate.
3. REGISTRATION RIGHTS. Rick's agrees to file a Registration Statement
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under the Securities Act of 1933, as amended (the "Act") within thirty (30) days
from the date of closing as set forth in the Definitive Agreement with the
Securities and Exchange Commission ("SEC") on Form SB-2 or Form S-3 or other
similar form (except on Form S-8 or Form S-4) to register for re-sale by Xxxx of
the Shares. Rick's will use its best efforts to cause the Registration
Statement to become effective under the Act (the "Effective Date"), as promptly
as is practical and to keep the Registration Statement continuously effective
under the Act for a period of the earlier of (i) two years from the
Option Agreement - Page 2
Effective Date or (ii) until all of the Shares which were registered for re-sale
have been sold.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Definitive Agreement
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to be executed upon the exercise of the Option Agreement by Rick's will contain
such representations, warranties, covenants, and indemnification provisions as
are customarily contained in agreements governing transactions of this nature.
Specifically, Xxxx will indemnify Rick's and the Purchaser from any liabilities
of Top Shelf which exist or may exist prior to the date of execution of the
Option Agreement. The Definitive Agreement will provide that Rick's will
undertake to use its best efforts to file a Registration Statement as provided
for in Section 3 hereof.
5. NO THIRD PARTY NEGOTIATIONS. To induce Rick's to assume the risk of
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loss at the Club during the term of the Management Agreement and for RCI to
simultaneously enter into the Management Agreement to manage and operate the
Club, Top Shelf and Xxxx agree that until the exercise by Rick's of this Option
Agreement or the termination hereof, they will not, either individually or
collectively, 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 membership interests of Top
Shelf or any of its assets. Top Shelf and Xxxx hereby agree to advise Rick's of
any contact from any third party regarding the acquisition or other investment
in Top Shelf or of any contact which would relate to the transactions
contemplated by this Option Agreement.
6. TOP SHELF'S OBLIGATIONS UNDER THIS OPTION TO PURCHASE. From the
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date hereof until the termination or expiration of this Option Agreement, Top
Shelf shall: (i) provide Rick's full and complete access to inspect and
appraise its assets and operating location (including the Manhattan Club) and
will disclose and make available to Rick's or its representatives during regular
business hours, all books, agreements, papers and records relating to the
financial condition, ownership and operation of Top Shelf and the Manhattan Club
as shall be reasonably requested; (ii) not make any material changes in the
conduct of Top Shelf's or the Manhattan Club's business except as required by
applicable law; (iii) not make any material capital expenditures or inventory
purchases outside the ordinary course of business; (iv) not incur any trade
payables or other liabilities outside the ordinary course of business and shall
pay all trade payables and other liabilities coming due in the ordinary course
of business; (v) maintain and not deplete in any material way the assets and
goodwill of Top Shelf or the Manhattan Club; and (vi) without the prior written
consent of Rick's, not disclose the terms of this Option Agreement to any third
party unless required by law.
7. RICK'S OBLIGATIONS UNDER THIS OPTION AGREEMENT. From the date
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hereof until the termination of this Option Agreement, Rick's shall: (i) as
soon as possible after the execution hereof, commence performance of its due
diligence and commence preparation of the Definitive Agreement; and (ii) engage
legal counsel of it's choosing to commence work on the necessary licensing.
Option Agreement - Page 3
8. CONFIDENTIALITY. Rick's shall not disclose to any third party any
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information obtained pursuant to Paragraph 7 which is not otherwise generally
available to the public or not already within its knowledge, except as is
necessary in connection with the preparation of the Definitive Agreement
relating to the exercise of the Option Agreement or the transactions
contemplated thereby or as may be required by applicable law. Any public
release of information with respect to the matters set forth herein relating to
the exercise of the Option to Purchase will be made in the form and manner
approved by the parties hereto and their respective counsel, provided however,
if counsel for Rick's, a publicly traded entity, determines that a press release
is required to be made that Rick's may do so without the consent and approval of
Top Shelf but will give prior notice, if possible, of said release.
9. CONDITIONS PRECEDENT TO EXERCISE THE OPTION AGREEMENT BY RICK'S.
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Prior to the exercise of the Option Agreement by Rick's, the following
conditions must be met:
(i) The Purchaser shall have obtained a temporary liquor license duly
issued and approved by the North Carolina Liquor Authority which will
allow for the sale of liquor by the Purchaser at the Manhattan Club;
(ii) The Purchaser shall have obtained a sexually oriented business license
for the Manhattan Club issued by the appropriate city or county
regulatory authority and it shall be in full force and effect;
(iii) The Purchaser shall have obtained all necessary permits and other
authorizations which may be needed to conduct adult entertainment at
the Manhattan Club, which will serve liquor; and
(iv) Approval of all of the aforesaid transactions and the exercise of the
Option Agreement by the Board of Directors of Rick's.
10. EXECUTION OF DEFINITIVE AGREEMENT. Each of the parties hereto
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intend upon the exercise of the Option Agreement by Rick's that they will enter
into a Definitive Agreement which will provide for the purchase of all of the
outstanding membership interests of Top Shelf not later than twenty-one (21)
days from the date of execution of the Definitive Agreement. Each party shall
be responsible for their own expenses, including all legal and accounting fees
with respect to the transactions contemplated hereby and contemplated by the
execution of the Definitive Agreement upon the exercise of this Option
Agreement.
11. GRANT OF LICENSE RIGHT. Rick's hereby grants to Top Shelf during
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the term of this Option Agreement only, the license rights to use and exploit,
at the Manhattan Club's location in Charlotte, North Carolina, only the name
"Rick's Cabaret" and all logos, trademarks and service marks attendant thereto.
Top Shelf and Xxxx acknowledge that the license rights granted hereby will
terminate upon the termination or
Option Agreement - Page 4
expiration of this Option Agreement and that neither Top Shelf nor Xxxx shall
have any license rights granted hereunder subsequent to termination or
expiration of this Option Agreement.
12. BREAKUP FEE. In the event that (i) the lease for the Manhattan
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Club is in good standing with at least three years and eleven months remaining
and an option to extend for five additional years; (ii) the liabilities of Top
Shelf shall not exceed $100,000 as of the date of execution of this Option
Agreement; (iii) Top Shelf executes the Definitive Agreement as provided for in
Section 10 hereof; and (iv) if Rick's or the Purchaser obtain the following:
(x) a temporary liquor license duly issued and approved by the North
Carolina Liquor Authority which will allow for the sale of liquor by
Rick's or the Purchaser at the Manhattan Club;
(y) a sexually oriented business license for the Manhattan Club issued by
the appropriate city or county regulatory authority and it shall be in
full force and effect; and
(z) all necessary permits and other authorizations which may be needed to
conduct adult entertainment at the Manhattan Club, which will serve
liquor, including a Certificate of Occupancy
then Rick's will pay, within ten (10) days, to Xxxx a Breakup Fee of $200,000 if
Rick's and the Purchaser fail for any reason to execute and close the Definitive
Agreement calling for the acquisition of Top Shelf by the Purchaser.
13. TERM OF OPTIONAGREEMENT. Rick's shall have the right to exercise
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this Option Agreement from the date of execution hereof and its right to
exercise this Option Agreement shall remain in force and effect until the sooner
of (i) four (4) months from the date of execution hereof or (ii) the execution
of the Definitive Agreement which will provide for a closing not later than
twenty-one (21) days from the date of execution thereof, provided however, that
this Option Agreement shall immediately terminate if the Purchaser is denied a
temporary liquor license by the North Carolina Liquor Authority which would
allow for the sale of liquor by the Purchaser at the Manhattan Club.
14. TERMINATION OF OPTION AGREEMENT. Notwithstanding anything
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contained herein, Rick's shall have the right, at its sole discretion, to
terminate this Option Agreement at any time during the term hereof by giving
thirty (30) days written notice of such election to terminate to Top Shelf and
Xxxx.
{{{SIGNATURES ON FOLLOWING PAGE}}}
Option Agreement - Page 5
IN WITNESS WHEREOF, the parties hereto have executed this Option Agreement
as of the date first above written.
TOP SHELF ENTERTAINMENT, LLC
By: /s/Xxxx Xxxx
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Xxxx Xxxx
XXXX XXXX, INDIVIDUALLY
/s/ Xxxx Xxxx
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RICK'S CABARET INTERNATIONAL, INC.
By: /s/ Xxxx Xxxxxx
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Xxxx Xxxxxx, President
Option Agreement - Page 6
