AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 3, 1998
FILE NO. _______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933 RICK'S CABARET INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
TEXAS 76-0458229
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
ROBERT L. WATTERS
3113 BERING DRIVE, 3113 BERING DRIVE
HOUSTON, TEXAS 77057 HOUSTON, TEXAS 77057
(713) 785-0444 (713) 785-0444
(Address of principal executive (Name and address of agent for
offices,and including zip code and service agent's telephone number,
Registrant's area telephone number, including code)
including area code)
With copies to:
ROBERT D. AXELROD,
5300 MEMORIAL DRIVE, SUITE 700,
HOUSTON, TEXAS 77007
(713) 861-1996
(713) 552-0202-FAX
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO
THE PUBLIC: As soon as practicable after the Registration
Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to a dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If the Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
===================================================================================================
Proposed Proposed
maximum maximum
Amount to offering aggregate Proceeds to Amount of
Title of each class of be price offering the registration
securities to be registered registered per share(*) price(*) Company fee
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Stock, par value $0.01 95,000 $2.25 $212,750.00 -0- $63.06
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Total $63.06
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* ESTIMATED SOLELY FOR THE PURPOSE OF CALCULATING THE REGISTRATION FEE.
CALCULATED PURSUANT TO RULE 457(G) AND BASED ON THE AVERAGE BID AND ASKED
PRICE OF THE COMPANY'S COMMON STOCK ON APRIL 1, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVENESS DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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RICK'S CABARET INTERNATIONAL, INC.
Cross-Reference Sheet
showing location in the Prospectus of
Information Required by Items of Form S-3
FORM S-3 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
<S> <C>
1. Front of Registration Statement and Outside Outside Front Cover Page of
Front Cover of Prospectus Prospectus
2. Inside Front Cover and Outside Back Cover Inside Front Cover and Outside
Pages of Prospectus Back Cover Pages of Prospectus
3. Summary Information and Risk Factors The Company; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page; Use of Proceeds
6. Dilution *
7. Selling Stockholders Selling Stockholder
8. Plan of Distribution Outside Front Cover Page; Risk
Factors; Plan of Distribution
9. Description of Securities to be Registered *
10. Interest of Named Experts and Counsel Legal Matters
11. Material Changes Recent Events
12. Incorporation by Reference of Certain Information Documents Incorporated by Reference
13. Disclosure of Commission Position on Indemnification Limitation on Director's Liability; Indemnification
for Securities Act Liabilities
</TABLE>
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(*) None or Not Applicable
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 3, 1998
RICK'S CABARET INTERNATIONAL, INC.
95,000 SHARES OF COMMON STOCK
This Prospectus relates to the resale of 95,000 shares of common stock,
par value $0.01 per share (the "Common Stock"), of Rick's Cabaret International,
Inc. (the "Company") which may be offered and sold from time to time (the
"Stockholder Shares") by a certain security holder of the Company (the "Selling
Stockholder"). The Selling Stockholder may from time to time sell all or any
portion of the Common Stock in the over-the-counter market, on any regional or
national securities exchange on which the Common Stock is listed or traded, in
negotiated transactions or otherwise, at prices then prevailing or related to
the then current market price or at negotiated prices. A current Prospectus must
be in effect at the time of the sale of the shares of Common Stock to which this
Prospectus relates. The Common Stock may be sold directly or through broker
dealers, or in a distribution by one or more underwriters on a firm commitment
or a best efforts basis. The Selling Stockholder and any broker-dealer who
participates in the distribution of the Common Stock may be deemed to be
Underwriters ("Underwriters") within the meaning of the Securities Act of 1933,
as amended (the "Act"). Any commission received by any broker-dealer and any
profit on resale of Common Stock purchased by them may be deemed to be
underwriting commission under the Act. The Company will not receive any proceeds
upon the sale of the Common Stock offered hereby.
The Company's Common Stock and Warrants are quoted on the National
Association of Securities Dealer's NASDAQ Small Cap Market automated quotation
system under the symbol "RICK" and "RICKW", respectively. On March 26, 1998, the
last closing bid price of the Company's Common Stock as reported by the National
Association of Securities Dealer's NASDAQ Small Cap Market was $2.25 per share
bid.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK, SEE THE "RISK FACTORS"
SECTION OF THIS PROSPECTUS BEGINNING ON PAGE 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Date of this Prospectus is April __, 1998
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, ANY SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER
PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR ITS SUBSIDIARIES SINCE THE DATE HEREOF.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO
ANY PERSON IN ANY STATE WHERE SUCH OFFER WOULD BE UNLAWFUL.
TABLE OF CONTENTS
SECTION PAGE
AVAILABLE INFORMATION............................................ 3
DOCUMENTS INCORPORATED BY REFERENCE.............................. 3
THE COMPANY...................................................... 4
RISK FACTORS..................................................... 4
RECENT EVENTS.................................................... 11
USE OF PROCEEDS.................................................. 12
PLAN OF DISTRIBUTION............................................. 12
SELLING STOCKHOLDER.............................................. 13
LIMITATION ON DIRECTOR'S LIABILITY; INDEMNIFICATION.............. 14
LEGAL MATTERS.................................................... 14
EXPERTS.......................................................... 14
2
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports, proxy statements and other information with
the Commission. The Company will provide without charge to each person who
receives a copy of this Prospectus, upon written or oral request, a copy of any
information that is incorporated by reference in this Prospectus (not including
exhibits to the information that is incorporated by reference unless the
exhibits are themselves specifically incorporated by reference). Such request
should be directed to Rick's Cabaret International, Inc., Attention of Robert L.
Watters, 3113 Bering Drive, Houston, Texas 77057, tel. (713) 785-0444.
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Act with respect to the securities offered by this
Prospectus. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and this offering, reference is made to the Registration
Statement, including the exhibits filed therewith, as well as such reports,
proxy statements and other information filed with the Commission, which may be
inspected without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a Web site on the Internet that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Commission. The address of the site is
http://www.sec.gov. Visitors to the site may access such information by
searching the EDGAR data base on the site.
DOCUMENTS INCORPORATED BY REFERENCE
The Company hereby incorporates by reference in this Prospectus (i) the
Company's Annual Report on Form 10-KSB for the fiscal year ended September 30,
1997; and, (ii) the Company's Quarterly Report on Form 10-QSB for the fiscal
quarter ended December 31, 1997. All other reports filed by the Company pursuant
to Section 13(a) or 15(d) of the Exchange Act since September 30, 1997, are
hereby incorporated herein by reference.
All documents subsequently filed by the Company pursuant to Section
13(a), 13(c), 14, or 15(d) of the Exchange Act, prior to the termination of this
offering, shall be deemed to be incorporated by reference into this Prospectus.
Any statement contained in a document incorporated or deemed to be incorporated
by reference in this Prospectus shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained in this
Prospectus or any other subsequently filed document which also is or is deemed
to be incorporated by reference modifies or replaces such statement.
3
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THE COMPANY
The Company was organized in 1994 by Robert L. Watters to acquire all
of the outstanding capital stock of Trumps, Inc. ("Trumps"), a Texas corporation
formed in 1982, from Robert L. Watters, its sole shareholder. Since 1983, Trumps
has operated Rick's Cabaret ("Rick's"), a premiere adult nightclub offering
topless entertainment in Houston, Texas. Rick's Cabaret, which caters primarily
to businessmen, has developed a clientele base which includes professionals,
business executives and other individuals who tend to entertain more frequently
than the average person and who tend to have greater disposable income. From its
inception, the Company's objective was to provide a first-class entertainment
environment for the business consumer. To achieve this goal and reach its target
market, Rick's created an attractive, yet discreet environment, complimented by
a first-class bar and restaurant operation conducive to attracting businessmen
and out-of-town convention clientele.
In September, 1995, the Company acquired all of the capital stock of
Tantric Enterprises, Inc., Tantra Dance, Inc., and Tantra Parking, Inc.
(collectively "Tantra") from Mr. Watters. The Tantra companies own and operate
Tantra, a non-sexually oriented discotheque and billiard club in Houston, Texas.
In February, 1996, the Company formed RCI Entertainment, Louisiana,
Inc., a Louisiana corporation, for the purpose of administering, operating,
managing and leasing its new location at 315 Bourbon Street, New Orleans,
Louisiana.
In December 1996, the Company acquired the land and building at its
primary Houston, Texas location in connection with the settlement of certain
litigation, thereby allowing the Company to remain at the location.
In January 1997, the Company formed RCI Entertainment (Minnesota),
Inc., a Minnesota corporation, for the purpose of acquiring, administering,
operating and managing its new location in Minneapolis, Minnesota. The
acquisition of the Minneapolis facility was completed in December 1997. The
Company recently opened its Minneapolis cabaret.
RISK FACTORS
THE COMMON STOCK OFFERED HEREBY IS SPECULATIVE AND INVOLVES A HIGH
DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS
PROSPECTUS, EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING
RISK FACTORS BEFORE MAKING AN INVESTMENT DECISION.
RECENT LOSSES AND ACCUMULATED DEFICIT
The Company incurred losses for the fiscal year ending September 30,
1997 of $(1,293,330) and an accumulated deficit of $(1,802,718) at September 30,
1997. For the first quarter of fiscal 1998 ended December 31, 1997, the Company
generated a net profit of $35,553. Revenues increased during the fiscal year
ending September 30, 1997 to $6,277,579 from $4,630,298 during the previous
fiscal year. During the first quarter of fiscal 1998, revenues increased to
$1,668,426 from $1,082,615 from the same quarter during the previous fiscal year
ended September 30, 1997. Losses have been largely attributable to operations
and the increase in costs associated with acquisition activities and the opening
of the New Orleans location and the Minneapolis location. The Company has
experienced decreased sales at its Houston location as a result of the current
level of competition and to the public perception of a recently enacted City of
Houston, Texas Ordinance (the "Ordinance"). Management believes that with the
opening of the Minneapolis location and recent cost reduction programs put into
place during fiscal 1997, that the losses incurred during the previous fiscal
year will likely be mitigated. See Risk Factors -- Necessary Permits -- Recent
Houston City Ordinance and Recent Events.
4
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NECESSARY PERMITS -- RECENT HOUSTON CITY ORDINANCE
In addition to various regulatory requirements affecting the sale of
alcoholic beverages in the cities in which it operates, the location of a
topless cabaret is sometimes subject to a city ordinance. Accordingly, Rick's is
subject to such sexually oriented business ordinances of cities in which it
operates. Such ordinances deal generally with distance from schools, churches,
and other sexually oriented businesses and contain restrictions based on the
percentage of residences within the immediate vicinity of the sexually oriented
business, as well as the conduct of business within a club.
In January 1997, the City Council of the City of Houston passed a
comprehensive new Ordinance regulating the location of and the conduct within
Sexually Oriented Businesses. The new Ordinance established new distances that
Sexually Oriented Businesses may be located to schools, churches, playgrounds
and other sexually oriented businesses. There were no provisions in the
Ordinance exempting previously permitted sexually oriented businesses from the
effect of the new Ordinance. In 1997, the Company was informed that Rick's
Cabaret at its location at 3113 Bering Drive failed to meet the requirements of
the Ordinance and accordingly the renewal of the Company's Business License at
that location was denied.
The Ordinance provided that a business which was denied a renewal of
its operating permit due to changes in distance requirements under the Ordinance
would be entitled to continue in operation for a period of time (the
"Amortization Period") if the owner were unable to recoup, by the effective date
of the Ordinance, its investment in the business that was incurred through the
date of the passage and approval of the Ordinance.
The Company filed a written request with the City of Houston requesting
an extension of time during which the Company could continue operations at its
original location under the Amortization Period provisions of the Ordinance
since the Company was unable to recoup its investment prior to the effective
date of the Ordinance. An administrative hearing (the "Hearing") was held by the
City of Houston to determine the appropriate Amortization Period to be granted
to the Company. At the Hearing, the Company was granted an amortization period
through July 1998. The Company has the right to appeal any decision of the
Hearing official to the district court in the State of Texas.
In May, 1997, the City of Houston agreed to defer implementation of the
Ordinance until the constitutionality of the entire Ordinance was decided by
court trial. In February 1998 the U.S. District Court for the Southern District
of Texas, Houston, Division, struck down certain provisions of the Ordinance,
including the provision mandating a 1,500 foot distance between a club and
schools, churches and other sexually oriented business, leaving intact the
provision of the 750 foot distance as it existed in the prior Houston, Texas
Ordinance.
There are other provisions in the Houston, Texas Ordinance, such as
provisions governing the level of lighting in a sexually oriented business, the
distance between a customer and dancer while the dancer is performing in a state
of undress and provisions regarding the licensing of dancers that were upheld
which may be detrimental to the business by the Company. The Company, in concert
with other sexually oriented businesses, is appealing these aspects of the
Houston, Texas Ordinance.
It is unknown if the City of Houston will appeal the court's rulings.
In the event that the City of Houston is successful in an appeal, the Company's
Houston location could be out of compliance. Such an outcome could have an
adverse impact on the Company's future.
5
<PAGE>
On April 1, 1998, the City of Houston began enforcing certain portions
of the Ordinance, including the distance requirement between a customer and a
dancer while dancing, and the requirement that dancers be licensed. The City of
Houston's enforcement of the recently implemented provisions of the Ordinance
could have an adverse impact on the Rick's location in Houston, Texas. The
current requirement of a three foot distance between a dancer and a customer
could reduce customer satisfaction and could result in fewer customers at the
Houston location. The requirement that a dancer be licensed may result in fewer
dancers working, which could have an adverse impact on the Houston location. It
is unknown what impact the enforcement of the Ordinance may have on the
Company's Houston location.
A dance hall permit is required for the operation of a discotheque in
the city of Houston. The dance hall permit is not a discretionary permit, but
must be granted by the city if the provisions of the applicable ordinance are
satisfied. A dance hall permit may be revoked or renewal may be refused if
certain criminal activities occur on the premises or if the person listed as the
applicant has committed certain named offenses. The loss of the dance hall
permit would have a material adverse effect on Rick's business, financial
condition and results of operations.
RISK OF ADULT NIGHTCLUB OPERATIONS AND DINNER THEATER CONCEPT
Historically, the adult entertainment, restaurant and bar industry has
been an extremely volatile industry. The industry tends to be extremely
sensitive to the general local economy, in that when economic conditions are
prosperous, entertainment industry revenues increase, and when economic
conditions are unfavorable, entertainment industry revenues decline. Coupled
with this economic sensitivity is the trendy personal preferences of the
customers who frequent adult cabarets. The Company continuously monitors trends
in its customers' tastes and entertainment preferences so that, if necessary, it
can make appropriate changes which will allow it to remain one of the premiere
adult cabarets. However, any significant decline in general corporate conditions
or uncertainties regarding future economic prospects that affect consumer
spending could have a material adverse effect on the Company's business. In
addition, Rick's has historically catered to a clientele base from the upper end
of the market. Accordingly, further reductions in the amounts of entertainment
expenses allowed as deductions from income under the Internal Revenue Code of
1954, as amended, could adversely affect sales to customers dependent upon
corporate expense accounts. The Company continues to plan for the opening of a
cabaret style dinner theater on the second floor of the New Orleans location.
Completion of the second floor facility is currently contingent upon obtaining
additional construction cost financing. Uncertainties relating to the opening of
the facility relate to the availability and suitability of financing, the timing
of the opening and availability of talent, and ultimately the overall market
acceptance of this concept.
FINANCIAL CONTROLS
A significant part of the revenues earned by the Company through its
adult nightclub operations will be collected in cash by full and part-time
employees. Comprehensive financial controls are required to minimize the
potential loss of revenue through theft or misappropriation of cash. To the
extent that these controls are not structured or executed properly, significant
cash revenues could be lost and profitability of the Company impaired. The
Company believes that it has implemented significant cash controls, including
separating management personnel from actually handling cash and utilizing a
combination of accounting and physical inventory control devices to deter theft
and to ensure a high level of security within its accounting practices and
procedures.
6
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COMPETITION
The adult topless club entertainment business is highly competitive
with respect to price, service and location, as well as the professionalism of
the entertainment. Rick's competes with a number of locally-owned adult cabarets
in each of the cities where its clubs are located, some of whose names may enjoy
recognition that equals that of Rick's. Although the Company believes that it is
well-positioned to compete successfully, there can be no assurance that Rick's
will be able to maintain its high level of name recognition and prestige within
the marketplace.
DEPENDENCE ON AND AVAILABILITY OF MANAGEMENT; MANAGEMENT OF GROWTH
The success of the Company is substantially dependent upon the time,
talent, and experience of Robert Watters, its President and Chief Executive
Officer. The Company has entered into a three-year employment agreement with Mr.
Watters which extends to December 31, 2000. The loss of the services of Mr.
Watters would have a material adverse impact on the Company and its business. In
the event of Mr. Watters unavailability or in the event that he should become
temporarily disabled, the Company believes that it presently has in place
management systems and controls which are sufficiently strong to enable it to
run efficiently and effectively until Mr. Watters' return or until a replacement
could be found. No assurance can be given, however, that a replacement for Mr.
Watters could be located in the event of his unavailability. Further, in order
for the Company to continue to expand its business operations, it must continue
to improve and expand the level of expertise of its personnel and must attract,
train and manage qualified managers and employees to oversee and manage the
expanded operations. The Company's practice of training management without prior
adult topless club experience could result in a delay in the Company's
anticipated growth plans due to the time required to attract and train such
qualified managers and employees.
KEY EMPLOYEES
The Company's success depends on maintaining a high quality of female
entertainers and waitresses. Competition for topless entertainers in the adult
entertainment business is intense. The lack of availability of quality,
personable, attractive entertainers or the Company's inability to attract and
retain other key employees, such as kitchen personnel and bartenders, could
adversely impact the business of the Company.
ABILITY TO MANAGE GROWTH
It is the intention of the Company to expand its existing business
operations by opening additional topless nightclubs in other metropolitan areas
under the trade name "Rick's Cabaret." The opening of additional topless
nightclubs will subject the Company to a variety of risks associated with
rapidly growing companies. In particular, the Company's growth may place a
significant strain on its accounting systems and internal controls and personal
overview of its day-to-day operations. Although management intends to ensure
that its internal controls remain adequate to meet the demands of further
growth, there can be no assurance that its systems, controls or personnel will
be sufficient to meet these demands. Inadequacies in these areas could have a
material adverse effect on Rick's business, financial condition and results of
operations. The Company has recruited its management staff exclusively from
outside of the topless industry in the belief that management which has not been
exposed to operating practices which the Company believes prevalent elsewhere in
the topless industry and with diverse management backgrounds will produce a
management team that operates with a high level of integrity. This practice of
training management without adult nightclub experience may cause the Company to
experience a shortage of qualified management necessary to fulfill its
anticipated growth plans due to the additional time required to train such
personnel.
7
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PERMITS RELATING TO THE SALE OF ALCOHOL
Rick's derives a significant portion of its revenues from the sale of
alcoholic beverages. In Texas, the authority to issue a permit to sell alcoholic
beverages is governed by the Texas Alcoholic Beverage Commission (the "TABC"),
which has the authority, in its discretion, to issue the appropriate permits.
Rick's presently holds a Mixed Beverage Permit and a Late Hours Permit issued by
the State of Texas and permits to sell alcohol issued by the States of Louisiana
and Minnesota (the "Permits"). These Permits are subject to annual renewal,
provided Rick's has complied with all rules and regulations governing the
permits. Renewal of a permit may be subject to protest. In the event of a
protest, the regulatory authority may hold a hearing at which time the views of
interested parties are expressed. The liquor license authorities have the
authority after such hearing not to issue a renewal of the protested alcoholic
beverage permit. While Rick's has never been subject to a protest hearing
against the renewal of its Permits, there can be no assurance that such a
protest could not be made in the future, nor can there be any assurance that the
Permits would be granted in the event such a protest was made. Other states may
have similar laws which may limit the availability of a permit to sell alcoholic
beverages or which may provide for suspension or revocation of a permit to sell
alcoholic beverages in certain circumstances. The temporary or permanent
suspension or revocations of either of the Permits or the inability to obtain
permits in areas of expansion would have a material adverse effect on the
revenues, financial condition and results of operations of the Company.
STATUS OF ENTERTAINERS AS INDEPENDENT CONTRACTORS
The Company believes its entertainers to be independent contractors and
not employees for federal income tax purposes and that the entertainers should
be treated as self-employed independent contractors under the income tax
withholding provisions of the Internal Revenue Code and under the Federal
Insurance Contributions Act and the Federal Unemployment Tax Act. In addition,
the Company believes the entertainers are independent contractors for purposes
of regulations administered by the United States Department of Labor. However,
the status of the entertainers as independent contractors is not free from
doubt. The Company has sought neither a ruling from either the Internal Revenue
Service or the Department of Labor nor an opinion of counsel as to the status of
its entertainers as independent contractors. After consultation with counsel,
the Company does not believe that it could obtain an opinion on this issue.
Moreover, the Company believes that any such opinion, if obtained, would be of
very limited value, given the inherently factual nature of the issue. To the
extent that a determination were made that the entertainers are not independent
contractors, but rather are employees for tax or labor purposes, and a similar
determination were not made as to other adult cabarets, the Company could be at
a competitive disadvantage with other adult cabarets. Moreover, such a
determination could result in the imposition of penalties against the Company
for its prior treatment, the effect of which could be material.
8
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EXISTING LITIGATION
The Company and Mr. Watters are presently involved in certain
litigation. In DALLAS J. FONTENOT V. TRUMPS, INC. AND ROBERT L. WATTERS, Cause
No. 94-057144 in the 127th District Court of Harris County, Texas (the "Fontenot
Lawsuit"), Mr. Fontenot sued the Company and Mr. Watters for alleged breaches of
an Agreement entered into in April, 1993 among Mr. Fontenot, the Company and Mr.
Watters. Mr. Fontenot alleges that Mr. Watters and the Company have breached
this Agreement, but does not indicate the manner in which the breach has
occurred. The Company believes that it has fully complied with its obligations
under this Agreement. In March, 1998, each of the parties agreed to dismiss this
litigation with prejudice. The Settlement documents have been prepared and are
in the process of being executed by the parties.
UNINSURED RISKS
The Company maintains insurance in amounts it considers adequate for
personal injury and property damage to which the business of the Company may be
subject. As of September 1996, the Company maintains personal injury liquor
liability insurance, however, there can be no assurance that the Company may not
be exposed to potential liabilities in excess of the coverage provided by
insurance, which liabilities may be imposed pursuant to the Texas "Dram Shop"
statute or similar "Dram Shop" statutes or common law theories of liability in
other states where the Company may expand. The Texas "Dram Shop" statute
provides a person injured by an intoxicated person the right to recover damages
from an establishment that wrongfully served alcoholic beverages to such person
if it was apparent to the server that the individual being sold, served or
provided with an alcoholic beverage was obviously intoxicated to the extent that
he presented a clear danger to himself and others. An employer is not liable for
the actions of its employee who overserves if (i) the employer requires its
employees to attend a seller training program approved by the TABC; (ii) the
employee has actually attended such a training program; and (iii) the employer
has not directly or indirectly encouraged the employee to violate the law. It is
the policy of Rick's to require that all servers of alcohol working at Rick's be
certified as servers under a training program approved by the TABC, which
certification gives statutory immunity to the sellers of alcohol from damage
caused to third parties by those who have consumed alcoholic beverages at such
establishment pursuant to the Texas Alcoholic Beverage Code. There can be no
assurance, however, that uninsured liabilities may not arise which could have a
material adverse effect on the Company.
CONTROL BY MANAGEMENT
The Chief Executive Officer and Chairman of the Board of the Company
owns approximately 43% of the outstanding Common Stock of the Company. As a
result, management will be able to influence the election of directors and
otherwise influence the affairs of the Company for the foreseeable future.
LIMITATIONS ON PROTECTION OF SERVICE MARKS
Rights of the Company to the tradenames "Rick's" and "Rick's Cabaret",
are established under the common law, based upon the Company's substantial and
continuous use of these trademarks in interstate commerce since at least as
early as 1987. "RICK'S AND STARS DESIGN" and "RICK'S CABARET" logos are
registered through service mark registrations issued by the United States Patent
and Trademark Office ("PTO").
There can be no assurance that these steps taken by the Company to
protect its Service Marks will be adequate to deter misappropriation of its
protected intellectual property rights. Litigation may be necessary in the
future to protect the Company's rights from infringement, which may be costly
and time consuming. The loss of the intellectual property rights owned or
claimed by the Company could have a material adverse affect on the Company.
9
<PAGE>
POSSIBLE VOLATILITY OF COMMON STOCK PRICE
The market price of the Common Stock of the Company may be highly
volatile, as has been the case with the securities of many other small
capitalization companies. Additionally, in recent years, the securities markets
have experienced a high level of price and volume volatility and the market
prices of securities for many companies, particularly small capitalization
companies, have experienced wide fluctuations which have not necessarily been
related to the operating performances or underlying asset values of such
companies. Securities of issuers having relatively limited capitalization or
securities recently issued in a public offering are particularly susceptible to
change based on short-term trading strategies of certain investors.
NO CASH DIVIDENDS
The Company has never paid cash dividends on its Common Stock and the
Board of Directors does not anticipate paying cash dividends in the foreseeable
future. It currently intends to retain future earnings to finance the growth of
its business.
ANTI-TAKEOVER EFFECTS OF ISSUANCE OF PREFERRED STOCK
The Board of Directors has the authority to issue up to 1,000,000
shares of Preferred Stock, $.10 par value per share, in one or more series, to
fix the number of shares constituting any such series, and to fix the rights and
preferences of the shares constituting any series, without any further vote or
action by the stockholders. The issuance of Preferred Stock by the Board of
Directors could adversely affect the rights of the holders of Common Stock and
could prevent holders of common stock from receiving a potential premium for
their stock. For example, such issuance could result in a class of securities
outstanding that would have preferences with respect to voting rights and
dividends and in liquidation over the Common Stock, and could (upon conversion
or otherwise) enjoy all of the rights appurtenant to Common Stock. The Board's
authority to issue Preferred Stock could discourage potential takeover attempts
and could delay or prevent a change in control of the Company through merger,
tender offer, proxy contest or otherwise by making such attempts more difficult
to achieve or more costly. There are no issued and outstanding shares of
Preferred Stock; there are no agreements or understandings for the issuance of
Preferred Stock, and the Board of Directors has no present intention to issue
Preferred Stock.
LIMITATION ON DIRECTOR LIABILITY
The Company's Articles of Incorporation provide, as permitted by
governing Texas law, that a director of the Company shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, with certain exceptions. These provisions may
discourage stockholders from bringing suit against a director for breach of
fiduciary duty and may reduce the likelihood of derivative litigation brought by
stockholders on behalf of the Company against a director. See, LIMITATION ON
DIRECTORS' LIABILITY; INDEMNIFICATION.
FORWARD-LOOKING STATEMENTS
This statement is being included in connection with the safe harbor
provision of the Private Securities Litigation Reform Act. This Prospectus
contains forward-looking statements. Such statements are based upon management's
current expectations, beliefs, and assumptions about future events, and are
other than statements of historical fact, and involve a number of risks and
uncertainties. In addition to those factors discussed herein, important factors
that could cause actual results to differ materially from those in
forward-looking statements are, among others, the impact and implementation of
the sexually oriented business Ordinance of the City of Houston, the results of
the Company's Minneapolis location, the Company's expansion efforts, market
acceptance for the Company's services and products, competition, and the
availability of financing.
10
<PAGE>
RECENT EVENTS
ACQUISITION OF MINNEAPOLIS CABARET
In December 1997, the Company completed its acquisition of real estate
located at 300 South and 3rd Street in downtown Minneapolis, Minnesota
consisting of land and a 14,000 square foot cabaret facility and the assets of
"Buns & Roses", an adult entertainment business that has operated there for two
years. The Company opened its new cabaret in March 1998. The Company offers
topless adult entertainment, in a similar format of and bearing the name "Rick's
Cabaret." The Cabaret is located at the intersection of two major downtown
streets and is located within walking distance of both the Metrodome, home to
the Minnesota Vikings and the Twins, and the Target Center, home to the
Minnesota Timberwolves. The City of Minneapolis has approved and granted a
liquor license to Rick's Cabaret which will permit the operation of a topless
cabaret as well as the ability to serve alcohol at the Location. The City of
Minneapolis was chosen as a site for expansion by the Company because of the
City's excellent demographic characteristics and vibrant nature of its downtown
entertainment district.
RECENT DEVELOPMENTS IN HOUSTON, TEXAS ORDINANCE
In January 1997, the City Council of the City of Houston passed a
comprehensive new Ordinance regulating the location of and the conduct within
Sexually Oriented Businesses. The new Ordinance established new distances that
Sexually Oriented Businesses may be located to schools, churches, playgrounds
and other sexually oriented businesses. There were no provisions in the
Ordinance exempting previously permitted sexually oriented businesses from the
effect of the new Ordinance. In 1997, the Company was informed that Rick's
Cabaret at its location at 3113 Bering Drive failed to meet the requirements of
the Ordinance and accordingly the renewal of the Company's Business License at
that location was denied.
The Ordinance provided that a business which was denied a renewal of
its operating permit due to changes in distance requirements under the Ordinance
would be entitled to continue in operation for a period of time (the
"Amortization Period") if the owner were unable to recoup, by the effective date
of the Ordinance, its investment in the business that was incurred through the
date of the passage and approval of the Ordinance.
The Company filed a written request with the City of Houston requesting
an extension of time during which the Company could continue operations at its
original location under the Amortization Period provisions of the Ordinance
since the Company was unable to recoup its investment prior to the effective
date of the Ordinance. An administrative hearing (the "Hearing") was held by the
City of Houston to determine the appropriate Amortization Period to be granted
to the Company. At the Hearing, the Company was granted an amortization period
through July 1998. The Company has the right to appeal any decision of the
Hearing official to the district court in the State of Texas.
In May, 1997, the City of Houston agreed to defer implementation of the
Ordinance until the constitutionality of the entire Ordinance was decided by
court trial. In February 1998 the U.S. District Court for the Southern District
of Texas, Houston, Division, struck down certain provisions of the Ordinance,
including the provision mandating a 1,500 foot distance between a club and
schools, churches and other sexually oriented business, leaving intact the
provision of the 750 foot distance as it existed in the prior Houston, Texas
Ordinance.
11
<PAGE>
There are other provisions in the Houston, Texas Ordinance, such as
provisions governing the level of lighting in a sexually oriented business, the
distance between a customer and dancer while the dancer is performing in a state
of undress and provisions regarding the licensing of dancers that were upheld
which may be detrimental to the business by the Company. The Company, in concert
with other sexually oriented businesses, is appealing these aspects of the
Houston, Texas Ordinance.
It is unknown if the City of Houston will appeal the court's rulings.
In the event that the City of Houston is successful in an appeal, the Company's
Houston location could be out of compliance. Such an outcome could have an
adverse impact on the Company's future.
On April 1, 1998, the City of Houston began enforcing certain portions
of the Ordinance, including the distance requirement between a customer and a
dancer while dancing, and the requirement that dancers be licensed. The City of
Houston's enforcement of the recently implemented provisions of the Ordinance
could have an adverse impact on the Rick's location in Houston, Texas. The
current requirement of a three foot distance between a dancer and a customer
could reduce customer satisfaction and could result in fewer customers at the
Houston location. The requirement that a dancer be licensed may result in fewer
dancers working, which could have an adverse impact on the Houston location. It
is unknown what impact the enforcement of the Ordinance may have on the
Company's Houston location.
USE OF PROCEEDS
The Company will not receive any proceeds upon the resale of the Common
Stock by the Selling Stockholder. The Company is required to pay the costs
associated with this Offering, which it estimates to be approximately $7,500.
The Selling Stockholder will not pay any of the costs of this Offering.
PLAN OF DISTRIBUTION
The Selling Stockholder may, from time to time, sell all or a portion
of his shares in transactions (which may include block transactions) in the
over-the-counter market, on any national or regional securities exchange in
which the Common Stock is listed or traded, in negotiated transactions or
otherwise, at prices then prevailing or related to the then current market price
or at negotiated prices. Resales by the purchasers of such shares may be made in
the same manner.
The Selling Stockholder may effect such transactions by selling his
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Stockholder or to broker-dealers who may purchase shares as
principals and thereafter sell the securities from time to time in the
over-the-counter market, in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholder and/or the purchasers
for whom such broker-dealers may act as agents or to whom they may sell as
principals (which compensation as to a particular broker-dealer may be in excess
of customary commissions).
If the Company is notified by the Selling Stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of the
Common Stock, the Company would be required to amend the Registration Statement
of which this Prospectus is a part and file a Prospectus Supplement to describe
the agreements between the Selling Stockholder and such broker-dealer relating
to the distribution.
12
<PAGE>
The Selling Stockholder and any broker-dealers participating in the
distribution of the Common Stock covered by this Prospectus may be deemed to be
"underwriters" (within the meaning of Section 2(11) of the Act). Any commissions
received by them, as well as any proceeds from any sales as a principal by them,
may be deemed to be underwriting discounts and commissions under the Act.
The Company will pay certain costs and expenses incurred in connection
with the registration of the Stockholder Shares under the Act. The Company will
not, however, pay any commissions or any other fees in connection with the sale
of the Common Stock. There is no assurance that the Selling Stockholder will
sell any or all of the Common Stock.
SELLING STOCKHOLDER
The following table sets forth the name of the Selling Stockholder, the
number of shares of Common Stock offered by the Selling Stockholder, the number
of shares of Common Stock to be owned by the Selling Stockholder if all shares
were to be sold in the Offering and the percentage of the Company's outstanding
Common Stock that will be owned by the Selling Stockholder if all shares are
sold in the offering. The Selling Stockholder may offer all or a portion of the
shares for resale from time to time.
<TABLE>
<CAPTION>
Shares Shares Percentage
Owned Shares Owned After Owned After
Selling Before Offered Offering If All Offering If All
Stockholder (1) Offering For Sale Shares Sold Shares Sold
- ---------------- -------- -------- ----------- -------------------
<S> <C> <C> <C> <C>
Larry Holmberg 95,000 95,000 -0- -0-%
</TABLE>
- -------------------------
(1) Mr. Holmberg acquired his shares from the Company in a transaction in
which Mr. Holmberg sold to the Company certain real estate and related
assets located in Minneapolis, Minnesota in December 1997. Mr.
Holmberg has not and does not hold any position or office with the
Company or any of its affiliates.
13
<PAGE>
LIMITATION ON DIRECTOR'S LIABILITY; INDEMNIFICATION
Texas law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. The Articles of the
Company limit the liability of directors of the Company (in their capacity as
directors but not in their capacity as officers) to the Company or its
stockholders to the fullest extent permitted by Texas law. Specifically,
directors of the Company will not be personally liable for monetary damages for
breach of a director's fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Article 2.41
under the Texas Business Corporation Act ("TBCA"), or (iv) for any transactions
from which the director derived an improper personal benefit, whether or not the
benefit resulted from an action taken in the person's official capacity. Section
2.41 of the TBCA relates to directors' liability for unlawful dividends and
stock issuances.
The inclusion of this provision in the Articles may have the effect of
reducing the likelihood of derivative litigation against directors, and may
discourage or deter stockholders or management from bringing a lawsuit against
directors for breach of their duty of care, even though such an action, if
successful, might otherwise have benefited the Company and its stockholders.
The Company's Articles provide for the indemnification of its executive
officers and directors, and the advancement to them of expenses in connection
with any proceedings and claims, to the fullest extent permitted by the TBCA
law. The Articles include related provisions meant to facilitate the
indemnitees' receipt of such benefits. These provisions cover, among other
things: (i) specification of the method of determining entitlement to
indemnification and the selection of independent counsel that will in some cases
make such determination, (ii) specification of certain time periods by which
certain payments or determinations must be made and actions must be taken, and
(iii) the establishment of certain presumptions in favor of an indemnitee.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers or controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by a small
business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the small
business issuer will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed on for
the Company by Axelrod Smith & Kirshbaum of Houston, Texas.
EXPERTS
The consolidated balance sheets at September 30, 1997 and 1996 and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the years ended September 30, 1997 and 1996 of Rick's Cabaret
International, Inc. incorporated by reference into this Prospectus and
Registration Statement have been audited by Jackson & Rhodes P.C., independent
auditors, as set forth in their report, and are incorporated by reference in
reliance upon such report, given upon the authority of such firm as experts in
accounting and auditing.
14
<PAGE>
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the distribution of the securities being registered. The
expenses shall be paid by the Company.
SEC Registration Fee......................................................$63.06
Printing and Engraving Expenses.........................................1,000.00
Legal Fees and Expenses.................................................5,000.00
Accounting Fees and Expenses..............................................500.00
Blue Sky Fees and Expenses..................................................0.00
Transfer Agent Fees and Miscellaneous.....................................936.94
Total.........................................................$7,500.00
ITEM 15. LIMITATION ON DIRECTOR'S LIABILITY; INDEMNIFICATION
Texas law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. The Articles of the
Company limit the liability of directors of the Company (in their capacity as
directors but not in their capacity as officers) to the Company or its
stockholders to the fullest extent permitted by Texas law. Specifically,
directors of the Company will not be personally liable for monetary damages for
breach of a director's fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Article 2.41
under the Texas Business Corporation Act ("TBCA"), or (iv) for any transactions
from which the director derived an improper personal benefit, whether or not the
benefit resulted from an action taken in the person's official capacity. Section
2.41 of the TBCA relates to directors' liability for unlawful dividends and
stock issuances.
The inclusion of this provision in the Articles may have the effect of
reducing the likelihood of derivative litigation against directors, and may
discourage or deter stockholders or management from bringing a lawsuit against
directors for breach of their duty of care, even though such an action, if
successful, might otherwise have benefited the Company and its stockholders.
The Company's Articles provide for the indemnification of its executive
officers and directors, and the advancement to them of expenses in connection
with any proceedings and claims, to the fullest extent permitted by the TBCA
law. The Articles include related provisions meant to facilitate the
indemnitees' receipt of such benefits. These provisions cover, among other
things: (i) specification of the method of determining entitlement to
indemnification and the selection of independent counsel that will in some cases
make such determination, (ii) specification of certain time periods by which
certain payments or determinations must be made and actions must be taken, and
(iii) the establishment of certain presumptions in favor of an indemnitee.
II-1
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers or controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by a small
business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the small
business issuer will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-2
<PAGE>
ITEM 16. EXHIBITS
The following exhibits are filed as part of this Registration Statement:
4.1* The Company's Articles of Incorporation, which are
incorporated by reference to the Company's Form SB-2
Exhibit 3.1 as effective with the Commission on October 12,
1995.
4.2* The Company's By-laws, which are incorporated by reference
to the Company's Form SB-2 Exhibit 3.2 as effective with
the Commission on October 12, 1995.
4.3* Specimen of the Company's common stock certificate, which
is incorporated by reference to the Company's Form SB-2
Exhibit 4.1 as effective with the Commission on October 12,
1995.
4.4* Instruments defining the rights of security holders, which
are incorporated by reference to the Company's Form SB-2
Exhibit 4.2 as effective with the Commission on October 12,
1995.
5.1** Opinion of Axelrod, Smith & Kirshbaum
10.1** Asset Purchase Agreement in connection with acquisition of
Minneapolis facility.
10.2** Earnest Money Contract in connection with acquisition of
Minneapolis facility.
10.3** Amendment to Asset Purchase Agreement, Amendment to Earnest
Money Contract.
10.4** Second Amendment to Asset Purchase Agreement and to Earnest
Money Contract.
23.1** Consent of Axelrod, Smith & Kirshbaum (Included in Exhibit
5.1)
23.2** Consent of Jackson & Rhodes P.C.
- ----------
* Previously filed, or incorporated by reference.
** Filed herewith.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offer or sales
are being made, a post-effective amendment to this
registration statement:
i. To include any prospectus required by
Section 10(a)(3) of the Securities Act of
1933;
ii. To reflect in the prospectus any facts or
events arising after the effective date of
the registration statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the registration
statement; and
iii. To include any additional or changed
material information with respect to the
plan of distribution.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
registration statement relating to the securities
offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(4) i. That, for the purpose of determining
liability under the Securities Act of 1933,
the information omitted from the form of
prospectus filed as part of this
registration statement in reliance upon Rule
430A and contained in a form of prospectus
filed by the registrant pursuant to Rule
424(b)(1) or (4), or 497(h) under the
Securities Act of 1933 shall be deemed to be
part of this registration statement as of
the time it was declared effective.
ii. That, for the purpose of determining
liability under the Securities Act of 1933,
each post-effective amendment that contains
a form of prospectus shall be deemed to be a
new registration statement relating to the
securities offered therein, and the offering
of such securities at that time shall be
deemed to be the initial bona fide offering
thereof.
II-4
<PAGE>
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form S-3 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Houston,
State of Texas on March 30, 1998.
RICK'S CABARET INTERNATIONAL, INC.
By: /s/ ROBERT L. WATTERS
-------------------------------------------
Robert L. Watters, CHAIRMAN OF THE
BOARD, DIRECTOR, CHIEF EXECUTIVE
OFFICER, AND CHIEF ACCOUNTING OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated.
/s/ ROBERT L. WATTERS Chairman of the Board, Director, March 30, 1998
- ---------------------- Chief Executive Officer, and
Robert L. Watters Chief Accounting Officer
/s/ ERICH NORTON WHITE Director and March 30, 1998
- ---------------------- Executive Vice President
Erich Norton White
/s/ SCOTT C. MITCHELL Director March 28, 1998
- ----------------------
Scott C. Mitchell
Director
- ----------------------
Martin Sage
Exhibit 5.1
AXELROD, SMITH & KIRSHBAUM
An Association of Professional Corporations
ATTORNEYS AT LAW
5300 Memorial Drive, Suite 700
Houston, Texas 77007-8292
Robert D. Axelrod
Paul D. Smith Telephone (713) 861-1996
Daniel R. Kirshbaum Facsimile (713) 552-0202
March 31, 1998
Robert L. Watters, President
Rick's Cabaret International, Inc.
3113 Bering Drive
Houston, Texas 77057
Dear Mr. Watters:
As counsel for Rick's Cabaret International, Inc., a Texas corporation
("Company"), you have requested our firm to render this opinion in connection
with the Registration Statement of the Company on Form S-3 ("Registration
Statement") under the Securities Act of 1933, as amended (the "Act"), filed with
the Securities and Exchange Commission relating to the resale of 95,000 shares
of common stock, par value $.01 per share (the "Common Stock") by certain
security holders of the Company.
We are familiar with the Registration Statement and the registration
contemplated thereby. In giving this opinion, we have reviewed the Registration
Statement and such other documents and certificates of public officials and of
officers of the Company with respect to the accuracy of the factual matters
contained therein as we have felt necessary or appropriate in order to render
the opinions expressed herein. In making our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents presented to us
as originals, the conformity to original documents of all documents presented to
us as copies thereof, and the authenticity of the original documents from which
any such copies were made, which assumptions we have not independently verified.
Based upon the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Texas; and
2. The shares of Common Stock to be resold are validly
authorized, validly issued, fully paid and nonassessable.
<PAGE>
We consent to the to the filing of this opinion as an exhibit to the
Registration Statement and to the reference in the Registration Statement to
Axelrod, Smith, & Kirshbaum under the heading "Exhibits-Opinion."
Very truly yours,
/s/ Axelrod, Smith, & Kirshbaum
-------------------------------------
Axelrod, Smith, & Kirshbaum
Exhibit 10.1
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is made this 24th day of
December, 1996, by and between Amusement Center, Inc., a Minnesota corporation
with its principal place of business located at 300 South 3rd Street,
Minneapolis, Minnesota 55415 ("Amusement Center"), Buns & Roses II, Inc., a
Minnesota corporation with its principal place of business located at 300 South
3rd Street, Minneapolis, Minnesota 55415 ("B&R II"), Larry Holmberg, an
individual with his principal place of business located at 300 South 3rd Street,
Minneapolis, Minnesota 55415 ("Holmberg") and Rick's Cabaret International,
Inc., a Texas corporation, whose address is 3113 Bering Drive, Houston, Texas
77057 or its designees ("Buyer"). Amusement Center and B&R II are hereinafter
collectively referred to as "Seller(s)".
R E C I T A L S:
WHEREAS, Seller is the owner of all of the tangible and intangible
assets associated or used in connection with the operation of an adult
entertainment restaurant and bar known as "Buns & Roses" at 300 South 3rd
Street, Minneapolis, Minnesota 55415 ("Buns & Roses"); and
WHEREAS, Holmberg is the sole stockholder of the Seller; and
WHEREAS, Holmberg owns all of the real estate upon which Buns & Roses
is located, as more fully described herein, and all improvements thereon (the
"Property"); and
WHEREAS, Seller desires to sell and transfer all of the assets
associated or used in connection with the operation of Buns & Roses; and
WHEREAS, Holmberg desires to sell and convey the Property; and
WHEREAS, the Buyer or its designee desires to acquire all of the assets
of the Seller and the Property, upon and subject to the terms and conditions of
this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements set forth herein and in reliance upon the representations and
warranties contained herein, the parties hereto covenant and agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS AND PROPERTY
1.1 ASSETS OF SELLER TO BE TRANSFERRED TO BUYER. On the Closing Date
(as defined in Article VI hereof), and subject to the terms and conditions set
forth in this Agreement, Seller shall sell, convey, transfer and assign, or
cause to be sold, conveyed, transferred and assigned to Buyer, and Buyer shall
acquire all of the assets of the Seller, including but not limited to, the
following assets (the "Purchased Assets"):
<PAGE>
(i) all furniture, fixtures, equipment, appliances, machinery,
computer hardware and peripherals, computer software, sound
equipment, audio speakers, lighting fixtures, cash registers,
video equipment, lockers and other personal property of
whatever nature owned or leased by Seller in connection with
the operation of Buns & Roses, including but not limited to
those items more fully described on Exhibit 1.1(i) of this
Agreement (the "Personal Property");
(ii) all of Seller's inventory of supplies, accessories and any and
all other items of personal property of whatever nature, sold
by the Seller in the operation of Buns & Roses (the
"Inventory"), as more fully described in Exhibit 1.1(ii);
(iii) all supplies (other than Inventory) and other "consumable
supplies" used in connection with the operation of Buns &
Roses (the "Supplies"), as more fully described in Exhibit
1.1(iii);
(iv) all of Seller's right, title, and interest, as lessee, of any
and all equipment leased by Seller and located at Buns & Roses
(the "Leased Equipment");
(v) all right, title and interest in and to any and all
trademarks, tradenames, trade dress, service marks, slogans,
logos, corporate or partnership names (and any existing or
possible combination or derivation of any or all of the same)
and general intangibles, including, without limitation, the
goodwill and intellectual property rights, associated with or
used in connection with the operation or business of Buns &
Roses, including all rights, title and interest in and to the
following tradename and trademark "Buns & Roses" (the
"Intellectual Property"), provided however that Holmberg will
retain the right to use the tradename "Buns & Roses" outside
the corporate city limits of Minneapolis, Minnesota;
(vi) all right, title, and interest of Seller to the use of the
telephone numbers presently being used by Seller, including
all rotary extensions thereto, and all advertisements in the
"Yellow Pages", "City Directory" and other similar
publications (the "Telephone Numbers") and after the Closing,
Buyer shall assume all expenses for the Telephone Numbers and
advertising; and
(vii) all of Seller's lists of suppliers, and any and all copies of
books, records, papers, files, memoranda and other documents
in Seller's possession relating to or compiled in connection
with the operation of Buns & Roses which are requested by
Buyer (the "Records").
Specifically excluded from the term "Purchased Assets" as used herein
are cash equivalents, investment securities, federal income tax refunds,
corporate seals, books and records relating solely to corporate governance, and
any motor vehicle used for personal or family activities by any shareholder of
Seller (hereinafter collectively referred to as the "Excluded Assets").
<PAGE>
1.2 SALE OF PROPERTY TO BUYER. On the Closing Date, and subject to the
terms and conditions set forth in this Agreement, Holmberg shall sell, convey,
transfer and assign, or cause to be sold, conveyed, transferred and assigned to
Buyer or its designee the Property whose address is generally known as 300 South
3rd Street, Minneapolis, Minnesota 55415 and all improvements thereon, pursuant
to General Warranty Deed which shall convey good and marketable title to the
Property, free and clear of all claims, liens or encumbrances. Holmberg and
Buyer shall enter into an Earnest Money Contract by and between Holmberg and
Buyer which shall be executed and delivered simultaneously with the execution of
this Agreement, in the form attached hereto as Exhibit 1.2 ("Earnest Money
Contract").
1.3 PURCHASE PRICE. As consideration for the Purchased Assets and the
Property, Buyer shall pay, at Closing to Seller and Holmberg, the total
aggregate sum of $3,000,000.00 ("Purchase Price"), payable as follows:
(i) $500,000.00 payable by cashier's check, certified funds or
wire transfer at Closing of which $250,000.00 shall be
allocated to the purchase of the Property and $250,000.00
shall be allocated to the purchase of the Purchased Assets;
and
(ii) the remaining $2,500,000.00 of the Purchase Price shall be
paid by Buyer's execution and delivery of a Mortgage
Promissory Note in the form attached hereto as Exhibit 1.3
(ii)(a) in the amount of $500,000.00 ("Mortgage Promissory
Note") and a Promissory Note in the form attached hereto as
Exhibit 1.3 (ii)(b) in the amount of $2,000,000.00 amortized
over 20 years, bearing interest at the rate of nine percent
(9%) per annum, payable in 119 equal monthly principal and
interest installments, with a final balloon payment due on the
120th monthly installment payment ("Promissory Note"). The
Mortgage Promissory Note will be secured by the First Mortgage
Deed in the form attached hereto as Exhibit 1.3(ii)(c) and the
Promissory Note will be secured by a Security Agreement in the
form attached hereto as Exhibit 1.3(ii)(d).
1.4 PAYMENT OF EARNEST MONEY. Buyer shall pay, as earnest money
("Earnest Money"), upon execution and delivery of this Agreement, the sum of
$60,000.00, pursuant to the terms of the Ernest Money Contract. The Earnest
Money shall be deposited with a title company mutually agreeable to the parties,
as escrow agent, which Earnest Money shall be applied, subject to Closing, to
the Purchase Price. In the event this Agreement is terminated and the Closing
does not occur, the Earnest Money, together with any earned interest thereon,
shall be delivered in the manner set forth in Article 9 hereof.
1.5 NO ASSUMPTION OF LIABILITIES. The Buyer shall have no obligation
and shall not assume or agree to pay, perform or discharge, nor shall the Buyer
be directly or indirectly responsible or obligated for, any debts, obligations,
contracts or liabilities of the Seller, wherever or however incurred, except for
leases assumed by Buyer, which monthly expenses shall be pro rated as of the
Closing. All real and personal property taxes on the Purchased Assets and the
Property will be paid in full by the Seller or Holmberg for all years prior to
the Closing Date and for the year of Closing will be pro rated to the Closing
Date.
1.6 ALLOCATION OF PURCHASE PRICE. The Purchase Price of the Purchased
Assets and the Property shall be allocated among the Purchased Assets and the
Property in accordance with a schedule which shall be agreed upon and signed by
all of the parties hereto at or prior to the Closing Date.
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE SELLER AND HOLMBERG
The Seller and Holmberg, jointly and severally, represent and warrant
to Buyer as follows;
2.1 ORGANIZATION AND CAPITALIZATION OF SELLER. Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Minnesota, with full power and authority and all necessary governmental
and regulatory licenses, permits and authorizations to carry on the businesses
in which it is engaged, to own the properties that it owns currently and will
own at the Closing, and to perform its obligations under this Agreement. The
authorized capital stock of Amusement Center and B&R II, each, consists of 1,000
shares of common stock, $1.00 par value, of which 1,000 shares are validly
issued and outstanding. All of such issued and outstanding shares of common
stock of Seller is owned by Holmberg and are fully paid and non-assessable.
2.2 AUTHORIZATION OF AGREEMENT. Seller has all requisite corporate
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution and delivery by Seller of this Agreement
and the performance by Seller of its obligations hereunder (a) have been duly
and validly authorized by all requisite corporate action and (b) will not
violate its charter or bylaws or any order, writ, injunction, decree, statute,
rule or regulations applicable to it or any of its properties or assets, or be
in conflict with, result in a breach of or constitute a default under any note,
bond, indenture, mortgage, lease, license, franchise agreement or other
agreement, instrument or obligation, or result in the creation or imposition of
any lien, charge or encumbrance of any kind or nature whatsoever upon any of the
properties or assets of Seller. This Agreement and each and every agreement,
document, exhibit and instrument to be executed, delivered and performed by the
Seller or Holmberg in connection herewith constitute or will, when executed and
delivered, constitute the valid and legally binding obligations of the Seller
and Holmberg, as the case may be, enforceable against each of them in accordance
with their respective terms, except as enforceability may be limited by
applicable equitable principles or by bankruptcy, insolvency, reorganization,
moratorium, or similar laws from time to time in effect affecting the
enforcement of creditors' rights generally.
2.3 CONSENTS. Except as set forth on Exhibit 2.3, no consent of,
approval by, order or authorization of, or registration, declaration or filing
by Seller or Holmberg with, any court or any governmental or regulatory agency
or authority having jurisdiction over Seller or Holmberg or any of their
property or assets or any other person is required on the part of Buyer in
connection with the consummation of the transactions contemplated by this
Agreement, excluding any registration, declaration or filing the failure to
effect which would not have a material adverse effect on the financial condition
of Buyer or the operation of its business after the Closing.
2.4 TITLE TO PURCHASED ASSETS AND PROPERTY. The Seller and Holmberg
will have at Closing good and marketable title to all of the Purchased Assets
and Property, respectively, which are being sold to Buyer under this Agreement,
free and clear of all liens, claims, charges,
<PAGE>
encumbrances, restrictions or security interests, except as set forth in Exhibit
2.4, which obligations will be paid in full at Closing. All of the Purchased
Assets which are to be acquired by Buyer are in the possession of Seller and are
generally in good operating condition and repair (ordinary wear and tear
excepted). Neither Seller nor Holmberg is a party to any contract or obligation
whereby there has been granted to anyone an absolute or contingent right to
purchase, obtain or acquire any rights in the Property or in any of the assets,
properties or operations of Seller or used in connection with the business of
Seller.
2.5 CONTRACTS AND LEASES. Except as disclosed in Exhibit 2.5, Seller
(i) has no leases of personal property relating to the Purchased Assets, whether
as lessor or lessee; (ii) has no contractual or other obligations relating to
the Purchased Assets, whether written or oral; and (iii) has not given any power
of attorney to any person or organization for any purpose relating to the
Purchased Assets. Except as disclosed in Exhibit 2.5, Holmberg has no real
estate lease on the Property in which he is the landlord or lessor. Exhibit 2.5
sets forth a complete list, including any amendment of each lease or contract
which are part of the Purchased Assets to be acquired by the Buyer. Seller has
furnished Buyer a copy of each contract, lease or other document relating to the
Purchased Assets to which they are subject or are a party or a beneficiary,
which is to be assumed or acquired by Buyer. Except as disclosed on Exhibit 2.5,
to Seller's and Holmberg's knowledge, such contracts, leases or other documents
are valid and in full force and effect according to their terms and constitutes
a legal, valid and binding obligation of Seller or Holmberg and the other
respective parties thereto and is enforceable in accordance with their terms,
and neither Seller nor Holmberg has any knowledge of any default or breach under
such contract, lease or other document or of any pending or threatened claims
under any such contract, lease or other document. Neither the signing or
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 contract, lease or other document.
2.6 LITIGATION. Except as disclosed in Exhibit 2.6, there is no suit,
claim, arbitration, investigation, action or proceeding entered against, now
pending or, to the Seller's or Holmberg's knowledge, threatened against the
Purchased Assets or the Property, 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 effect upon the Purchased Assets or Property,
nor is there any basis known to Seller or Holmberg for any such action. Neither
Seller nor Holmberg is subject to any judicial injunction or mandate or any
quasi-judicial or administrative order or restriction directed to or against it
or him or which would affect the Purchased Assets or Property.
2.7 TAXES. Seller and Holmberg have timely and accurately filed all
federal, state, foreign and local tax returns and reports required to be filed
by them prior to such dates and have timely paid all taxes shown on such returns
as owed for the periods of such returns, including all withholding or other
payroll related taxes shown on such returns. Seller and Holmberg have made
adequate provision for the payment of all taxes accruable for all periods ending
on or before the Closing Date to any taxing authority and are not delinquent in
the payment of any material tax or governmental charge of any nature. No
assessments or notices of deficiency or other communications have been received
by Seller or Holmberg with respect to any tax return which has not been paid,
discharged or fully reserved against and no amendments or applications
<PAGE>
for refund have been filed or are planned with respect to any such return. There
are no agreements between Seller or Holmberg and any taxing authority,
including, without limitation, the Internal Revenue Service, waiving or
extending any statute of limitations with respect to any tax return.
2.8 FINANCIAL INFORMATION.
(a) Buyer has been provided with true, correct and complete
copies of the Federal Income Tax Returns (Form 1120S) for Amusement
Center for the years ended December 30, 1994 and 1995, respectively
("Tax Returns). Buyer has also received true and complete copies of the
unaudited balance sheet as of November 30, 1996, and the related
unaudited statements of income for the eleven months period then ending
(the "Financial Statement") for Amusement Center and B & R II. The Tax
Returns and the Financial Statements are in accordance with the books
and records of Amusement Center and B & R II and fairly present the
financial position of the corporations and the result of operations and
changes in financial position of the corporations as of the dates and
for the periods indicated, in each case in conformity with the
compilation by the corporations' certified public accountant, compiled
on a consistent basis.
(b) Seller has no liability or obligation (whether accrued,
absolute, contingent or otherwise) which is of a nature required to be
reflected in financial statements prepared in conformity with the
compilation by the corporations' certified public accountant, compiled
on a consistent basis, except for (i) the liabilities and obligations
which are disclosed, or reserved against in the Financial Statements or
Exhibit 2.8(b) hereto, to the extent and in the amounts so disclosed or
reserved against, and (ii) liabilities incurred or accrued in the
ordinary course of business since December 1, 1996 and which do not,
either individually or in the aggregate, have an adverse effect on the
business, assets or operations of the Seller.
(c) Except as disclosed in the Interim Financial Statements or
Exhibit 2.8(c), Seller is not in default with respect to any
liabilities or obligations, and all such liabilities or obligations
shown or reflected in the Interim Financial Statements or Exhibit
2.8(c) and such liabilities incurred or accrued subsequent to December
1, 1996 have been, or are being, paid and discharged as they become
due, and all such liabilities and obligations were incurred in the
ordinary course of business.
2.9 COMPLIANCE WITH LAWS. Seller is and at all times prior to the date
hereof has been, in compliance with all statutes, orders, rules, and regulations
applicable to it or to the ownership of its assets or the operation of its
business, 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 Seller, and Seller and Holmberg have no basis to expect to
receive, and have not received, any order or notice of any such violation or
claim of violation of any such statute, order, rule, ordinance or regulation.
2.10 ENTERTAINMENT LICENSE. A Place of Entertainment License for Seller
issued by the City of Minneapolis, Minnesota is in full force and effect and
will remain in full force and effect until the Closing.
<PAGE>
2.11 INTELLECTUAL PROPERTY. The Seller is the owner of all right, title
and interest in and to all of the Intellectual Property used in connection with
the operation of Buns & Roses. Such Intellectual Property is free and clear of
any material liens, mortgages, judgments, or other encumbrances of any kind, and
no rights or licenses of any kind respecting the Intellectual property have been
granted to any third party. There are no outstanding, or, to the best knowledge
of the Seller or Holmberg, threatened claims of infringement against Seller or
Holmberg respecting the use of any of the Intellectual Property in connection
with the operations or business of the Seller and it has no knowledge of any
trademark, service mark, trade name, assumed name, copyright, patent, trade
secret, contractual or other rights of any third party which may be violated or
infringed by the use of any of the Intellectual Property in connection with
Seller's operations or business.
2.12 INSURANCE POLICIES. Exhibit 2.12 contains a complete and correct
list of the insurance coverage maintained by the Seller. Copies of all policies
relating to such insurance carried by the Seller have been delivered or will be
made available to Buyer. The policies of insurance held by Seller are in such
amounts, and insure against such losses and risks, as Seller 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.
2.13 LABOR MATTERS. Seller is not 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 Seller any labor disputes, strikes or work
stoppages. To the best of Seller's and Holmberg's knowledge, Seller 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 its
knowledge, is not engaged in any unfair labor practices. Seller is not a party
to any written or oral contract, agreement or understanding for the employment
of any officer, director or employee of the Seller.
2.14 ENVIRONMENTAL MATTERS. Except as set forth in Exhibit 2.14,
neither the Seller nor any other party to this Agreement is now, nor has in the
past, used or is using the Property for the handling, treatment, storage or
disposal of any Hazardous Substance (as hereinafter defined). Except as set
forth in Exhibit 2.14, no release, discharge, spillage or disposal of any
Hazardous Substance and no soil or water contamination by any Hazardous
Substance has occurred or is occurring in or on the Property. Except as set
forth in Exhibit 2.14, the Seller and Holmberg have complied with all reporting
requirements under any applicable federal, state or local environmental laws and
permits, and there are no existing violations by the Seller or Holmberg of any
such environmental laws or permits. Except as set forth in Exhibit 2.14, there
are no claims, actions, suits, proceedings or investigations related to the
presence, release, discharge, spillage or disposal of any Hazardous Substance or
contamination of soil or water by any Hazardous Substance pending or threatened
with respect to the Property or otherwise against the Seller or Holmberg in any
court or before any state, federal or other governmental agency or private
arbitration tribunal and to the best of the knowledge of Seller and any other
party to this Agreement, there is no basis for any such claim, action, suit,
proceeding or investigation. To the best of their knowledge, there are no
underground storage tanks on the Property. Neither the Seller nor Holmberg is
aware of any building or other improvement included in the Property
<PAGE>
which contains any asbestos or any asbestos-containing materials. For the
purposes of this Agreement, "Hazardous Substance" shall mean any hazardous or
toxic substance or waste as those terms are defined by any applicable federal or
state law or regulation including, without limitation, the Comprehensive
Environmental Recovery Compensation and Liability Act, 42 U.S.C. 9601 and the
Resource Conservation and Recovery Act, 42 U.S.C. 6901 and petroleum, petroleum
products and oil.
2.15 NO DEFAULT. Seller is not in default under any term or condition
of any instrument evidencing, creating or securing any indebtedness of Seller,
and there has been no default in any material obligation to be performed by
Seller under any other contract, lease, agreement, commitment or undertaking to
which it is a party or by which it or its assets or properties are bound, nor
has Seller waived any material right under any such contract, lease, agreement,
commitment or undertaking.
2.16 ABSENCE OF CHANGE. Neither the Seller nor Holmberg has any
knowledge of any present or future condition or state of facts or circumstances
which would materially and adversely affect the business of the Seller. Since
December 1, 1996, the Seller has conducted its business in the ordinary course
of business.
2.17 DISCLOSURE. No representation or warranty of Seller or Holmberg
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.
2.18 NO BROKERAGE COMMISSION. No broker or finder has acted for the
Seller 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 thereof based in any way on agreements, arrangements or
understandings made by or on behalf of the Seller.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller and Holmberg as follows:
3.1 ORGANIZATION OF BUYER. Buyer is a corporation duly organized,
validly existing and in good standing in the laws of the state of Texas, with
full power and authority to carry on the businesses in which it is engaged, to
own the properties that it owns currently and will own at the Closing, and to
perform its obligations under this Agreement.
3.2 AUTHORIZATION OF AGREEMENT. Buyer has all requisite corporate power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution and delivery by Buyer of this Agreement and
the performance by Buyer of its obligations hereunder (a) have been duly and
validly authorized by all requisite corporate action and (b) will not violate
its charter or bylaws or any order, writ, injunction, decree, statute, rule or
regulations applicable to it or any of its properties or assets, or be in
conflict with, result in a breach of or constitute a default under any note,
bond, indenture, mortgage, lease, license,
<PAGE>
franchise agreement or other agreement, instrument or obligation, or result in
the creation or imposition of any lien, charge or encumbrance of any kind or
nature whatsoever upon any of the properties or assets of Buyer. This Agreement
and each and every agreement, document, exhibit and instrument to be executed,
delivered and performed by the Buyer in connection herewith constitute or will,
when executed and delivered, constitute the valid and legally binding
obligations of the Buyer enforceable against it in accordance with their
respective terms, except as enforceability may be limited by applicable
equitable principles or by bankruptcy, insolvency, reorganization, moratorium,
or similar laws from time to time in effect affecting the enforcement of
creditors' rights generally.
3.3 DISCLOSURE. No representation or warranty of Buyer 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.
3.4 INSURANCE. Buyer shall maintain insurance at such amounts and such
liabilities of hazards as is customarily maintained by other companies operating
similar businesses. Buyer shall deliver Certificates of such insurance to
Sellers and Holmberg, and such Certificates shall be specified to all policies
of insurance in effect and shall not be canceled except upon 10 days prior
written notice to Seller and Holmberg; such insurance shall include general
comprehensive liability insurance and coverage amount not less than $1,000,000
per occurrence and per person; the insurance on the Property shall include fire
and extended coverages in the amount not less than the Purchase Price assigned
to the Property; and all policies of insurance shall name Seller and Holmberg as
an additional insured thereunder.
3.5 DISPOSITION OF ASSETS. Buyer may sell or dispose of any inventory
assets in the usual and ordinary course of business, and may sell or dispose of
equipment provided the same shall be replaced with new equipment of like kind
and quality. All of the Buyer's assets shall be maintained in good working order
and repair.
3.6 BROKERAGE COMMISSION. No broker or finder has acted for the Buyer
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 thereof based in any way on agreements, arrangements or understandings
made by or on behalf of the Buyer, except the obligation of Buyer to pay for the
services to Gilbert Kopolow, with Gilbert Kopolow and Associates Investments.
ARTICLE IV
COVENANTS
4.1 CONSENTS AND FURTHER ACTIONS. As soon as practicable, Seller,
Holmberg and Buyer will jointly commence to take all reasonable action required
to obtain all consents, approvals and agreements of any third parties at the
expense of Buyer. Specifically, without limiting the foregoing, Buyer will
commence to take all reasonable action required to obtain the issuance of any
and all permits necessary to operate Buns & Roses as a female topless
entertainment facility, including the issuance of a liquor license duly issued
and approved by the City of Minneapolis which will allow for the sale of liquor
by Buyer at Buns & Roses. Seller,
<PAGE>
Holmberg and Buyer each will keep the other informed of the status of any
inquiries made of such party by any governmental agency or authority or members
of their respective staffs with respect to this Agreement or the transactions
contemplated hereby. In addition, subject to the terms and conditions herein
provided, each of Seller, Holmberg and Buyer covenants and agrees to use
reasonable efforts to take, or cause to be taken, all action, or do, or cause to
be done, all things, necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement.
4.2 CONDUCT OF BUSINESS OF SELLER. The Seller and Holmberg agree that
during the period from the date of this Agreement to the Closing Date, except as
expressly contemplated by this Agreement or to the extent that Buyer may
otherwise consent in writing, which consent shall not be unreasonably withheld,
Seller and Holmberg shall cause Buns & Roses (a) to conduct its business in the
ordinary and usual course; (b) to make no material changes in its operations
except as expressly contemplated by this Agreement; (c) to use its best efforts
to maintain and preserve its business organization, employees, customers and
relationships; (d) to enter into no employment agreement with any person and to
grant no changes in compensation of employees; (e) to pay and discharge all
bills and monetary obligations in the ordinary course and timely and properly
perform all of its obligations and commitments under all existing contracts and
agreements pertaining to the business, except as to amounts or obligations that
Seller contests in good faith; (f) not to sell, lease or otherwise dispose of or
agree to sell, lease or otherwise dispose of any of its assets, except in the
ordinary course of business; (g) not to declare or pay any dividends or make any
distribution on any of its capital stock, except for Regulation S corporation
distributions; (h) to make no capital expenditures in excess of $10,000; (I) to
make no loans or advances to officers of Seller; (j) to make no guaranties of
the obligations or debts of others; (k) to incur no debts or obligations of any
other corporation or entity; (l) to purchase no stock of or otherwise invest in
any other corporation or entity; and (m) to issue no additional capital stock.
4.3 ACCESS TO INFORMATION. Between the date of this Agreement and the
Closing Date, Seller shall give Buyer and its authorized representatives full
access, at all reasonable times, to its businesses, properties and assets, and
all of its financial books and records, agreements and records relating to the
ownership and operation of Seller as shall be reasonably requested. Seller will
permit Buyer and its representatives to make such inspections as they may
require and will cause the officers of Seller to cooperate with Buyer in
connection with such inspection.
4.4 PROHIBITED NEGOTIATIONS. Subsequent to the execution of the
Agreement, and prior to the Closing Date of the Agreement, neither the Seller
nor Holmberg shall solicit or encourage inquiries or proposals with respect to
or furnish any information relating to or participate in any negotiations or
discussions concerning, any sale or conveyance of the Property or any
acquisition or purchase of all or a substantial portion of the assets of Seller
or of a equity interest in Seller, or any business combination with Seller.
Seller and/or Holmberg hereby agree to advise Buyer of any contact from any
third party regarding the acquisition of the Property or the acquisition or
other investment in Seller or of any contact which would relate to the
transactions contemplated by this Agreement.
4.5 PUBLIC ANNOUNCEMENTS. Each party shall promptly advise and
cooperate with the other prior to issuing, or permitting any of its directors,
officers, employees or agents to issue,
<PAGE>
any press release or other information to the press or otherwise for general
release with respect to this Agreement or the transactions contemplated hereby.
Seller and Holmberg shall have the right to advise its employees of this
transaction as of the date the Liquor License is applied for.
4.6 FINDERS AND BROKERS FEES. Each party shall be liable for any
finder's or broker's fees for which it has contracted or which may arise from
its conduct. Each party shall indemnify and hold harmless the other party
against any liability, damage, cost or expense involving a finder's or broker's
fee and arising out of the conduct of such party. Any expenses or fees due to
Mr. Gilbert Kopolow shall be at the expense of Buyer.
ARTICLE V
CONDITIONS TO CLOSING
5.1 CONDITIONS TO THE OBLIGATIONS OF SELLER AND HOLMBERG. The
obligations of Seller and Holmberg to consummate the transactions contemplated
hereby shall be subject to the satisfaction, on or before the Closing Date, of
each and every one of the following conditions, unless waived, in whole or in
part, by Seller and Holmberg for purposes of consummating such transaction.
(a) The representations and warranties of Buyer set forth in
this Agreement shall be true and correct in all material respects on
the Closing Date with the same force and effect as if they had been
made on the Closing Date;
(b) Buyer shall have performed and complied with all
agreements, obligations, covenants and conditions required by this
Agreement to be performed or complied with on or prior to the Closing;
(c) The Seller and Holmberg shall have received a certificate,
dated the Closing Date and signed by the president of the Buyer to the
effect set forth in Section 5.1(a) and 5.1(b) for the purpose of
verifying the accuracy of such representations and warranties and the
performance and satisfaction of such covenants and conditions;
(d) Execution and delivery of the Mortgage Promissory Note and
the Promissory Note by Buyer;
(e) Execution and delivery of the First Mortgage Deed on the
Property to Holmberg;
(f) Execution and delivery of the Security Agreement;
(g) Axelrod, Smith & Kirshbaum, counsel for Buyer, shall have
delivered to Seller and Holmberg the written opinion, dated as of the
Closing Date, in form and substance satisfactory to Seller and its
counsel, to the effect set forth on Exhibit 5.1.(g) and containing such
other provisions as the parties may agree; and
(h) 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
<PAGE>
governmental or regulatory authority shall have been commenced seeking
to restrain, prevent or challenge the transactions contemplated hereby
or seeking judgments against Buyer.
5.2 CONDITIONS TO THE OBLIGATIONS OF BUYER. The obligations of the
Buyer to effect the transactions contemplated hereby shall be subject to the
satisfaction, on or before the Closing Date, of each and every one of the
following conditions, unless waived, in whole or in part, by Buyer for purposes
of consummating such transaction.
(a) The representations and warranties of Seller and Holmberg
set forth herein shall be true and correct in all material respects on
the Closing Date with the same force and effect as if they had been
made on the Closing Date;
(b) Seller shall have performed and complied with all
agreements, obligations, covenants and conditions required by this
Agreement to be performed or complied with by Seller on or prior to the
Closing;
(c) The Buyer shall have received a certificate, dated the
Closing Date and signed by the president of the Seller to the effect
set forth in Section 5.2(a) and 5.2(b) for the purpose of verifying the
accuracy of such representations and warranties and the performance and
satisfaction of such covenants and conditions;
(d) Approval and issuance to the Buyer of a liquor license
duly issued, approved and authorized by the City of Minneapolis which
will allow for the sale of liquor by the Buyer at the premises where
Buns & Roses is located;
(e) Buyer shall have obtained all necessary permits or other
authorizations which may be needed to conduct topless entertainment on
the Property;
(f) Buyer shall have received from Holmberg a General Warranty
Deed conveying good and marketable title to the Property, free and
clear of any liens, charges or encumbrances (except a first lien on the
Property to Holmberg by Buyer) and all contingencies and conditions
pursuant to the Earnest Money Contract shall have been fulfilled;
(g) Written termination of the existing Real Estate Lease
between Holmberg and Amusement Center for the lease of the Property and
the Sublease between Amusement Center and B&R II;
(h) Holmberg shall have executed and delivered to Buyer the
Non-Competition Agreement required by Section 6.2(a);
(i) Seller shall have delivered to Buyer all instruments of
assignment and bills of sale necessary to transfer to Buyer good and
marketable title to the Purchased Assets;
(j) The independent certified public accountants of the Buyer
shall be satisfied that the Seller's books and records can be audited
for the fiscal years ended 1994 and 1995 and for the current fiscal
year of 1996;
<PAGE>
(k) Bernick and Lifson P.A., counsel for Seller and Holmberg,
shall have delivered to Buyer the written opinion, dated as of the
Closing Date, in form and substance satisfactory to Buyer and its
counsel, to the effect set forth on Exhibit 5.2(k) and containing such
other provisions as the parties may agree; and
(l) 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 Seller.
ARTICLE VI
THE CLOSING
6.1 TIME AND PLACE OF CLOSING. The Closing of the transactions provided
for in this Agreement ("Closing") shall be held at the offices of Messerli &
Kramer P.A., 1800 5th Street Towers, Minneapolis, Minnesota 55402, commencing at
10:00 a.m. Central Daylight Time on the sooner of (i) April 30, 1997 or (ii)
five (5) business days after the issuance and approval of a liquor license to
Buyer, unless the liquor license is not approved and issued to Buyer by April
30, 1997, in which event the Closing shall occur five (5) business days after
such approval is obtained. In the event that the liquor license has not been
approved and issued to Buyer by 5:00 p.m. Central Daylight Time on July 31,
1997, then, unless otherwise provided below, either party may provide written
notice to the other that this Agreement is canceled and terminated. In such
event, the Earnest Money, together with any accrued interest, shall be delivered
in the manner set forth in Article 9 hereof. In the event that the Closing does
not occur by July 31, 1997, the Seller shall have the right, but not the
obligation, to extend the date of Closing, on a month to month basis, until
October 31, 1997, by the payment to the Seller, on a month to month basis, of a
$25,000.00 extension fee for each month extended. The Buyer shall make such
$25,000.00 extension fee payment to the Seller on or before two days prior to
the end of the month preceding the month for which an extension is to be
obtained. The day on which the Closing occurs is referred to herein as the
"Closing Date."
6.2 RELATED TRANSACTION. In addition to the purchase and sale of the
Purchased Assets and the Property, the following action shall take place
contemporaneously at the Closing:
(a) Holmberg shall enter into a Non-Competition Agreement to
be dated the Closing Date and to be in the form of Exhibit 6.2(a),
attached hereto (the "Non-Competition Agreement"); and
(b) Holmberg and Buyer shall have duly performed, complied
with and satisfied all covenants, agreements, terms and conditions
required by the Earnest Money Contract to be performed, complied with
or satisfied by them at the Closing Date.
<PAGE>
6.3 CLOSING DOCUMENTS OF SELLER AND HOLMBERG. At the Closing, Seller
and Holmberg shall deliver or cause to be delivered to Buyer the following:
(a) all instruments of assignment and bills of sale necessary
to transfer to Buyer good and marketable title to the Purchased Assets
free and clear of all liens, charges or encumbrances;
(b) Buyer shall have received from Holmberg a General Warranty
Deed conveying good and marketable title to the Property free and clear
of all liens, charges or encumbrances (except a first lien on the
Property to Holmberg by Buyer);
(c) Written termination agreement of the existing Real Estate
Lease between Holmberg and Amusement Center for the lease of the
Property and the Sublease between Amusement Center and B&R II;
(d) officers certificate required by Section 5.2(c); and
(e) opinion of Bernick and Lifson, P.A., counsel to Seller and
Holmberg, substantially in the form attached hereto as Exhibit 5.2(e).
6.4 CLOSING DOCUMENTS OF BUYER. At the Closing, Buyer shall deliver or
cause to be delivered to Seller and Holmberg, the following:
(a) $440,000.00, payable in certified check, bank check, or
"Fed Funds" wire transfer;
(b) $60,000.00 to be transferred from the Earnest Money Escrow
Account as set forth in Section 1.4 and in the Earnest Money Contract;
(c) Mortgage Promissory Note in the amount of $500,000.00, the
form of which is set forth as Exhibit 1.3 (ii)(a);
(d) Promissory Note in the amount of $2,000,000.00, the form
of which is set forth as Exhibit 1.3 (ii)(b);
(e) First Mortgage Deed on the Property from Buyer to
Holmberg, the form of which is set forth as Exhibit 1.3 (ii)(c);
(f) Security Agreement, the form of which is set forth as
Exhibit 1.3 (ii)(d);
(g) officers certificate required by Section 5.1(c); and
(h) opinion of Axelrod, Smith & Kirshbaum, counsel for Buyer,
substantially in the form attached hereto as Exhibit 5.1(g).
<PAGE>
ARTICLE VII
INDEMNIFICATION
7.1 INDEMNIFICATION FROM THE SELLER AND HOLMBERG. The Seller and
Holmberg agree to and shall indemnify, defend (with legal counsel reasonably
acceptable to Buyer), and hold Buyer, its officers, directors, shareholders,
employees, agents, affiliates, and assigns harmless at all times after the date
of this Agreement, from and against and in respect of, any liability, claim,
deficiency, loss, damage or injury, and all reasonable costs and expenses
(including reasonable attorneys' fees and costs of any suit related thereto)
suffered or incurred by Buyer arising from (a) any misrepresentation by, or
breach of any covenant or warranty of Seller or Holmberg contained in this
Agreement, or any Exhibit, certificate, or other instrument furnished or to be
furnished by Seller or Holmberg hereunder, or any claim by a third party
(regardless of whether the claimant is ultimately successful) which if true
would be such a misrepresentation or breach; (b) any nonfulfillment of any
agreement on the part of Seller or Holmberg under this Agreement, or from any
material misrepresentation in or material omission from, any certificate or
other instrument furnished or to be furnished to Buyer hereunder; and (c) any
suit, action, proceeding, claim or investigation, pending or threatened against
or affecting Seller or Holmberg which arises from, which arose from, or which is
based upon any matter or state of facts existing prior to Closing.
7.2 INDEMNIFICATION FROM THE BUYER. The Buyer agrees to and shall
indemnify, defend (with legal counsel reasonably acceptable to Seller and
Holmberg) and hold Seller and Holmberg, its officers, directors, shareholders,
employees, agents and assigns harmless at all times after the date of Closing
from and against, and in respect of any liability, claim, deficiency, loss,
damage, or injury, and all reasonable costs and expenses (including reasonably
attorneys' fees and costs of any suit related thereto) suffered or incurred by
Seller and Holmberg, from (a) any misrepresentation by, or breach of any
covenant or warranty of, the Buyer contained in this Agreement or any Exhibit,
certificate, or other agreement or instrument furnished or to be furnished by
Buyer hereunder, or any claim by a third party (regardless of whether the
claimant is ultimately successful), which if true, would be such a
misrepresentation or breach; (b) any nonfulfillment of any agreement on the part
of Buyer under this Agreement, or from any misrepresentation in or omission
from, any certificate or other agreement or instrument furnished or to be
furnished to Seller or Holmberg hereunder; and (c) any suit, action, proceeding,
claim or investigation which arises from or which is based upon any matter or
state of facts subsequent to Closing.
7.3 DEFENSE OF CLAIMS. If any lawsuit or enforcement action is filed
against any party entitled to the benefit of indemnity hereunder, written notice
thereof shall be given to the indemnifying party as promptly as practicable (and
in any event not less than fifteen (15) days prior to any hearing date 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 actual damage caused by such failure. After such notice, if the
indemnifying party shall acknowledge in writing to such indemnified party that
this Agreement applies with respect to such lawsuit or action, then 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
<PAGE>
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 parties, effect any
settlement of any proceeding in respect of which any indemnified parties 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 parties from all liability on claims that are the subject matter of
such proceeding.
7.4 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
individual's 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.
ARTICLE VIII
INTEGRATION
The parties acknowledge and agree that all agreements, documents,
obligations and transactions contemplated by this Agreement shall be integrated.
Accordingly, if there shall be a default, nonperformance or breach of any of the
same, or any obligation exists 30 days after notice of such default (five days
if for nonpayment), non-performance or breach is given to the party committing
the same, the same shall constitute a material breach of all obligations and all
of such agreements, documents, obligations and transactions, entitling Seller,
Holmberg, or Buyer to pursue any or all available legal remedies at law, in
equity or by any of such agreements. All remedies shall be cumulative and the
failure or choice by Seller, Holmberg or Buyer to exercise any one or more
remedies shall not preclude or prevent the later exercise of any such remedies
from time to time. The party committing such default, nonperformance or breach
shall be responsible for the reasonable attorneys' fees incurred by the other
party as a result of such default, nonperformance or breach, even if such
default, nonperformance or breach is subsequently cured.
ARTICLE IX
MISCELLANEOUS
9.1 NOTICES. All communications required or permitted under this
Agreement shall be in writing and any communication or delivery hereunder shall
be deemed to have been duly made if actually delivered or sent by electronic fax
or if mailed by registered or certified mail, postage prepaid, addressed to the
party being notified as set forth below. All such notices and communications
shall be deemed to have been received on the date of delivery or on the third
business day after the mailing thereof. Any party may, by written notice so
delivered to the other, change the address to which delivery shall thereafter be
made. Notices to the parties
<PAGE>
hereto shall be made at the addresses set forth below:
(a) If to Seller or Holmberg, to:
Mr. Larry Holmberg
Amusement Center, Inc.
300 South 3rd Street
Minneapolis, Minnesota 55415
Fax: ______________
With a copy to:
Bernick & Lifson, P.A.
Attn: Mr. Saul Bernick
5500 Wayzata Blvd., Ste. 1200
Minneapolis, Minnesota 55416
Fax: (612) 546-1003
(b) If to Buyer, to:
Mr. Robert L. Watters
Rick's Cabaret International, Inc.
3113 Bering Drive
Houston, Texas 77057
Fax: (713) 785-2593
With a copy to:
Mr. Robert D. Axelrod
Axelrod, Smith & Kirshbaum
5300 Memorial Drive, Suite 700
Houston, Texas 77007
Fax: (713) 552-0202
9.2 ASSIGNMENT. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties (except that
Buyer may assign its rights to an entity which is wholly owned by Buyer) without
the prior written consent of the other parties, which consent will not be
unreasonably withheld. This Agreement will be binding upon, inure to the benefit
of and be enforceable by the parties and their respective heirs, personal
representatives, successors and assigns.
9.3 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, which taken together shall constitute one and the same instrument
and each of which shall be considered an original for all purposes.
9.4 SECTION HEADINGS. The section headings contained in this Agreement
are for convenient reference only and shall not in any way affect the meaning or
interpretation of this Agreement.
<PAGE>
9.5 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the documents to be
executed hereunder and the exhibits attached hereto constitute the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersede all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties pertaining to the subject matter hereof,
and there are no warranties, representations or other agreements among the
parties in connection with the subject matter hereof except as specifically set
forth herein or in documents delivered pursuant hereto. No supplement,
amendment, alteration, modification, waiver or termination of this Agreement
shall be binding unless executed in writing by the parties hereto. All of the
exhibits referred to in this Agreement are hereby incorporated into this
Agreement by reference and constitute a part of this Agreement.
9.6 SURVIVAL. All warranties and representations herein shall survive
the Closing and shall be true and correct as of the date hereof and as of the
Closing Date. In addition, Buyer's warranties shall be true and correct in
accordance with their terms until all obligations have been fully and finally
performed. The respective representations, warranties, covenants and agreements
set forth in this Agreement shall survive the Closing for the maximum period
allowed by law.
9.7 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 (i) agree upon the text of a joint public
announcement or statement to be made by all of such parties or (ii) obtain
approval of the other parties hereto to the text of a public announcement or
statement to be made solely 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.
9.8 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.
9.9 WAIVER. No waiver by any party of any default or non-performance
shall be deemed a waiver of any subsequent default or non-performance, and no
waiver of any kind shall be effective unless set forth in writing and signed by
the party against whom such waiver is to be charged.
9.10 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.
9.11 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
<PAGE>
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.
9.12 EXPENSES. All expenses incurred by the parties hereto in
connection with or related to the authorization, preparation and execution of
this Agreement and the Closing of the transactions contemplated hereby, shall be
borne solely and entirely by the party which has incurred the same.
9.13 ATTORNEYS' REVIEW. 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.
9.14 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, whenever appropriate.
9.15 JURISDICTION. This Agreement was entered into in the City of
Minneapolis, State of Minnesota, and the laws of the State of Minnesota shall
govern and be applicable to this Agreement and any interpretation or
construction thereto.
9.16 RETURN OF EARNEST MONEY. In the event there is no Closing on this
Agreement based upon this Agreement being canceled and terminated as permitted
in either Section 5.1 or Section 5.2, then the Earnest Money, together with any
accrued interest shall be refunded to Buyer as soon as is practicable (not more
than five (5) business days) after either party cancels and terminates this
Agreement by providing written notice of such cancellation and termination to
the other party. Notwithstanding the foregoing, if the Closing does not occur
for a reason other than the cancellation or termination as permitted in either
Section 5.1 or Section 5.2, or if the Closing does not occur as a result of a
determination by the Board of Directors of the Buyer not to consummate the
transactions contemplated hereby, then the Sellers and Shareholder shall
receive, in the aggregate, $50,000.00 of the Earnest Money as liquidated
damages, which shall be their sole and exclusive remedy.
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed effective as of the day and year first above written.
AMUSEMENT CENTER, INC.
By: /s/ LARRY HOLMBERG
-----------------------------
Larry Holmberg, President
<PAGE>
BUNS & ROSES II, INC.
By: /s/ LARRY HOLMBERG
-----------------------------
Larry Holmberg, President
/s/ LARRY HOLMBERG
--------------------------------
LARRY HOLMBERG, Individually
RICK'S CABARET INTERNATIONAL, INC.
By: /s/ ROBERT L. WATTERS
--------------------------------
Robert L. Watters, President
Exhibit 10.2
EARNEST MONEY CONTRACT
("AGREEMENT")
THIS EARNEST MONEY CONTRACT IS MADE AND ENTERED INTO AS OF THE 24TH DAY
OF DECEMBER, 1996, BETWEEN LARRY A. HOLMBERG, A SINGLE INDIVIDUAL ("SELLER") AND
RICK'S CABARET INTERNATIONAL, INC., A TEXAS CORPORATION, WHOSE INTEREST IS TO BE
ASSIGNED TO A CORPORATION TO BE FORMED (BOTH HEREINAFTER REFERRED TO AS
"PURCHASER").
IN CONSIDERATION OF THE COVENANTS AND AGREEMENTS CONTAINED HEREIN, THE PARTIES
AGREE AS FOLLOWS:
1. PROPERTY TO BE PURCHASED. SUBJECT TO COMPLIANCE WITH THE TERMS AND
CONDITIONS OF THIS AGREEMENT, SELLER SHALL SELL TO PURCHASER AND
PURCHASER SHALL PURCHASE FROM SELLER THE FOLLOWING (COLLECTIVELY THE
"PROPERTY"):
A. THE REAL PROPERTY LOCATED AT 300 SOUTH THIRD STREET, CITY OF
MINNEAPOLIS, COUNTY OF HENNEPIN, STATE OF MINNESOTA, LEGALLY
DESCRIBED IN EXHIBIT A ATTACHED HERETO SUBJECT TO FURTHER
VERIFICATION BY SURVEY AND TITLE COMPANY, TOGETHER WITH ALL
EASEMENTS, TENEMENTS, HEREDITAMENTS, AND APPURTENANCES
BELONGING THERETO (THE "REAL PROPERTY") AND ALL BUILDINGS,
STRUCTURES AND OTHER IMPROVEMENTS ERECTED OR PLACED ON SAID
REAL PROPERTY (THE "IMPROVEMENTS");
B. ALL SUPPLIES, TOOLS, MACHINERY, EQUIPMENT, AND OTHER ITEMS OF
PERSONAL PROPERTY LOCATED IN THE IMPROVEMENTS OR USED OR
USEFUL IN CONNECTION WITH THE MAINTENANCE, MANAGEMENT OR
OPERATION OF SAID REAL PROPERTY OR THE IMPROVEMENTS (THE
"PERSONAL PROPERTY");
C. ALL LEASES AND TENANCIES PERTAINING TO THE FOREGOING;
D. ALL PERMITS, LICENSES, WARRANTIES, CONTRACT RIGHTS AND
INTANGIBLES TO BE ASSIGNED TO PURCHASER.
2. PURCHASE PRICE. THE PURCHASE PRICE FOR THE PROPERTY ("PURCHASE PRICE")
SHALL BE THE SUM OF SEVEN HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS
($750,000.00) PAYABLE AS FOLLOWS:
A. SIXTY THOUSAND AND NO/100 DOLLARS ($60,000.00) AS EARNEST
MONEY (THE "EARNEST MONEY") WHICH SHALL BE DEPOSITED BY
PURCHASER WITH FIRST AMERICAN TITLE INSURANCE COMPANY, 1150
METROPOLITAN CENTRE, 333 SOUTH SEVENTH STREET, MINNEAPOLIS,
MINNESOTA 55402 ("ESCROW AGENT") CONTEMPORANEOUSLY WITH
PURCHASER DELIVERING THIS OFFER TO PURCHASE TO SELLER. THE
EARNEST MONEY SHALL BE PLACED AND HELD BY ESCROW AGENT IN ITS
COMMERCIAL INTEREST BEARING ACCOUNT IN ACCORDANCE WITH AN
ESCROW AGREEMENT IN SUBSTANTIALLY THE FORM ATTACHED HERETO AS
EXHIBIT B ("ESCROW AGREEMENT"). ANY AND ALL INTEREST ACCRUING
ON THE EARNEST MONEY SHALL BE PAID TO PURCHASER AND SHALL
ACCRUE SOLELY FOR PURCHASER'S BENEFIT;
B. ONE HUNDRED NINETY THOUSAND AND NO/100 DOLLARS ($190,000.00)
IN CASH AT CLOSING; AND
C. FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000.00) BY
PURCHASER EXECUTING A PROMISSORY NOTE IN THE FORM ATTACHED AS
EXHIBIT C, SECURED BY A COMBINATION
<PAGE>
MORTGAGE, SECURITY AGREEMENT AND FIXTURE FINANCING STATEMENT
IN THE FORM ATTACHED AS EXHIBIT D AND UCC-2 FINANCING
STATEMENT IN THE FORM ATTACHED AS EXHIBIT E. THE PROMISSORY
NOTE SHALL BE GUARANTEED BY RICK'S CABARET INTERNATIONAL, INC.
IN THE FORM ATTACHED HERETO AS EXHIBIT F.
3. TITLE TO BE DELIVERED. SELLER AGREES TO CONVEY MARKETABLE FEE SIMPLE
TITLE IN THE PROPERTY TO PURCHASER SUBJECT ONLY TO SUCH EXCEPTIONS TO
TITLE AS PURCHASER APPROVES IN WRITING.
A. AS SOON HEREAFTER AS PURCHASER ELECTS AT SELLER'S SOLE COST
AND EXPENSE, BUYER SHALL:
I. CAUSE TO BE ISSUED AND DELIVERED TO PURCHASER A
COMMITMENT FOR AN ALTA FORM B EXTENDED COVERAGE
OWNER'S TITLE INSURANCE POLICY (THE "COMMITMENT")
ISSUED BY FIRST AMERICAN TITLE INSURANCE COMPANY,
MINNEAPOLIS, MINNESOTA (THE "TITLE COMPANY") WHEREIN
SAID TITLE COMPANY AGREES TO ISSUE TO PURCHASER UPON
THE RECORDING OF THE DEED AND OTHER CONVEYANCE
DOCUMENTS REFERRED TO HEREIN AN ALTA FORM B OWNER'S
TITLE INSURANCE POLICY (THE "TITLE POLICY") IN THE
FULL AMOUNT OF THE PURCHASE PRICE WITH A ZONING
ENDORSEMENT AND SO-CALLED OWNER'S EXTENDED COVERAGE
ENDORSEMENT. THE COMMITMENT WILL BE ACCOMPANIED BY
COPIES OF ALL RECORDED DOCUMENTS AFFECTING THE
PROPERTY;
II. CAUSE TO BE DELIVERED TO PURCHASER AT SELLER'S SOLE
COST AND EXPENSE A CURRENT "AS BUILT" SURVEY (THE
"SURVEY") OF THE PROPERTY PREPARED BY A DULY LICENSED
LAND SURVEYOR IN THE STATE OF MINNESOTA APPROVED BY
PURCHASER. THE SURVEY SHALL BE PREPARED IN ACCORDANCE
WITH THE MINIMUM STANDARD DETAIL REQUIREMENTS
ESTABLISHED FOR ALTA/ACSM LAND TITLE SURVEYS, SHALL
DELINEATE THE BOUNDARY LINES OF THE REAL PROPERTY AND
THE LOCATION OF THE IMPROVEMENTS THEREON, TOGETHER
WITH SETBACKS, PHYSICAL ENCROACHMENTS FROM OR ON THE
REAL PROPERTY, EASEMENTS AND RIGHTS OF WAY, AND ALL
OTHER MATTERS AFFECTING THE REAL PROPERTY. THE SURVEY
SHALL BE CERTIFIED TO PURCHASER, THE TITLE COMPANY
AND, IF APPLICABLE, PURCHASER'S LENDER, AND SHALL BE
SUFFICIENT TO CAUSE THE TITLE COMPANY TO DELETE ANY
EXCEPTION FOR SURVEY MATTERS FROM THE TITLE POLICY;
AND
III. NOTWITHSTANDING THE ABOVE, PURCHASER SHALL PAY THE
INITIAL COST OF THE TITLE COMMITMENT AND "AS BUILT"
SURVEY, SELLER SHALL REIMBURSE PURCHASER FOR SUCH
COST AT CLOSING, OR IF SELLER DEFAULTS ON THE
PERFORMANCE OF THIS AGREEMENT OR ON THE PERFORMANCE
OF THAT CERTAIN ASSET PURCHASE AGREEMENT DATED THE
______ DAY OF DECEMBER, 1996, ENTERED INTO BETWEEN
AMUSEMENT CENTER, INC., A MINNESOTA CORPORATION AND
BUNS & ROSES II, INC., A MINNESOTA CORPORATION
(COLLECTIVELY REFERRED TO THEREIN AS "SELLER"), LARRY
HOLMBERG, AN INDIVIDUAL AND THE SOLE SHAREHOLDER OF
AMUSEMENT CENTER, INC., AND RICK'S CABARET
INTERNATIONAL, INC., A TEXAS CORPORATION OR A
CORPORATION TO BE FORMED AS BUYER (HEREINAFTER
REFERRED TO AS "ASSET PURCHASE AGREEMENT"). IF
PURCHASER DEFAULTS ON THIS AGREEMENT, SELLER SHALL
NOT BE REQUIRED TO REIMBURSE PURCHASER FOR THE COST
OF THE TITLE COMMITMENT AND "AS BUILT" SURVEY.
B. PURCHASER SHALL HAVE TWENTY (20) DAYS AFTER RECEIPT OF THE
TITLE COMMITMENT AND SURVEY TO RENDER OBJECTIONS TO TITLE IN
WRITING TO SELLER AND SELLER SHALL HAVE TWENTY (20) DAYS FROM
THE DATE IT RECEIVES SUCH OBJECTIONS TO HAVE THE SAME REMOVED
OR SATISFIED. IF SELLER SHALL FAIL TO HAVE SUCH OBJECTIONS
REMOVED WITHIN THAT TIME, PURCHASER MAY, AT ITS SOLE
DISCRETION, EITHER (A) TERMINATE THIS AGREEMENT WITHOUT ANY
LIABILITY ON ITS PART AND RECEIVE A REFUND OF THE EARNEST
MONEY (TOGETHER WITH ACCRUED INTEREST), OR (B) IF THE
<PAGE>
OBJECTIONS ARE SUCH THAT THEY MAY BE REMOVED BY THE
EXPENDITURES OF SUMS OF MONEY, TAKE TITLE TO THE PROPERTY,
DISCHARGE SUCH OBJECTIONS, AND RECEIVE A CREDIT AGAINST THE
PURCHASE PRICE FOR THE SUMS SO EXPENDED, OR (C) IF THE
OBJECTIONS ARE SUCH THAT THEY MAY NOT BE REMOVED BY
EXPENDITURES OF SUMS OF MONEY, TAKE TITLE SUBJECT TO SUCH
OBJECTIONS. SELLER AGREES TO USE ITS BEST EFFORTS TO PROMPTLY
SATISFY ANY SUCH OBJECTIONS.
4. DELIVERY OF DOCUMENTS UPON EXECUTION. IF IN SELLER'S POSSESSION OR
SELLER CAN REASONABLY ACQUIRE, SELLER SHALL DELIVER TO PURCHASER WITHIN
SIXTY (60) DAYS OF FULL EXECUTION AND DELIVERY OF THIS AGREEMENT, ALL
OF THE FOLLOWING (THE "PROPERTY DATA"):
A. A COPY OF SELLER'S LATEST TITLE INSURANCE POLICY ON THE REAL
PROPERTY;
B. COPIES OF ANY "AS-BUILT" SURVEYS AND TOPOGRAPHICAL SURVEYS OF
THE PROPERTY IN SELLER'S POSSESSION;
C. COPIES OF ANY AND ALL PLANS AND SPECIFICATIONS FOR THE
PROPERTY IN SELLER'S POSSESSION;
D. COPIES OF ANY TERMITE INSPECTION REPORTS, TERMITE REPAIR BONDS
OR ANY OTHER TERMITE BOND FOR THE PROPERTY IN SELLER'S
POSSESSION;
E. COPIES OF ANY SOIL TEST BORINGS, STRUCTURAL OR MECHANICAL
ENGINEERING REPORTS, ENVIRONMENTAL STUDIES OR ANY OTHER
DOCUMENTATION PERTAINING TO THE PHYSICAL CONDITION OF THE REAL
PROPERTY OR THE IMPROVEMENTS IN SELLER'S POSSESSION;
F. COPIES OF ANY UNPAID AND THE MOST RECENT REAL ESTATE AND
PERSONAL PROPERTY TAX BILLS FOR THE PROPERTY AND ANY
SUBSEQUENT NOTICES OF REASSESSMENT;
G. A LIST OF ALL UTILITY ACCOUNT NUMBERS AND THEIR RESPECTIVE
ADDRESSES FOR ALL UTILITIES SERVING THE PROPERTY, AND COPIES
OF ALL BILLS FOR EACH ACCOUNT FOR THE PAST 12 MONTHS, TOGETHER
WITH FORM LETTERS PROVIDED BY PURCHASER TO BE SIGNED BY SELLER
ADDRESSED TO ALL UTILITY PROVIDERS AUTHORIZING PURCHASER AND
ITS AGENTS TO MAKE THE INQUIRIES REFERRED TO IN SECTION 5
HEREOF;
H. A LIST OF ALL PROPERTY EMPLOYEES, THEIR JOB TITLES AND
DESCRIPTIONS, THEIR PRESENT SALARIES OR WAGES, BENEFITS AND
TERM OF THEIR EMPLOYMENT;
I. COPIES OF ALL OPERATING AND MAINTENANCE AGREEMENTS AND SERVICE
CONTRACTS, WHICH EXCEED ONE MONTH IN LENGTH, INCLUDING ANY
TELEPHONE DIRECTORY ADVERTISEMENT CONTRACT, AND CABLE
TELEVISION AGREEMENTS OR EASEMENTS IN EFFECT AT THE PROPERTY;
J. A LIST OF ALL TANGIBLE PERSONAL PROPERTY TO BE TRANSFERRED IN
THIS TRANSACTION;
K. COPIES OF ALL PROMISSORY NOTES, MORTGAGES, DEEDS OF TRUST,
CONTRACTS FOR DEED, ASSIGNMENTS OF RENTS AND OTHER DOCUMENTS
EVIDENCING THE EXISTING FINANCING;
L. COPIES OF ANY INSURANCE POLICIES COVERING THE PROPERTY;
M. ANY OTHER INFORMATION RELATING TO THE PROPERTY REASONABLY
REQUESTED BY PURCHASER.
5. INSPECTIONS. PURCHASER, ITS COUNSEL, ACCOUNTANTS, AGENTS AND OTHER
REPRESENTATIVES, SHALL HAVE FULL AND CONTINUING ACCESS TO THE PROPERTY
AND ALL PARTS THEREOF, AS WELL AS TO ALL ITEMS REFERRED TO
<PAGE>
IN SECTION 4 AND ALL OTHER PAPERS AND DOCUMENTS OF SELLER AS THEY
RELATE TO THE TITLE, PHYSICAL CONDITION, DEVELOPMENT AND OPERATION OF
THE PROPERTY. PURCHASER AND ITS AGENTS AND REPRESENTATIVES SHALL ALSO
HAVE THE RIGHT TO ENTER UPON THE PROPERTY DURING REASONABLE BUSINESS
HOURS AFTER THE EXECUTION AND DELIVERY HEREOF FOR ANY PURPOSE
WHATSOEVER, INCLUDING INSPECTING, SURVEYING, ENGINEERING, TEST BORING,
PERFORMANCE OF ENVIRONMENTAL TESTS AND SUCH OTHER WORK AS PURCHASER
SHALL CONSIDER APPROPRIATE AND SHALL HAVE THE FURTHER RIGHT TO MAKE
SUCH INQUIRIES OF HOLDERS OF EXISTING FINANCING, GOVERNMENTAL AGENCIES
AND UTILITY COMPANIES, ETC., AND TO MAKE SUCH FEASIBILITY STUDIES AND
ANALYSES AS IT CONSIDERS APPROPRIATE (COLLECTIVELY THE "INSPECTIONS").
PURCHASER SHALL INDEMNIFY AND HOLD SELLER, ITS AGENTS OR AFFILIATES,
HARMLESS FROM ANY AND ALL LIABILITIES, LOSSES, COSTS AND EXPENSES
(INCLUDING COURT COSTS AND REASONABLE ATTORNEYS' FEES) INCURRED BY
SELLER DUE TO THE DEATH OR INJURY OF ANY PERSON AND DAMAGE TO ANY
PROPERTY CAUSED BY OR ARISING OUT OF ANY INSPECTION OF THE PROPERTY
PURSUANT TO THIS PARAGRAPH.
6. RISK OF LOSS. UNTIL THE CLOSING DATE, SELLER SHALL HAVE THE FULL
RESPONSIBILITY AND THE ENTIRE ------------ LIABILITY FOR ANY AND ALL
DAMAGES OR INJURY OF ANY KIND WHATSOEVER TO THE REAL PROPERTY, THE
IMPROVEMENTS THEREON, ANY AND ALL PERSONS, WHETHER EMPLOYEES OR
OTHERWISE, AND ALL PROPERTY FROM AND CONNECTED TO THE PROPERTY. IF,
PRIOR TO THE CLOSING, THE PROPERTY IS DAMAGED OR THE IMPROVEMENTS ARE
DESTROYED OR THE REAL PROPERTY SHALL BE THE SUBJECT OF AN ACTION IN
EMINENT DOMAIN OR A PROPOSED TAKING BY A GOVERNMENTAL AUTHORITY,
WHETHER TEMPORARY OR PERMANENT, SELLER SHALL IMMEDIATELY NOTIFY
PURCHASER OF SUCH DAMAGE, DESTRUCTION OR PROPOSED TAKING, AND
PURCHASER, AT ITS SOLE DISCRETION, SHALL HAVE THE RIGHT TO TERMINATE
THIS AGREEMENT UPON NOTICE TO SELLER WITHOUT LIABILITY ON ITS PART BY
SO NOTIFYING SELLER AND THE EARNEST MONEY AND ALL OTHER SUMS HERETOFORE
PAID BY PURCHASER (WITH ACCRUED INTEREST) SHALL BE REFUNDED TO
PURCHASER. IF THE REAL PROPERTY OR IMPROVEMENTS ARE DAMAGED BUT
PURCHASER DOES NOT EXERCISE ITS RIGHT OF TERMINATION, SELLER SHALL
PROCEED FORTHWITH TO REPAIR THE DAMAGE TO THE REAL PROPERTY AND
IMPROVEMENTS AND ANY AND ALL PROCEEDS ARISING OUT OF SUCH DAMAGE OR
DESTRUCTION, IF THE SAME BE INSURED, OR OUT OF ANY SUCH EMINENT DOMAIN
TAKING, SHALL BE HELD IN TRUST BY SELLER FOR THE BENEFIT OF SUCH REPAIR
AND PAID OVER TO THE PARTIES PERFORMING SUCH REPAIRS, IF SUCH REPAIRS
ARE COMPLETED PRIOR TO THE CLOSING DATE, OR PAID TO PURCHASER ON THE
CLOSING DATE IF THE REPAIRS ARE NOT COMPLETED AS OF SUCH DATE. IN NO
EVENT SHALL THE PURCHASE PRICE BE INCREASED BY THE AMOUNT OF ANY SUCH
PROCEEDS. SELLER AGREES TO KEEP THE PROPERTY CONTINUALLY INSURED DURING
THE TERM OF THIS AGREEMENT UNDER A POLICY OF FIRE AND EXTENDED COVERAGE
INSURANCE WITH AN ACTUAL REPLACEMENT COST ENDORSEMENT.
7. OPERATION OF PROPERTY PRIOR TO CLOSING. UNTIL THE CLOSING DATE, SELLER
SHALL HAVE THE FULL RESPONSIBILITY FOR THE CONTINUED OPERATION OF THE
PROPERTY. PRIOR TO THE CLOSING DATE:
A. SELLER SHALL NOT CAUSE ANY NEW LIENS, CONTRACTS OR
ENCUMBRANCES TO BE CREATED BY SELLER AGAINST THE PROPERTY;
B. SELLER SHALL CONTINUE TO COMPLY WITH ALL OF THE LANDLORD'S
DUTIES AND OBLIGATIONS AS SET FORTH IN THE TENANT LEASE;
C. SELLER SHALL CONTINUE TO OPERATE, REPAIR, AND MAINTAIN THE
PROPERTY IN THE SAME MANNER AS IT HAS PRIOR TO THE DATE OF
THIS AGREEMENT.
8. REPRESENTATIONS AND WARRANTIES OF SELLER. IN ORDER TO INDUCE PURCHASER
TO ENTER INTO THIS AGREEMENT AND PURCHASE THE PROPERTY, SELLER HEREBY
REPRESENTS AND WARRANTS TO PURCHASER AS FOLLOWS:
A. NO ACTION IN CONDEMNATION, EMINENT DOMAIN OR PUBLIC TAKING
PROCEEDINGS ARE NOW PENDING OR CONTEMPLATED AGAINST THE REAL
PROPERTY;
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B. NO ORDINANCE OR HEARING IS NOW BEFORE ANY LOCAL GOVERNMENTAL
BODY WHICH EITHER CONTEMPLATES OR AUTHORIZES ANY PUBLIC
IMPROVEMENTS OR SPECIAL TAX LEVIES, THE COST OF WHICH MAY BE
ASSESSED AGAINST THE REAL PROPERTY. THERE ARE NO SPECIAL
ASSESSMENTS CURRENTLY A LIEN AGAINST OR ENCUMBERING THE REAL
PROPERTY;
C. SELLER HAS OR WILL HAVE AS OF THE DATE OF CLOSING GOOD AND
MARKETABLE FEE SIMPLE TITLE INTEREST TO THE REAL PROPERTY;
D. TO THE BEST OF SELLER'S KNOWLEDGE, THE REAL PROPERTY AND THE
IMPROVEMENTS ARE IN FULL COMPLIANCE WITH ALL ZONING AND
BUILDING LAWS, INCLUDING, BUT NOT LIMITED TO, THE AMERICANS
WITH DISABILITIES ACT OF 1990 AND ALL RULES AND REGULATIONS
RELATING THERETO, AND THERE ARE NO NOTICES, ORDERS, SUITS,
JUDGMENTS OR OTHER PROCEEDINGS RELATING TO FIRE, BUILDING,
ZONING, AIR POLLUTION OR HEALTH VIOLATIONS THAT HAVE NOT BEEN
CORRECTED. NO FIRE INSURANCE UNDERWRITER OR GOVERNMENTAL
AUTHORITY HAS REQUESTED ANY ALTERATIONS OR ANY ADDITIONS TO
THE PROPERTY;
E. THE PROPERTY WILL AS OF THE CLOSING DATE BE FREE AND CLEAR OF
ALL LIENS, SECURITY INTERESTS, ALL ENCUMBRANCES, LEASES OR
OTHER RESTRICTIONS OR OBJECTIONS TO TITLE EXCEPT AS PERMITTED
BY THIS AGREEMENT;
F. TO THE BEST OF SELLER'S KNOWLEDGE, THE PROPERTY IS AND WILL BE
IN GOOD REPAIR AND CONDITION ON THE CLOSING DATE. THE HEATING,
VENTILATING, AIR CONDITIONING, PLUMBING AND ELECTRICAL SYSTEMS
ARE IN GOOD WORKING ORDER AND REPAIR AND THE ROOF AND EXTERIOR
WALLS OF THE IMPROVEMENTS ARE STRUCTURALLY SOUND AND FREE OF
DEFECTS OR CRACKS. THERE ARE NO ITEMS OF DEFERRED MAINTENANCE
OR REPAIR;
G. ALL LABOR OR MATERIALS WHICH HAVE BEEN FURNISHED TO THE
PROPERTY HAVE BEEN FULLY PAID FOR OR WILL BE FULLY PAID FOR
PRIOR TO THE CLOSING DATE SO THAT NO LIEN FOR LABOR OR
MATERIALS RENDERED CAN BE ASSERTED AGAINST THE PROPERTY;
H. THE WATER SERVICE AND SEWER LINES AND SYSTEMS AVAILABLE TO AND
SERVING THE PROPERTY HAVE ADEQUATE CAPACITY FOR CURRENT
OPERATIONS FOR TRANSMISSION OF WATER, SANITARY AND STORM
FLOWAGE, AND THE PROPERTY DOES NOT CONTAIN AND TO SELLER'S
KNOWLEDGE HAS NOT EVER CONTAINED ANY UNDERGROUND STORAGE
TANKS;
I. TO THE BEST OF SELLER'S KNOWLEDGE, ALL IMPROVEMENTS UPON THE
REAL PROPERTY ARE WHOLLY WITHIN THE BOUNDARY LINES OF THE
PROPERTY AND DO NOT ENCROACH UPON ANY ADJACENT PROPERTY AND NO
IMPROVEMENTS ON ANY ADJACENT PROPERTY ENCROACH UPON THE REAL
PROPERTY;
J. THE REAL PROPERTY IS IN COMPLIANCE WITH ALL SUBDIVISION AND
PLATTING REGULATIONS AND SELLER HAS NOT RECEIVED ANY NOTICE OF
VIOLATION OF APPLICABLE RULES, REGULATIONS, ORDINANCES, AND
REQUIREMENTS OF EACH GOVERNMENTAL AUTHORITY HAVING
JURISDICTION OVER THE PROPERTY, CONSTITUTES A SEPARATE TAX
PARCEL OR PARCELS AND IS ZONED FOR ITS PRESENT USE WITHOUT
VARIANCE, IS NOT A NON-CONFORMING USE AND MAY BE CONVEYED
WITHOUT THE NECESSITY OF THE FILING OF A PLAT OR REPLAT OR
SUBDIVISION OR RESUBDIVISION;
K. ALL SERVICE CONTRACTS AFFECTING THE PROPERTY ARE CANCELABLE
WITHOUT PENALTY ON THIRTY (30) DAYS' NOTICE OR LESS;
<PAGE>
L. THERE WILL BE NO PARTIES WITH RIGHTS TO POSSESSION TO THE
PROPERTY AT CLOSING.
M. TO THE BEST OF SELLER'S KNOWLEDGE, THE EXISTING AND ALL PRIOR
USES OF THE PROPERTY AND ITS EXISTING AND, TO THE BEST OF
SELLER'S KNOWLEDGE, ALL PRIOR USES COMPLY AND HAVE AT ALL
TIMES COMPLIED WITH, AND SELLER IS NOT IN VIOLATION OF AND HAS
NOT VIOLATED, IN CONNECTION WITH ITS OWNERSHIP, USE,
MAINTENANCE OR OPERATION OF THE PROPERTY AND THE CONDUCT OF
THE BUSINESS RELATED THERETO, ANY APPLICABLE FEDERAL, STATE,
COUNTY OR LOCAL STATUES, LAWS, REGULATIONS, RULES, ORDINANCES,
CODES, STANDARDS, ORDERS, LICENSES AND PERMITS OF ANY
GOVERNMENTAL AUTHORITIES RELATING TO ENVIRONMENTAL MATTERS
(BEING HEREINAFTER COLLECTIVELY REFERRED TO AS THE
"ENVIRONMENTAL LAWS"), INCLUDING BY WAY OF ILLUSTRATION AND
NOT BY WAY OF LIMITATION (A) THE CLEAN AIR ACT, THE FEDERAL
WATER POLLUTION CONTROL ACT OF 1972, THE RESOURCE CONSERVATION
AND RECOVERY ACT OF 1976, THE COMPREHENSIVE ENVIRONMENTAL
RESPONSE, COMPENSATION AND LIABILITY ACT OF 1980, THE TOXIC
SUBSTANCES CONTROL ACT, OR THE MINNESOTA ENVIRONMENTAL
RESPONSE AND LIABILITY ACT, (INCLUDING ANY AMENDMENTS OR
EXTENSIONS THEREOF AND ANY RULES, REGULATIONS, STANDARDS OR
GUIDELINES ISSUED PURSUANT TO ANY OF SAID ENVIRONMENTAL LAWS),
AND (B) ALL OTHER APPLICABLE ENVIRONMENTAL STANDARDS OR
REQUIREMENTS. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, TO THE BEST OF SELLER'S KNOWLEDGE: (I) NEITHER
SELLER, ITS AGENTS, EMPLOYEES AND INDEPENDENT CONTRACTORS NOR
ANY TENANT, HAS OPERATED THE PROPERTY FOR THE PURPOSE OF
RECEIVING, HANDLING, USING, STORING, TREATMENT, TRANSPORTING
OR DISPOSING OF PETROLEUM PRODUCTS OR ANY HAZARDOUS MATERIAL
AS DEFINED IN SAID ENVIRONMENTAL LAWS, OTHER TOXIC, DANGEROUS
OR HAZARDOUS CHEMICALS, MATERIALS, SUBSTANCES, POLLUTANTS AND
WASTES, OR ANY CHEMICAL, MATERIAL OR SUBSTANCE, EXPOSURE TO
WHICH IS PROHIBITED, LIMITED OR REGULATED BY ANY FEDERAL,
STATE, COUNTY, REGIONAL OR LOCAL AUTHORITY (ALL THE FOREGOING
BEING HEREINAFTER COLLECTIVELY REFERRED TO AS "HAZARDOUS
MATERIALS"); (II) THERE ARE NO EXISTING OR PENDING REMEDIAL
ACTIONS OR OTHER WORK, REPAIRS, CONSTRUCTION OR CAPITAL
EXPENDITURES WITH RESPECT TO THE PROPERTY IN CONNECTION WITH
THE ENVIRONMENTAL LAWS, NOR HAS SELLER RECEIVED ANY NOTICE OF
ANY OF THE SAME; (III) NO HAZARDOUS MATERIALS HAVE BEEN OR
WILL BE RELEASED INTO THE ENVIRONMENT, OR HAVE BEEN OR WILL BE
DEPOSITED, SPILLED, DISCHARGED, PLACED OR DISPOSED OF AT, ON,
OR, TO THE BEST OF SELLER'S KNOWLEDGE, ADJACENT TO THE
PROPERTY, NOR HAS THE PROPERTY BEEN USED AT ANY TIME BY ANY
PERSON AS A LANDFILL OR A DISPOSAL SITE FOR HAZARDOUS
MATERIALS OR FOR GARBAGE, WASTE OR REFUSE OF ANY KIND; (IV)
THERE ARE NO ELECTRICAL TRANSFORMERS OR OTHER EQUIPMENT
CONTAINING DIELECTRIC FLUID CONTAINING POLYCHLORINATED
BIPHENYLS LOCATED IN, ON OR UNDER THE PROPERTY, NOR ARE THERE
ANY ASBESTOS CONTAINING MATERIALS CONTAINED IN, ON OR UNDER
THE PROPERTY; (V) THERE ARE NO LOCATIONS OFF THE PROPERTY
WHERE HAZARDOUS MATERIALS GENERATED BY OR ON THE PROPERTY HAVE
BEEN TREATED, STORED, DEPOSITED OR DISPOSED OF; (VI) TO THE
BEST OF SELLER'S KNOWLEDGE, THERE IS NO FACT PERTAINING TO THE
PHYSICAL CONDITION OF EITHER THE PROPERTY OR THE AREA
SURROUNDING THE PROPERTY NOT DISCLOSED IN THE PROPERTY DATA
AND WHICH MATERIALLY ADVERSELY AFFECTS OR WILL MATERIALLY
ADVERSELY AFFECT THE PROPERTY OR THE USE OR ENJOYMENT OR THE
VALUE THEREOF OR SELLER'S ABILITY TO PERFORM THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT; (VII) THE SALE OF THE PROPERTY
BY SELLER TO PURCHASER DOES NOT REQUIRE NOTICE TO OR THE PRIOR
APPROVAL, CONSENT OR PERMISSION OF ANY FEDERAL, STATE OR LOCAL
GOVERNMENTAL AGENCY, BODY, BOARD OR OFFICIAL; (VIII) NO
NOTICES OF ANY VIOLATION OF ANY OF THE MATTERS REFERRED TO IN
THE FOREGOING SECTIONS RELATING TO THE PROPERTY OR ITS USE
HAVE BEEN RECEIVED BY SELLER AND THERE ARE NO WRITS,
INJUNCTIONS, DECREES, ORDERS OR JUDGMENTS OUTSTANDING, NO
LAWSUITS, CLAIMS, PROCEEDINGS OR INVESTIGATIONS PENDING OR
THREATENED, RELATING TO THE OWNERSHIP, USE, MAINTENANCE OR
OPERATION OF THE PROPERTY, NOR IS THERE ANY BASIS FOR ANY SUCH
LAWSUIT, CLAIM, PROCEEDING OR INVESTIGATION BEING INSTITUTED
OR FILED.
<PAGE>
THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS SECTION 8 SHALL BE
CONTINUING AND SHALL BE TRUE AND CORRECT ON AND AS OF THE CLOSING DATE
WITH THE SAME FORCE AND EFFECT AS IF MADE AT THAT TIME AND ALL SUCH
REPRESENTATIONS AND WARRANTIES SHALL SURVIVE CLOSING AND SHALL NOT BE
AFFECTED BY ANY INVESTIGATION, VERIFICATION OR APPROVAL BY ANY PARTY
HERETO OR BY ANYONE ON BEHALF OF ANY PARTY HERETO AND SHALL NOT MERGE
INTO THE WARRANTY DEED BEING DELIVERED BY SELLER AT CLOSING. SELLER
AGREES TO INDEMNIFY AND HOLD PURCHASER HARMLESS FROM AND AGAINST AND TO
REIMBURSE PURCHASER WITH RESPECT TO ANY AND ALL CLAIMS, DEMANDS, CAUSES
OF ACTION, LOSS, DAMAGE, LIABILITIES, AND COSTS (INCLUDING ATTORNEYS'
FEES AND COURT COSTS) ASSERTED AGAINST OR INCURRED BY PURCHASER BY
REASON OF OR ARISING OUT OF THE BREACH OF ANY REPRESENTATION OR
WARRANTY AS SET FORTH IN THIS SECTION 8.
9. CONDITIONS PRECEDENT TO CLOSING. THE CLOSING OF THE TRANSACTION
CONTEMPLATED BY THIS AGREEMENT AND ALL THE OBLIGATIONS OF PURCHASER
UNDER THIS AGREEMENT ARE SUBJECT TO FULFILLMENT, ON OR BEFORE THE
CLOSING DATE AS DEFINED IN THE ASSET PURCHASE AGREEMENT:
A. THE REPRESENTATIONS AND WARRANTIES MADE BY SELLER IN SECTION 8
SHALL BE CORRECT AS OF THE CLOSING DATE WITH THE SAME FORCE
AND EFFECT AS IF SUCH REPRESENTATIONS AND WARRANTIES WERE MADE
AT SUCH TIME. IT SHALL BE A CONDITION PRECEDENT TO CLOSING
THAT ANY REPRESENTATIONS AND WARRANTIES MADE "TO THE BEST OF
SELLER'S KNOWLEDGE" BY SELLER IN SECTION 8 SHALL BE CONSIDERED
REPRESENTATIONS AND WARRANTIES THAT MUST BE TRUE AS OF THE
DATE OF CLOSING AS DETERMINED BY PURCHASER'S OWN INDEPENDENT
INVESTIGATIONS AND IF SUCH REPRESENTATIONS AND WARRANTIES ARE
NOT TRUE, THEN PURCHASER SHALL NOT BE OBLIGATED TO CLOSE THE
TRANSACTION CONTEMPLATED BY THIS AGREEMENT;
B. THE STATUS AND MARKETABILITY OF TITLE SHALL HAVE BEEN
ESTABLISHED TO PURCHASER'S SATISFACTION IN ACCORDANCE WITH
SECTION 3;
C. ALL OF THE CONDITIONS TO THE OBLIGATIONS OF PURCHASER PURSUANT
TO THIS AGREEMENT AND THE PARAGRAPH 5.2 OF THE ASSET PURCHASE
AGREEMENT HAVE BEEN SATISFIED OR WAIVED BY PURCHASER; AND
D. ALL CONDITIONS PRECEDENT TO CLOSING ON THE ASSET PURCHASE
AGREEMENT HAVE BEEN FULFILLED AND A CLOSING HAS OCCURRED
BETWEEN SELLER AND BUYER PURSUANT TO THE ASSET PURCHASE
AGREEMENT OR THE CLOSING OCCURRED SIMULTANEOUSLY WITH THE
CLOSING ON THIS AGREEMENT.
IF PURCHASER IS UNABLE TO ATTAIN ALL DESIRED STRUCTURAL, MECHANICAL OR
ENVIRONMENTAL REPORTS ON OR BEFORE THE CLOSING DATE, THE CLOSING DATE
SHALL BE EXTENDED IN ACCORDANCE WITH THIS SECTION 9. THE CLOSING DATE
SHALL BE EXTENDED TO BE COEXTENSIVE WITH THE TIME PERIOD(S) PROVIDED
FOR THE CLOSING DATE PURSUANT TO THE ASSET PURCHASE AGREEMENT REFERRED
TO ABOVE.
PURCHASER MAY ACKNOWLEDGE SATISFACTION OR WAIVER OF ANY OF THE
FOREGOING CONDITIONS PRECEDENT, ONLY BY DELIVERING WRITTEN NOTICE OF
SATISFACTION OR WAIVER TO SELLER ON OR BEFORE THE CLOSING DATE. IF
PURCHASER DOES NOT ACKNOWLEDGE IN WRITING THE SATISFACTION OF ONE OR
MORE OF THE FOREGOING CONDITIONS PRECEDENT (OR OTHERWISE WAIVE THE SAME
IN WRITING) ON OR BEFORE THE CLOSING DATE AS THE SAME MAY BE EXTENDED,
THEN, EXCEPT AS OTHERWISE PROVIDED IN SECTION 3, THIS AGREEMENT SHALL
AUTOMATICALLY BE DEEMED TO BE TERMINATED, WITHOUT ACTION REQUIRED OF
EITHER PARTY, THE EARNEST MONEY (AND ALL ACCRUED INTEREST) SHALL BE
RETURNED TO PURCHASER, AND PURCHASER AND SELLER SHALL THEREAFTER BE
RELEASED FROM ANY LIABILITY OR OBLIGATION HEREUNDER.
10. INTEGRATION. THE PARTIES ACKNOWLEDGE AND AGREE THAT ALL AGREEMENTS,
DOCUMENTS, OBLIGATIONS AND TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT
SHALL BE INTEGRATED. ACCORDINGLY, IF THERE SHALL BE A
<PAGE>
DEFAULT, NONPERFORMANCE OR BREACH OF ANY OF THE SAME, OR ANY OBLIGATION
EXISTS 30 DAYS AFTER NOTICE OF SUCH DEFAULT (FIVE DAYS IF FOR
NONPAYMENT), NON-PERFORMANCE OR BREACH IS GIVEN TO THE PARTY COMMITTING
THE SAME, THE SAME SHALL CONSTITUTE A MATERIAL BREACH OF ALL
OBLIGATIONS AND ALL OF SUCH AGREEMENTS, DOCUMENTS, OBLIGATIONS AND
TRANSACTION, ENTITLING SELLER, PURCHASER OR SELLER OR BUYER AS DEFINED
IN THE ASSET PURCHASE AGREEMENT TO PURSUE ANY OR ALL AVAILABLE LEGAL
REMEDIES AT LAW, IN EQUITY OR BY ANY OF SUCH AGREEMENTS. ALL REMEDIES
SHALL BE CUMULATIVE AND THE FAILURE OR CHOICE BY SELLER, HOLMBERG OR
PURCHASER TO EXERCISE ANY ONE OR MORE REMEDIES SHALL NOT PRECLUDE OR
PREVENT THE LATER EXERCISE OF ANY SUCH REMEDIES FROM TIME TO TIME. THE
PARTY COMMITTING SUCH DEFAULT, NONPERFORMANCE OR BREACH SHALL BE
RESPONSIBLE FOR THE REASONABLE ATTORNEYS' FEES INCURRED BY THE OTHER
PARTY AS A RESULT OF SUCH DEFAULT, NONPERFORMANCE OR BREACH, EVEN IF
SUCH DEFAULT, NONPERFORMANCE OR BREACH IS SUBSEQUENTLY CURED.
11. PRE-CLOSING INSPECTION. IN ADDITION TO ALL OTHER RIGHTS OF INSPECTION
CONTAINED HEREIN, PURCHASER SHALL HAVE THE RIGHT TO INSPECT THE
PROPERTY DURING THE TWO (2) DAYS IMMEDIATELY PRECEDING THE CLOSING DATE
TO VERIFY THAT ALL PERSONAL PROPERTY AND IMPROVEMENTS ARE STILL IN
PLACE, AND ARE IN THE SAME OR BETTER CONDITION AS DURING PURCHASER'S
PREVIOUS INSPECTIONS, REASONABLE WEAR AND TEAR EXCEPTED.
IN THE EVENT ANY PERSONAL PROPERTY OR IMPROVEMENTS ARE NOT IN SUCH
CONDITION, PURCHASER SHALL PROMPTLY NOTIFY SELLER, AND SELLER SHALL, AT
ITS OPTION, EITHER: (I) CAUSE THE PROPERTY TO BE RESTORED TO SUCH
CONDITION AS SOON AS PRACTICABLE; OR (II) ALLOW PURCHASER AN EQUITABLE
ADJUSTMENT TO THE PURCHASE PRICE IN CASH. SELLER SHALL MAKE SUCH
ELECTION ON THE CLOSING DATE.
12. CLOSING, POSSESSION. SUBJECT TO THE FULFILLMENT OR WAIVER OF THE
CONDITIONS PRECEDENT, AND PROVIDED THAT ALL OF THE COVENANTS,
REPRESENTATIONS AND WARRANTIES OF SELLER ARE TRUE AND CORRECT ON THE
CLOSING DATE AS THOUGH MADE ON SUCH DATE, THE CLOSING OF THE PURCHASE
AND SALE SHALL TAKE PLACE ON THE SAME DATE AS PROVIDED FOR IN THE ASSET
PURCHASE AGREEMENT (THE "CLOSING DATE"). THE CLOSING SHALL TAKE PLACE
AT THE OFFICES OF PURCHASER'S COUNSEL AT 1800 FIFTH STREET TOWERS, 150
SOUTH FIFTH STREET, MINNEAPOLIS, MINNESOTA 55402 OR SUCH OTHER PLACE AS
SELLER AND PURCHASER MAY MUTUALLY DETERMINE. POSSESSION SHALL BE
DELIVERED ON THE CLOSING DATE.
13. SELLER'S OBLIGATIONS AT CLOSING. AT OR PRIOR TO THE CLOSING DATE,
SELLER SHALL:
A. DELIVER TO PURCHASER A DULY RECORDABLE GENERAL WARRANTY DEED
TO THE REAL PROPERTY (IN A FORM SATISFACTORY TO PURCHASER AND
THE TITLE COMPANY) CONVEYING TO PURCHASER MARKETABLE FEE
SIMPLE TITLE TO THE REAL PROPERTY AND ALL RIGHTS APPURTENANT
THERETO SUBJECT ONLY TO EXCEPTIONS NOT OBJECTED TO BY
PURCHASER;
B. CAUSE TO BE FURNISHED AND DELIVERED TO PURCHASER AT THE SOLE
COST AND EXPENSE OF SELLER THE UPDATED ABSTRACT OR THE TITLE
POLICY IN CONFORMITY WITH PURCHASER'S TITLE REQUIREMENTS;
C. DELIVER TO PURCHASER A WARRANTY BILL OF SALE (IN A FORM
SATISFACTORY TO PURCHASER) CONVEYING THE PERSONAL PROPERTY TO
SELLER;
D. DELIVER TO PURCHASER AND THE TITLE COMPANY AN AFFIDAVIT
SUFFICIENT TO REMOVE ANY EXCEPTION IN THE TITLE POLICY FOR
MECHANICS' AND MATERIALMEN'S LIENS AND PARTIES IN POSSESSION;
<PAGE>
E. DELIVER TO PURCHASER AN ASSIGNMENT OF ANY SERVICE CONTRACTS
(IN A FORM SATISFACTORY TO PURCHASER) WHICH PURCHASER ELECTS
TO HAVE ASSIGNED TO IT;
F. DELIVER TO PURCHASER AN ASSIGNMENT OF ALL PERMITS, LICENSES,
WARRANTIES AND CONTRACT RIGHTS (IN A FORM SATISFACTORY TO
PURCHASER) RELATING TO THE PROPERTY AND NOT COVERED BY OTHER
DOCUMENTS OF ASSIGNMENT;
G. DELIVER TO PURCHASER A CERTIFICATION (FIRPTA CERTIFICATION)
CONFIRMING THAT SELLER IS NOT A FOREIGN CORPORATION WITHIN THE
MEANING OF SECTION 1445 OF THE INTERNAL REVENUE CODE;
H. DELIVER TO PURCHASER A COPY OF ALL TERMINATION AND TRANSFER
LETTERS DELIVERED BY SELLER TO ALL SERVICE PROVIDERS WHOSE
AGREEMENTS OR CONTRACTS ARE LONGER THAN THIRTY (30) DAYS AND
WHICH ARE BEING TERMINATED WHICH LETTERS SHALL PROVIDE FOR
TERMINATION EFFECTIVE AS OF THE CLOSING DATE;
I. DELIVER TO PURCHASER A SIGNED COPY OF THE FORM OF ALL TRANSFER
LETTERS PROVIDED BY PURCHASER TO BE DELIVERED TO ALL UTILITY
PROVIDERS;
J. DELIVER TO PURCHASER A CERTIFICATE DATED THE CLOSING DATE AND
SIGNED BY THE SELLER REAFFIRMING THE REPRESENTATIONS AND
WARRANTIES SET FORTH IN THIS AGREEMENT FOR THE PURPOSE OF
VERIFYING THE ACCURACY OF SUCH REPRESENTATIONS AND WARRANTIES
AND THE PERFORMANCE AND SATISFACTION OF SUCH COVENANTS AND
CONDITIONS;
K. DELIVER TO PURCHASER AN OPINION OF SELLER'S OUTSIDE COUNSEL,
STATING THAT SELLER HAS THE POWER AND AUTHORITY TO EXECUTE AND
DELIVER THIS AGREEMENT AND ALL OF THE DOCUMENTS REFERRED TO IN
THIS SECTION, THAT THE PERSONS EXECUTING SUCH DOCUMENTS ARE
AUTHORIZED TO DO SO WITHOUT THE CONSENT OF ANY OTHER PARTY,
AND THAT UPON THEIR EXECUTION SUCH DOCUMENTS SHALL BE FULLY
BINDING ON SELLER;
L. DELIVER TO PURCHASER ALL DOCUMENTS AND APPROVALS REQUIRED
PURSUANT TO THE ASSET PURCHASE AGREEMENT;
M. DELIVER TO PURCHASER SUCH OTHER DOCUMENTS AS MAY BE REASONABLY
REQUIRED BY THIS AGREEMENT, ALL IN A FORM SATISFACTORY TO
PURCHASER.
14. DELIVERY OF PURCHASE PRICE; OBLIGATIONS AT CLOSING. AT CLOSING, AND
SUBJECT TO THE TERMS, CONDITIONS, AND PROVISIONS HEREOF AND THE
PERFORMANCE BY SELLER OF ITS OBLIGATIONS AS SET FORTH HEREIN, THE
EARNEST MONEY SHALL BE DELIVERED TO SELLER (EXCEPT ANY INTEREST ACCRUED
THEREON) AND PURCHASER SHALL DELIVER THE BALANCE OF THE PURCHASE PRICE
TO SELLER PURSUANT TO SECTION 2 ABOVE.
15. CLOSING COSTS. THE FOLLOWING COSTS AND EXPENSES SHALL BE PAID AS
FOLLOWS IN CONNECTION WITH THE CLOSING:
A. SELLER SHALL PAY OR REIMBURSE PURCHASER FOR:
I. THE COSTS OF ALL EVIDENCE OF TITLE, INCLUDING THE
COST OF THE SURVEY AND THE TITLE INSURANCE PREMIUM IN
CONNECTION WITH THE ISSUANCE OF THE TITLE POLICY IN
ACCORDANCE WITH THE REQUIREMENTS OF SECTION 3, AND
THE FEES AND COSTS SET FORTH IN SECTION 2, IF ANY;
II. THE STATE DEED TAX OR TRANSFER FEE IMPOSED ON THE
CONVEYANCE;
<PAGE>
III. A PRORATA PORTION OF ALL UTILITIES AND TAXES AS
PROVIDED BELOW;
IV. ALL SPECIAL ASSESSMENTS WHETHER LEVIED, PENDING OR
ASSESSED;
B. PURCHASER SHALL PAY THE FOLLOWING COSTS IN CONNECTION WITH THE
CLOSING:
I. THE DOCUMENTARY FEE NECESSARY TO RECORD THE DEED;
II. THE UNEARNED PORTION OF ANY PREMIUMS PAID ON
INSURANCE POLICIES WHICH PURCHASER ELECTS TO ASSUME;
III. THE UNEARNED PORTIONS OF ANY PAYMENTS PREPAID ON ANY
SERVICE CONTRACTS PURCHASER ELECTS TO ASSUME;
IV. ANY FEES AND EXPENSES ASSOCIATED WITH RECORDING THE
PURCHASE MONEY MORTGAGE AND UCC-2 FINANCING
STATEMENT;
V. THE BROKERAGE FEE OF THE BROKER INVOLVED IN ARRANGING
THE SALE.
16. PRORATIONS. THE FOLLOWING PRORATIONS SHALL BE MADE AS OF THE CLOSING
DATE:
A. REAL ESTATE TAXES SHALL BE PRORATED ON THE DATE OF CLOSING
BASED ON THE YEAR IN WHICH THEY ARE PAYABLE;
B. ALL UTILITIES FURNISHED TO THE PROPERTY;
C. ALL INCOME OF THE PROPERTY.
MOST EXPENSES SHALL BE PRORATED AT CLOSING BASED ON ACTUAL BILLS OR
ESTIMATES. THOSE EXPENSE ITEMS FOR WHICH ACTUAL BILLS WERE NOT
AVAILABLE AT CLOSING WILL BE ADJUSTED WITHIN SIXTY (60) DAYS OF CLOSING
BASED UPON THE ACTUAL BILLS.
EACH PARTY SHALL PAY ITS OWN LEGAL FEES AND OTHER EXPENSES IN
CONJUNCTION WITH CLOSING.
17. EMPLOYEES. SELLER SHALL BE SOLELY RESPONSIBLE FOR PAYMENT OF ANY AND
ALL WAGES, SALARIES, VACATION AND/OR SICK LEAVE COMPENSATION, PENSIONS
OR PROFIT SHARING BENEFITS AND OTHER BENEFITS OR COMPENSATION INURING
TO THE BENEFIT OF ANY AND ALL EMPLOYEES OF SELLER EMPLOYED AT THE
PROPERTY, AND ALL SUCH EMPLOYEES SHALL BE TERMINATED BY SELLER
EFFECTIVE AS OF THE CLOSING DATE.
18. BROKERAGE. SELLER AND PURCHASER REPRESENT AND WARRANT TO EACH OTHER
THAT THEY HAVE NOT ENGAGED THE SERVICES OF ANY BROKER IN CONNECTION
WITH THE SALE AND PURCHASE CONTEMPLATED BY THIS AGREEMENT, EXCEPT THAT
PURCHASER HAS ENGAGED THE SERVICES OF GILBERT KOPOLOW AND ASSOCIATE
INVESTMENTS, WHICH SERVICES PURCHASER AGREES TO PAY AT THE TIME OF
CLOSING. SELLER HEREBY AGREES TO INDEMNIFY AND HOLD PURCHASER HARMLESS
FOR ANY CLAIM (INCLUDING REASONABLE EXPENSES INCURRED IN DEFENDING SUCH
CLAIM) MADE BY A BROKER OR SALES AGENT OR SIMILAR PARTY RETAINED BY
SELLER IN CONNECTION WITH THIS TRANSACTION.
19. REMEDIES. IF SELLER DEFAULTS IN THE PERFORMANCE OF THIS AGREEMENT,
PURCHASER SHALL HAVE THE
<PAGE>
RIGHT TO TERMINATE THIS AGREEMENT UPON WRITTEN NOTICE TO SELLER, IN
WHICH EVENT THE EARNEST MONEY (PLUS ANY ACCRUED INTEREST) SHALL BE
RETURNED TO PURCHASER (NOT MORE THAN FIVE (5) BUSINESS DAYS AFTER
WRITTEN NOTICE TO SELLER) AND SELLER SHALL REIMBURSE PURCHASER FOR THE
COSTS OF THE TITLE COMMITMENT AND SURVEY INCURRED BY PURCHASER. IF
SELLER DEFAULTS IN THE PERFORMANCE OF THIS AGREEMENT AND PURCHASER DOES
NOT TERMINATE THIS AGREEMENT, SELLER ACKNOWLEDGES THAT THE PROPERTY IS
UNIQUE AND THAT MONEY DAMAGES TO PURCHASER IN THE EVENT OF DEFAULT BY
SELLER ARE INADEQUATE. ACCORDINGLY, IN SUCH EVENT THE EARNEST MONEY
SHALL BE IMMEDIATELY RETURNED TO PURCHASER AND PURCHASER SHALL HAVE THE
RIGHT TO SEEK ANY OTHER RELIEF AVAILABLE AT LAW, AND IN ADDITION TO ANY
OTHER REMEDY AVAILABLE AT LAW, TO APPLY FOR AND TO RECEIVE FROM A COURT
OF COMPETENT JURISDICTION EQUITABLE RELIEF BY WAY OF RESTRAINING ORDER,
INJUNCTION OR OTHERWISE, PROHIBITORY OR MANDATORY, TO PREVENT A BREACH
OF THE TERMS OF THIS AGREEMENT, OR BY WAY OF SPECIFIC PERFORMANCE TO
ENFORCE PERFORMANCE OF THE TERMS OF THIS AGREEMENT OR RESCISSION, PLUS
REIMBURSEMENT FOR COSTS, INCLUDING REASONABLE ATTORNEYS' FEES, INCURRED
IN THE SECURING OF SUCH RELIEF. THIS RIGHT TO EQUITABLE RELIEF SHALL
NOT BE CONSTRUED TO BE IN LIEU OF OR TO PRECLUDE PURCHASER'S RIGHT TO
SEEK A REMEDY AT LAW. IF PURCHASER DEFAULTS IN THE PERFORMANCE OF THIS
AGREEMENT, SELLER'S SOLE AND EXCLUSIVE REMEDY SHALL BE TO TERMINATE
THIS AGREEMENT BY WRITTEN NOTICE TO PURCHASER, IN WHICH EVENT ESCROW
AGENT SHALL DELIVER FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00) OF
THE EARNEST MONEY TO SELLER AS LIQUIDATED DAMAGES WITH THE REMAINDER OF
THE EARNEST MONEY, TOGETHER WITH ALL ACCRUED INTEREST TO BE RETURNED TO
PURCHASER.
20. ACCEPTANCE. THIS AGREEMENT SHALL NOT BE EFFECTIVE UNLESS THE ASSET
PURCHASE AGREEMENT HAS ALSO BEEN EXECUTED BY ALL PARTIES THERETO.
21. MUTUAL INDEMNIFICATION. SELLER AND PURCHASER AGREE TO INDEMNIFY EACH
OTHER AGAINST, AND HOLD EACH OTHER HARMLESS FROM, ALL LIABILITIES
(INCLUDING REASONABLE ATTORNEYS' FEES IN DEFENDING AGAINST CLAIMS)
ARISING OUT OF THE OWNERSHIP, OPERATION OR MAINTENANCE OF THE PROPERTY
FOR THEIR RESPECTIVE PERIOD OF OWNERSHIP. SUCH RIGHTS TO
INDEMNIFICATION WILL NOT ARISE TO THE EXTENT THAT (A) THE PARTY SEEKING
INDEMNIFICATION ACTUALLY RECEIVES INSURANCE PROCEEDS OR OTHER CASH
PAYMENTS DIRECTLY ATTRIBUTABLE TO THE LIABILITY IN QUESTION (NET OF THE
COST OF COLLECTION, INCLUDING REASONABLE ATTORNEYS' FEES); OR (B) THE
CLAIM FOR INDEMNIFICATION ARISES OUT OF THE ACT OR NEGLECT OF THE PARTY
SEEKING INDEMNIFICATION. IF AND TO THE EXTENT THAT THE INDEMNIFIED
PARTY HAS INSURANCE COVERAGE, OR THE RIGHT TO MAKE A CLAIM AGAINST ANY
THIRD PARTY FOR ANY AMOUNT TO BE INDEMNIFIED AGAINST AS SET FORTH
ABOVE, THE INDEMNIFIED PARTY WILL, UPON FULL PERFORMANCE BY THE
INDEMNIFYING PARTY OF ITS INDEMNIFICATION OBLIGATIONS, ASSIGN SUCH
RIGHTS TO THE INDEMNIFYING PARTY OR, IF SUCH RIGHTS ARE NOT ASSIGNABLE,
THE INDEMNIFIED PARTY WILL DILIGENTLY PURSUE SUCH RIGHTS BY APPROPRIATE
LEGAL ACTION OR PROCEEDING AND ASSIGN THE RECOVERY AND/OR RIGHT OF
RECOVERY TO THE INDEMNIFYING PARTY TO THE EXTENT OF THE INDEMNIFICATION
PAYMENT MADE BY SUCH PARTY.
22. MISCELLANEOUS. THE FOLLOWING GENERAL PROVISIONS GOVERN THIS AGREEMENT.
A. NO WAIVERS. THE WAIVER BY EITHER PARTY HERETO OF ANY CONDITION
OR THE BREACH OF ANY TERM, COVENANT OR CONDITION HEREIN
CONTAINED SHALL NOT BE DEEMED TO BE A WAIVER OF ANY OTHER
CONDITION OR OF ANY SUBSEQUENT BREACH OF THE SAME OR OF ANY
OTHER TERM, COVENANT OR CONDITION HEREIN CONTAINED. PURCHASER,
IN ITS SOLE DISCRETION MAY WAIVE ANY RIGHT CONFERRED UPON
PURCHASER BY THIS AGREEMENT; PROVIDED THAT SUCH WAIVER SHALL
ONLY BE MADE BY PURCHASER GIVING SELLER WRITTEN NOTICE
SPECIFICALLY DESCRIBING THE RIGHT WAIVED.
B. TIME OF ESSENCE. TIME IS OF THE ESSENCE OF THIS AGREEMENT.
C. SURVIVAL. ALL REPRESENTATION, WARRANTIES AND AGREEMENT OF THE
PARTIES SET FORTH HEREIN
<PAGE>
SHALL SURVIVE THE CLOSING.
D. GOVERNING LAW. THIS AGREEMENT IS MADE AND EXECUTED UNDER AND
IN ALL RESPECTS TO BE GOVERNED AND CONSTRUED BY THE LAWS OF
THE STATE OF MINNESOTA AND THE PARTIES HERETO HEREBY AGREE AND
CONSENT AND SUBMIT THEMSELVES TO ANY COURT OF COMPETENT
JURISDICTION SITUATED IN THE STATE OF MINNESOTA.
E. NOTICES. ALL NOTICES AND DEMANDS GIVEN OR REQUIRED TO BE GIVEN
BY ANY PARTY HERETO TO ANY OTHER PARTY SHALL BE DEEMED TO HAVE
BEEN PROPERLY GIVEN IF AND WHEN DELIVERED IN PERSON, SENT BY
TELEGRAM (WITH VERIFICATION OF RECEIPT), SENT BY FACSIMILE
(WITH VERIFICATION OF RECEIPT) OR THREE (3) BUSINESS DAYS
AFTER HAVING BEEN DEPOSITED IN ANY U.S. POSTAL SERVICE AND
SENT BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID,
ADDRESSED AS FOLLOWS (OR SENT TO SUCH OTHER ADDRESS AS ANY
PARTY SHALL SPECIFY TO THE OTHER PARTY PURSUANT TO THE
PROVISIONS OF THIS SECTION):
IF TO SELLER: LARRY A. HOLMBERG
AMUSEMENT CENTER, INC.
300 SOUTH THIRD STREET
MINNEAPOLIS, MINNESOTA 55415
FACSIMILE:
COPY TO: SAUL BERNICK, ESQ.
BERNICK & LIFSON, P.A.
5500 WAYZATA BOULEVARD, SUITE 1200
MINNEAPOLIS, MINNESOTA 55416
FACSIMILE: (612) 546-1003
IF TO PURCHASER: MR. ROBERT L. WATTERS
RICK'S CABARET INTERNATIONAL, INC.
3113 BERING DRIVE
HOUSTON, TEXAS 77057
FACSIMILE: (713) 785-2593
COPY TO: JOHN W. LANG, ESQ.
MESSERLI & KRAMER P.A.
1800 FIFTH STREET TOWERS
150 SOUTH FIFTH STREET
MINNEAPOLIS, MINNESOTA 55402-4218
FACSIMILE: (612) 672-3777
COPY TO: ROBERT D. AXELROD, ESQ.
AXELROD, SMITH & KIRSHBAUM
5300 MEMORIAL DRIVE
SUITE 700
HOUSTON, TEXAS 77007-8292
FACSIMILE: (713) 552-0202
IN THE EVENT EITHER PARTY DELIVERS A NOTICE BY FACSIMILE, AS
SET FORTH ABOVE, SUCH PARTY AGREES TO DEPOSIT THE ORIGINALS OF
THE NOTICE IN A POST OFFICE, BRANCH POST OFFICE, OR MAIL
DEPOSITORY MAINTAINED BY THE U.S. POSTAL SERVICE, POSTAGE
PREPAID AND ADDRESSED AS SET FORTH ABOVE. SUCH DEPOSIT IN THE
U.S. MAIL SHALL NOT AFFECT THE DEEMED DELIVERY OF THE NOTICE
BY FACSIMILE, PROVIDED THAT THE PROCEDURES SET FORTH ABOVE ARE
FULLY COMPLIED WITH. ANY PARTY, BY NOTICE GIVEN AS AFORESAID,
MAY CHANGE THE ADDRESS TO WHICH SUBSEQUENT NOTICES ARE TO BE
SENT TO SUCH PARTY;
<PAGE>
F. SUCCESSORS AND ASSIGNS. THIS AGREEMENT SHALL BE BINDING UPON
AND INURE TO THE BENEFIT OF THE SUCCESSORS AND ASSIGNS OF EACH
OF THE PARTIES HERETO;
G. INVALIDITY. IF FOR ANY REASON ANY TERM OR PROVISION OF THIS
AGREEMENT SHALL BE DECLARED VOID AND UNENFORCEABLE BY ANY
COURT OF LAW OR EQUITY IT SHALL ONLY AFFECT SUCH PARTICULAR
TERM OR PROVISION OF THIS AGREEMENT AND THE BALANCE OF THIS
AGREEMENT SHALL REMAIN IN FULL FORCE AND EFFECT AND SHALL BE
BINDING UPON THE PARTIES HERETO;
H. COMPLETE AGREEMENT. ALL UNDERSTANDINGS AND AGREEMENTS
HERETOFORE HAD BETWEEN THE PARTIES ARE MERGED INTO THIS
AGREEMENT WHICH ALONE FULLY AND COMPLETELY EXPRESSES THEIR
AGREEMENT. THIS AGREEMENT MAY BE CHANGED ONLY IN WRITING
SIGNED BY BOTH OF THE PARTIES HERETO AND SHALL APPLY TO AND
BIND THE SUCCESSORS AND ASSIGNS OF EACH OF THE PARTIES HERETO
AND SHALL NOT MERGE WITH THE DEED DELIVERED TO PURCHASER AT
CLOSING;
I. ATTORNEYS' FEES AND COSTS. IN THE EVENT OF ANY LITIGATION
ARISING OUT OF BREACH OR CLAIMED BREACH OF THIS AGREEMENT, THE
PREVAILING PARTY SHALL BE ENTITLED TO RECOVER FROM THE OTHER
ALL COSTS AND EXPENSES INCURRED IN CONNECTION THEREWITH,
INCLUDING ATTORNEYS' FEES AND COSTS.
J. COUNTERPARTS. THIS AGREEMENT MAY BE EXECUTED IN ANY NUMBER OF
COUNTERPARTS, WHICH TAKEN TOGETHER SHALL CONSTITUTE ONE AND
THE SAME INSTRUMENT AND EACH OF WHICH SHALL BE CONSIDERED AN
ORIGINAL FOR ALL PURPOSES.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE EXECUTED THIS AGREEMENT AS
OF THE DATE AND YEAR FIRST ABOVE WRITTEN.
SELLER
/s/LARRY HOLMBERG
------------------------------------
LARRY HOLMBERG
PURCHASER
RICK'S CABARET INTERNATIONAL, INC.
BY:/s/ ROBERT L. WATTERS
---------------------------------
ITS: PRESIDENT
<PAGE>
EXHIBIT A
Legal Description
That part of Lots 1 and 2, Block 49, Town of Minneapolis described as
follows: Commencing at the most Westerly corner of said Block and
running thence Southeasterly along the Northeasterly line of Third
Street South in said City of Minneapolis, a distance of 118.31 feet to
the Northwesterly line of the alley comprising the Southeasterly 14
feet front and rear of Lot 2; thence at right angles Northeasterly
parallel to the Southeasterly line of Third Avenue South and along the
Northwesterly line of said alley a distance of 67 feet; thence at right
angles on a line parallel to and 67 feet from the Northeasterly line of
Third Street South, a distance of 118.31 feet to the Southeasterly line
of Third Avenue South; thence at right angles Southwesterly along the
Southeasterly line of Third Avenue South 67 feet to the point of
commencement, the four corners of which said tract of land have been
established and marked by Judicial Landmarks, according to the plat
thereof on file or of record in the office of the Register of Deeds in
and for said County.
Subject to a confirmatory of that certain party wall agreement made and
entered into on the first of September, 1881, by and between Stephen A.
Bemis and Judson M. Bemis on the one part and Leonard Paulle on the
other part and recorded in the office of the Register of Deeds in and
for Hennepin County, Minnesota on the 22nd day of December, 1881 in
Book 12 of Miscellaneous at page 220.
EXHIBIT 10.3
AMENDMENT TO ASSET PURCHASE AGREEMENT
AMENDMENT TO EARNEST MONEY CONTRACT
The parties to this Agreement ("Amendments") made this 4th day of
August, 1997, are as follows:
LARRY A. HOLMBERG ("Holmberg" under the Asset Purchase Agreement and
"Seller" under the Earnest Money Contract); AMUSEMENT CENTER, INC., a Minnesota
Corporation ("Amusement Center", and collectively referred to as "Seller" with
BUNS & ROSES II, INC., under the Asset Purchase Agreement); "BUNS & ROSES II,
INC., a Minnesota Corporation ("B&R II" and collectively referred to as "Seller"
with Amusement Center, Inc., in the Asset Purchase Agreement); RICK'S CABARET
INTERNATIONAL, INC., a Texas Corporation, ("Buyer" under the Asset Purchase
Agreement; "Purchaser" under the Earnest Money Contract); and RCI ENTERTAINMENT
(MINNESOTA), INC., a Minnesota Corporation ("RCI") a wholly owned subsidiary of
Rick's Cabaret International, Inc., and its designee to acquire all of the
assets under the Asset Purchase Agreement and Earnest Money Contract.
WHEREAS, the various parties have entered into a certain Asset Purchase
Agreement dated the 24th day of December, 1996, and a certain Earnest Money
Contract dated the 24th day of December, 1996; and
WHEREAS, the parties contemplated a combined closing under those
Agreements on or about July 31, 1997, which combined closing did not occur; and
WHEREAS, the parties desire to amend the Asset Purchase Agreement and
the Earnest Money Contract provide for the subsequent combined closing.
NOW, THEREFORE, in consideration of promises and mutual covenants
contained herein, the parties agree as follows:
ARTICLE I.
EXPLANATION OF AMENDMENTS
A. The parties agree that the total Purchase Price of
$3,000,000.00 remains unchanged. That all the terms and
conditions of the original Asset Purchase Agreement and
Earnest Money Contract shall be in full force and effect
unless changed by these Amendments. These Amendments shall
supersede and replace the terms of the Asset Purchase
Agreement and Earnest Money Contract.
1. The downpayment, however allocated between the
Purchased Assets and the Property should be as
follows:
<PAGE>
(i) $50,000.00 to be dispersed from the Escrow
Agreement to Holmberg on the execution of
these Amendments by all parties;
(ii) $150,000.00 to be paid to Holmberg at the
time of Closing on the sale of Purchased
Assets and Property;
(iii) 80,000 shares of common stock of Rick's
Cabaret International, Inc., issued to
Holmberg at the time of Closing;
(iv) The total value of the downpayment shall be
$300,000.00.
2. $200,000.00 of the purchase price shall be paid by
Buyer's execution and delivery of a Promissory Note
to be executed at Closing in the amount of
$200,000.00 amortized over 18 months, bearing
interest at the rate of 10% per annum payable in 17
equal monthly installments of principal and interest,
and a final balloon payment due on the 18th monthly
installment payment. The $200,000.00 Promissory Note
will be secured by all the collateral securing any
and all other indebtedness owned from the
Buyer/Purchaser to any of the Sellers.
3. The remaining $2,500,000.00 of the purchase price
shall be paid according to the terms of the Asset
Purchase Agreement and Earnest Money Contract.
4. The allocation of the Purchase Price of the Purchased
Assets shall be pursuant to an appraisal obtained,
prior to closing, by the Buyer/Purchaser as allocated
between the tangible personal property and goodwill.
The allocation of the Purchase Price for the Property
shall remain at $750,000.00.
5. The Closing, as contemplated by the parties, shall be
on or before October 31, 1997.
6. Following the execution of these Amendments,
Buyer/Purchaser shall be permitted to commence
construction or improvements of the building for
dressing rooms in the basement and a kitchen on the
ground floor following completion of the dressing
rooms. All such construction and improvements shall
be at the expense of Buyer/Purchaser and such
constructions and improvements shall not commence
until the Sellers have been provided with
certificates of insurance providing general
comprehensive liability insurance and coverage of not
less than $1,000,000.00 per occurrence and per person
and fire and extended coverages in an amount not less
than $750,000.00. Such certificate shall be specified
through all policies of insurance in effect and shall
not be canceled except upon ten (10) days prior
written notice to Sellers, and all
<PAGE>
policies of insurance shall name Sellers as an
additional insured thereunder. Buyer/Purchaser shall
obtain the consent of Holmberg for all such
construction and improvements, which consent shall
not unreasonably withheld. Prior to the beginning of
any construction or improvements, Buyer/Purchaser
shall establish an escrow construction fund and
deposit all funds required to pay for the
construction or improvements contemplated. Holmberg's
written consent shall be required for any
dispersements from the escrow account.
Buyer/Purchaser shall produce appropriate lien
waivers prior to dispersement.
B. Nothing contained in these Amendments or the original Asset
Purchase Agreement and Earnest Money Contract shall prevent
the Buyer/Purchaser from prepaying any amount due thereunder;
however, until all the obligations of Buyer/Purchaser to
Seller are paid or performed according to the terms of the
various Agreements, Buyer/Purchaser shall not be provided with
any satisfaction, release, or termination of any and all
mortgages, security agreements, and notes. It is further
agreed that Buyer/Purchaser may not sell, assign, or transfer
its interest (other than to RCI), and cannot dispose of any of
the assets, other than in the ordinary course of business,
without all of the obligations due to Sellers being performed
or paid in full.
ARTICLE II.
CHANGES IN THE ASSET PURCHASE AGREEMENT
A. As set forth in Article I., of these Amendments the changes,
additions, and deletions in the Asset Purchase Agreement dated
December 24, 1996, are as follows:
1. RCI, the wholly owned subsidiary of Rick's Cabaret
International, Inc., shall be the "Buyer", and all
the closing documents should be amended to reflect
this change. Rick's Cabaret International, Inc.,
shall guarantee and remain liable for all the
obligations of RCI.
2. 1.3(i) is amended to provide that the downpayment is
changed as set forth in Article I. to provide for
$50,000.00 Earnest Money at the time of execution of
these Amendments as provided for in Article III. A.
2. (a); $150,000.00 payable by cashiers check,
certified funds, or wire transfer at Closing; 80,000
shares of common stock of Rick's Cabaret
International, Inc., with a value assigned to those
shares of $100,000,00; and a note from Rick's Cabaret
International, Inc., payable to Holmberg amortized
and payable over 18 months, bearing interest at the
rate of 10% per annum, with the first payment due 30
days after Closing.
<PAGE>
3. 1.4 is deleted and replaced as follows: "In the event
there is no Closing, based upon this Agreement or the
Earnest Money Contract, being canceled or terminated
by Buyer, Holmberg shall retain the $50,000.00
Earnest Money released and paid to Holmberg as
liquidated damages, which shall be the sole and
exclusive remedy of Holmberg, Amusement Center, and
B&R II, except that the Seller shall not be required
to reimburse Buyer/Purchaser for any remodeling done
prior to Closing."
4. 1.6 shall be amended to read:
"The Purchase Price of the Property shall be
$750,000.00. The Purchase Price of the
Purchased Assets shall be allocated among
the Purchased Assets in accordance with the
schedule which shall be agreed upon and
signed by all the parties prior to the
Closing Date following an appraisal by the
Buyer."
5. 3.1 is amended to refer to "Buyer" as Rick's Cabaret
International, Inc., and a new sentence should be
added identical to the first regarding RCI
Entertainment (Minnesota), Inc., a Minnesota
corporation.
6. The following statement should be added to Paragraph
4.1:
"Effective July 19, 1997, the City of Minneapolis
approved an On-Sale Liquor Class A with Sunday Sales
License."
7. Subparagraph (h) of Paragraph 5.1 should be amended
to add the following:
" . . ., except for existing litigation
filed by Robert W. Sabes and Classic
Affairs, Inc., or any other action filed by
Sabes or a related party."
8. Subparagraphs (e), and (j) of Paragraph 5.2 shall be
deleted.
9. 6.1 shall be deleted and replaced as follows:
"The Closing of the transactions provided for in this
Agreement ("Closing") shall be held at the offices of
Messerli & Kramer P.A., 1800 Fifth Street Towers,
Minneapolis, Minnesota, 55402, commencing at 10:00
a.m. central daylight time on October 31, 1997,
unless an earlier Closing date is requested by Buyer
with at least five (5) business days written notice
of such earlier date. The day on which the Closing
occurs is referred to herein as the "Closing Date."
<PAGE>
10. 6.4 is amended to delete Subparagraphs (a) and (b)
and to relist Subparagraphs (c) through (h) as
Subparagraphs (d) through (i). New Subparagraphs (a)
through (c) are as follows:
(a) $150,000.00 payable by certified check, bank
check, or "Fed Funds" wire transfer;
(b) Promissory Note from Rick's Cabaret
International, Inc., in the amount of
$200,000.00 in the form to be provided at
Closing amortized and payable over 18
months, bearing interest at the rate of 10%
per annum;
(c) 80,000 shares of common stock of Rick's
Cabaret International, Inc., registered in
the name of Holmberg;
11. A new Paragraph 6.5 shall be added:
"6.5. HOLMBERG'S RIGHTS REGARDING THE COMMON
STOCK. Holmberg shall have the right to
demand sixty (60) days after the Closing
Date of the Agreement that Rick's Cabaret
International, Inc., file a Registration
Statement of Form S-3 (or if S-3 is not
available on any other available form) with
the Securities and Exchange Commission
("Commission") under the Securities Act of
1933, as amended ("the Act"), which, when
effective, will permit the resale of the
shares of common stock issued to Holmberg
pursuant to this Agreement. Rick's Cabaret
International, Inc., shall cause to be filed
with the Commission, as soon as practical
after demand is made by Holmberg, the
Registration Statement and shall use its
best efforts to cause the Registration
Statement to become effective as soon
thereafter as practical and will maintain
such effectiveness for a period of one (1)
year from the Closing Date.
12. A new Paragraph 6.6 shall be added:
"6.6 FAILURE TO CLOSE. In the event that Buyer
fails or refuses to close the transactions
contemplated by this Agreement or the
Earnest Money Contract, then Holmberg shall
retain the $50,000.00 previously released
and paid to Holmberg on August 4, 1997 as
liquidated damages, which shall be the sole
and exclusive remedy of Holmberg, Amusement
Center and/or B & R II, except that Sellers
shall not have to reimburse Buyer for any
improvements made by Buyer to the Property
before Closing. In the event that Holmberg,
Amusement Center or B & R II fail or refuse
to close the transactions contemplated by
this Agreement or the Earnest Money
Contract, then the Buyer shall have the
right to seek relief available at law, and
in addition to any other remedy available at
<PAGE>
law, to apply for and receive from a court
of competent jurisdiction equitable relief
by way of restraining order, injunction or
otherwise, prohibitory or mandatory, to
prevent a breach of the terms of this
Agreement or the Earnest Money Contract, or
by way of specific performance to enforce
performance of the terms of this Agreement
and the Earnest Money Contract, plus
reimbursement for costs, including
reasonable attorney's fees, incurred in the
securing of such relief."
13. 9.16 is deleted in its entirety.
B. Unless amended, added, or deleted by Article I. above or under
this Article II., all the remaining terms and conditions of
the Asset Purchase Agreement shall remain in full force and
effect according to its terms.
ARTICLE III.
EARNEST MONEY CONTRACT
A. As set forth in Article I. of these Amendments, the changes,
additions, and deletions in the Earnest Money Contract dated
December 24, 1996, are as follows:
1. RCI, the wholly owned subsidiary of Rick's Cabaret
International, Inc., shall be the "Purchaser", and
all the closing documents should be amended to
reflect this change. Rick's Cabaret International,
Inc., shall guarantee and remain liable for all the
obligations of RCI.
2. Subparagraphs 2.a. through c. are deleted and
replaced as follows:
a. $50,000.00 earnest money previously paid to
Seller; and
b. $700,000.00 by Purchaser executing two (2)
Promissory Notes in the form attached as
Exhibit C-1 in the amount of $200,000.00
from Rick's Cabaret International, Inc., and
as Exhibit C-2 in the amount of $500,000.00
from RCI secured by a Combination Mortgage,
Security Agreement and Fixture and Financing
Statement in the form attached as Exhibit D,
and UCC-2 Financing Statement in the form
attached as Exhibit E. The Exhibit C-2
Promissory Note and all the other
obligations of RCI shall be guaranteed by
Rick's Cabaret International, Inc., in the
form attached hereto as Exhibit F.
3. A new Paragraph 8. shall be added and old Paragraphs
8 through 22 shall be renumbered. New Paragraph 8.
shall be as follows:
"8. REMODELING. The parties hereto agree that
the Purchaser may commence remodeling of the
real property after the execution of
<PAGE>
these Amendments and before the contemplated
closing of October 31, 1997. The parties'
agreement to allow the remodeling to
commence prior to closing on this Agreement
shall be subject to the following:
a. The remodeling shall be limited to
the construction or improvement to
the dressing rooms in the basements,
which shall be done first, and then
for the construction of a kitchen on
the ground floor.
b. Purchaser shall retain a Contractor
licensed to do business in the City
of Minneapolis and State of
Minnesota to perform the remodeling
work. The Contractor shall secure
any necessary permits and
inspections necessary for the proper
completion of the work.
c. All plans and specifications
relating to the remodeling shall be
approved in writing by Seller prior
to any work being commenced. Any
material change or modification to
those plans and specifications shall
also be approved in writing by
Seller. Seller's approval will not
be unreasonably withheld.
d. The Contractor shall provide a firm
bid for the remodeling prior to
construction and any changes to the
bid shall be in writing from the
Contractor, which will include a
sworn construction statement listing
subcontractors and materialmen.
e. Purchaser agrees to deposit funds
equal to the amount of the
remodeling costs as set forth in
Contractor's firm bid in an
interest-bearing escrow account
requiring two signatures, one by
Seller and one by Purchaser. Seller
agrees to sign checks to disburse
funds from that escrow account
directly to Contractor and/or
Subcontractors in exchange for full
or partial mechanic's lien waivers
from Contractor and/or
Subcontractors. Purchaser shall also
sign those checks. Seller agrees to
cooperate with Purchaser in
disbursing reasonable progress
payments to Contractor based upon
Contractor's completion of work.
Seller may use those funds to
discharge any mechanic's liens filed
against the real property relating
to remodeling work done by Purchaser
by paying them into Hennepin County
District Court for that purpose, or
if Purchaser does not dispute the
mechanic's lien claim, by paying
them directly
<PAGE>
to Contractor and/or Subcontractor
for a mechanic's lien waiver.
Purchaser agrees to execute the
checks necessary to accomplish the
above. Prior to or contemporaneously
with the release of all of the
escrowed funds to the Contractor,
Contractor shall provide a full
mechanic's lien waiver from itself
and its subcontractors and
materialmen to Seller and Purchaser.
f. Contractor shall carry public
liability insurance covering claims
for injury, wrongful death, or
property damage, covering the period
of construction in an amount of not
less than $1,000,000.00 per
occurrence and in the amount of
$750,000.00 for property damage
insurance. Contractor shall also
carry, during the period of
construction, builder's risk
insurance on the improvements
against loss or damage by vandalism,
malicious mischief, fire and
extended insurance coverage. Said
insurance shall name Purchaser and
Seller and its Mortgagees, if any,
as loss payees under the policy and
provide that no act or omission of
Contractor shall operate to deny or
limit coverage to Purchaser, Seller,
and/or Seller's Mortgagee. The
policy shall be in an amount not
less than the full replacement value
of the improvements. Prior to the
commencement of the remodeling,
Contractor shall deliver to Seller
and Purchaser certificates of
liability and builder's risk
insurance required herein.
g. In the event that there is no
Closing, Seller shall not be
required to reimburse Purchaser for
any remodeling done prior to
Closing, and Purchaser shall remain
liable to Seller for any unpaid
remodeling costs.
4. The following sentence shall be added to
Paragraph 11 (old Paragraph 10):
"Until all the obligation of Rick's Cabaret
International, Inc., and RCI to Seller or
Holmberg under the Asset Purchase Agreement
or Earnest Money Contract are completed,
Purchasers will not receive a satisfaction
of the Exhibit D, Mortgage or termination of
the Exhibit E., Financing Statement."
<PAGE>
5. Paragraph 20 (old Paragraph 19) shall be
deleted and replaced as follows:
"REMEDIES. If Seller defaults in the
performance of this Agreement and Purchaser
does not terminate this Agreement, Seller
acknowledges that the Property is unique and
that money damages to Purchaser in the event
of default by Seller are inadequate.
Accordingly, Purchaser shall have the right
to seek any other relief available at law,
and in addition to any other remedy
available at law, to apply for and to
receive from a court of competent
jurisdiction equitable relief by way of
restraining order, injunction or otherwise,
prohibitory or mandatory, to prevent a
breach of the terms of this Agreement, or by
way of specific performance to enforce
performance of the terms of this Agreement,
or by way or specific performance to enforce
performance of the terms of this Agreement
or rescission, plus reimbursement for costs,
including reasonable attorneys' fees,
incurred in the securing of such relief.
This right to equitable relief shall not be
construed to be in lieu of or to preclude
Purchaser's right to seek a remedy at law.
If Purchaser defaults in the performance of
this Agreement, Seller's sole and exclusive
remedy shall be to retain the $50,000.00
Earnest Money released and paid to him as
liquidated damages except that Seller shall
not be required to reimburse Purchaser for
any remodeling done prior to Closing."
B. To the extent that these Amendments to the Asset Purchase
Agreement and Earnest Money Contract cause any change,
addition, or deletion to any of the Exhibits herein, then the
parties agree that such Exhibits shall be modified prior to
Closing to conform to these Amendments.
C. Unless amended, added, or deleted by Article I. above or under
this Article III., all the remaining terms and conditions of
the Earnest Money Contract shall remain in full force and
effect according to its terms.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
these Amendments as of date first above written.
SELLERS: BUYER/PURCHASER
AMUSEMENT CENTER, INC. RICK'S CABARET INTERNATIONAL, INC.
<PAGE>
By /s/ LARRY A. HOLMBERG By /s/ ROBERT L. WATTERS
--------------------- ---------------------
Larry A. Holmberg Robert L. Watters
President President
BUNS & ROSES, INC. RCI ENTERTAINMENT (MINNESOTA) INC.
By /s/ LARRY A. HOLMBERG By /s/ ROBERT L. WATTERS
--------------------- ---------------------
Larry A. Holmberg Robert L. Watters
President President
/s/ LARRY A. HOLMBERG
---------------------
Larry A. Holmberg
Individually
Exhibit 10.4
SECOND AMENDMENT TO ASSET PURCHASE AGREEMENT
AND TO EARNEST MONEY CONTRACT
The parties to this Second Amendment to Asset Purchase Agreement and to
Earnest Money Contract (the "Second Amendment") made this 31st day of October,
1997, are as follows:
LARRY A. HOLMBERG ("Holmberg" or "Seller"); AMUSEMENT CENTER, INC., a
Minnesota Corporation ("Amusement Center" and collectively referred to as
"Seller" with Buns & Roses II, Inc., under the Asset Purchase Agreement); BUNS &
ROSES II, INC., a Minnesota Corporation ("B&RII" and collectively referred to as
"Seller" with Amusement Center, Inc., in the Asset Purchase Agreement): RICK'S
CABARET INTERNATIONAL, INC., a Texas Corporation ("Rick's Cabaret"); and RCI
ENTERTAINMENT (MINNESOTA), INC., a Minnesota Corporation ("RCI"), a wholly owned
subsidiary of Rick's Cabaret International, Inc., and its designee to acquire
all of the assets under the Asset Purchase Agreement and Earnest Money Contract.
WHEREAS, the various parties have entered into a certain Asset Purchase
Agreement dated the 24th day of December, 1996 ("Asset Purchase Agreement"), and
a certain Earnest Money Contract dated the 24th day of December, 1996 ("Earnest
Money Contract"); and
WHEREAS, the various parties entered into an Amendment to the Asset
Purchase Agreement and to the Earnest Money Contract dated the 4th day of
August, 1997 ("First Amendment"); and
WHEREAS, the parties contemplated a combined closing under those
Agreements, as amended, on or about October 31, 1997, which combined closing did
not occur; and
WHEREAS, the parties desire to further amend the Asset Purchase
Agreement and the Earnest Money Contract to provide for the subsequent combined
closing and for the other changes as referred to herein.
NOW, THEREFORE, in consideration of promises and mutual covenants
contained herein, the parties agree as follows:
1. SCOPE OF SECOND AMENDMENT. All of the terms and conditions of the
original Asset Purchase Agreement and Earnest Money Contract, as amended
pursuant to the First Amendment, shall be in full force and effect unless
amended and changed by this Second Amendment. This Second Amendment shall
supersede and replace the terms of the Asset Purchase Agreement and Earnest
Money Contract, as amended by the First Amendment, to the extent contemplated
and so amended hereby.
2. MODIFICATION OF PROMISSORY NOTES. The $500,000 Mortgage Promissory
Note in the form attached to the Asset Purchase Agreement and the $2,000,000
Promissory Note in the form attached to the Asset Purchase Agreement
(collectively the "Long Term Notes"), both as
<PAGE>
contemplated by the terms of the Asset Purchase Agreement and the Earnest Money
Contract are hereby modified to provide that the first payment due under the
Long Term Notes shall be due on April 1, 1998 and, thereafter, shall be due
pursuant to the terms and conditions as contemplated in the Asset Purchase
Agreement and Earnest Money Contract. The interest accrued on the Long Term
Notes from the date of Closing (as set forth herein) until April 1, 1998, shall
be added to the principal amount of the Long Term Notes and will be amortized
over the term of the Long Term Notes.
3. AMENDMENT TO GUARANTY. The Guaranty referred to in Section 2.c. of
the Earnest Money Contract, as reflected in the form attached thereto, as
Exhibit F, shall be and is hereby amended to provide that in the event that the
existing litigation filed by Robert W. Sabes and Classic Affairs, Inc., or if
any other action is filed by Sabes or by any related party against Rick's
Cabaret or any of its subsidiaries or its officers, directors or employees,
including specifically, Robert L. Watters, (hereinafter collectively referred to
as "Rick's") results in any injunctive relief or prohibitive relief granted to
Sabes against Rick's, then the Guaranty will be terminated and of no force and
effect and the obligations of Rick's Cabaret with respect to the Long Term Notes
will be extinguished, provided however, that if any liens attach to the Property
(as defined in the Earnest Money Contract) as a result of improvements made by
Rick's Cabaret or RCI to the Property subsequent to the Closing Date that Rick's
Cabaret will continue to be obligated to repay only those existing liens.
4. ISSUANCE OF ADDITIONAL COMMON STOCK. As consideration for entering
into this Second Amendment, Rick's Cabaret hereby agrees to cause to be issued
upon the execution of this Second Amendment 10,000 shares of restricted common
stock of Rick's Cabaret International, Inc. ("Common Stock"), registered in the
name of Holmberg. The Common Stock to be issued pursuant to this Second
Amendment shall have the same registration rights as provided for the 80,000
shares of Common Stock contemplated to be issued at Closing to Holmberg pursuant
to the First Amendment. Holmberg shall be entitled to retain the 10,000 shares
of Common Stock regardless of whether the transactions contemplated by the Asset
Purchase Agreement and Earnest Money Contract are consummated on the Closing
Date, provided, however, that in the event that the Asset Purchase Agreement and
Earnest Money Contract do not close and no further shares are issued to
Holmberg, then the registration rights as provided by the First Amendment will
terminate.
5. CLOSING. The Closing of the transactions provided for in the Asset
Purchase Agreement and Earnest Money Contract, both as amended pursuant to the
First Amendment and this Second Amendment (the "Closing") shall be held at the
offices of Messerli & Kramer, P.A., 1800 Fifth Street Towers, Minneapolis,
Minnesota 55402, commencing at 10:00 a.m. Central Daylight Time on January 5,
1998. The day on which the Closing occurs is referred to in the Asset Purchase
Agreement and the Earnest Money Contract as the "Closing Date".
6. EXECUTION IN COUNTERPART. This Second Amendment may be executed in
any number of counterparts, which taken together shall constitute one and the
same instrument and each of which shall be considered an original for all
purposes.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
these Amendments as of the date first above written.
AMUSEMENT CENTER, INC. RICK'S CABARET INTERNATIONAL, INC.
By: /s/ LARRY HOLMBERG By: /s/ ROBERT L. WATTERS
-------------------------------- --------------------------------
Larry A. Holmberg, President Robert L. Watters, President
BUNS & ROSES, INC. RCI ENTERTAINMENT (MINNESOTA), INC.
By: /s/ LARRY HOLMBERG By: /s/ ROBERT L. WATTERS
-------------------------------- --------------------------------
Larry A. Holmberg, President Robert L. Watters, President
/s/ LARRY HOLMBERG
- -----------------------------------
Larry A. Holmberg, Individually
Exhibit 23.2
The Board of Directors
Rick's Cabaret International, Inc.
We consent to the use of our Report dated December 18, 1997, relating to the
consolidated financial statements of Rick's Cabaret International, Inc. as of
September 30, 1997 and 1996, incorporated by reference herein and to the
reference to our firm under the heading "Experts" in the Registration Statement
on Form S-3.
/s/ Jackson & Rhodes P.C.
-------------------------
Jackson & Rhodes P.C.
March 30, 1998
Dallas, Texas
