Purchase Agreement dated March 4, 2008

 

(a)

$4,250,000 by cashier’s check, certified funds or wire transfer payable at Closing; and

 

(b)

57,918 shares of restricted common stock $.01 par value of Rick’s (the “Rick’s Real Property Shares”) to be valued at $25.00 per share.

 

a)

Rick’s LLC Shares.  On or after one (1) year from the date of Closing, each of Messrs. Golding, Meyer and McClure shall have the right, but not the obligation, to have Rick’s purchase from each of Messrs. Golding, Meyer and McClure 1,207 of the Rick’s LLC Shares per month (the “Monthly LLC Shares”) calculated at a price per share equal to $25.00 per share (“Value of the Rick’s LLC Shares”) until Messrs. Golding, Meyer and McClure have each received $1,267,350 from (i) the sale of the 50,694 Rick’s LLC Shares sold by them, regardless of whether sold to Rick’s, sold in the open market or in a private transaction or otherwise and (ii) the payment of any Deficiency (as hereinafter defined) by Rick’s.  Each Seller, individually, shall notify Rick’s during any given month of his election to “Put” the Monthly LLC Shares to Rick’s during that particular month and Rick’s shall have three (3) business days to elect to buy the Monthly LLC Shares or instruct the respective Seller(s) to sell the Monthly LLC Shares in the open market.   At Rick’s election, during any given month, it may either buy the Monthly LLC Shares or, if Rick’s elects not to buy the Monthly LLC Shares from the respective Seller(s), then such Seller(s) shall sell the Monthly LLC Shares in the open market and any deficiency between the amount which the Seller(s) receive from the sale of the Monthly LLC Shares and the Value of the Rick’s LLC Shares (the “LLC Deficiency”) shall be paid by Rick’s within three (3) business days after receipt of written notice from the respective Seller(s) of the sale of the Monthly LLC Shares which shall provide the written sales confirmation and the amount of the LLC Deficiency.  Rick’s obligation under this Section 1.5(a) to purchase the Monthly LLC Shares from any respective Seller shall terminate and cease at such time as such Seller has received an aggregate amount of $1,267,350 from (i) the sale of the Rick’s LLC Shares, regardless of whether sold to Rick’s, sold in the open market or in a private transaction or otherwise, and (ii) the payments of any LLC Deficiency by Rick’s.  Each of the Sellers, individually, agree to provide monthly statements to Rick’s as to the total number of Rick’s LLC Shares which Seller sold and the amount of proceeds derived therefrom.  Except as set forth in Section 1.5(c) below, nothing contained in this Section 1.5(a) shall limit or preclude any Seller from selling their Rick’s LLC Shares in the open market or require any Seller to “Put” their Rick’s LLC Shares to Rick’s during any given month.

 

(b)

Rick’s Real Property Shares.  On or after one (1) year from the date of Closing, DPC shall have the right, but not the obligation, to have Rick’s purchase from DPC 1,379 of the Rick’s Real Property Shares per month (the “Monthly Real Property Shares”) calculated at a price per share equal to $25.00 per share (“Value of the Rick’s Real Property Shares”) until DPC has received an aggregate of $1,447,950 from (i) the sale of the Rick’s Real Property Shares, regardless of whether sold to Rick’s, sold in the open market or in a private transaction or otherwise and (ii) the payment of any Deficiency (as hereinafter defined) by Rick’s.   DPC shall notify Rick’s during any given month of its election to “Put” the Monthly Real Property Shares to Rick’s during that particular month and Rick’s shall have three (3) business days to elect to buy the Monthly Real Property Shares or instruct DPC to sell the Monthly Real Property Shares in the open market.   At Rick’s election, during any given month, it may either buy the Monthly Real Property Shares or, if Rick’s elects not to buy the Monthly Real Property Shares from DPC, then DPC shall sell the Monthly Real Property Shares in the open market and any deficiency between the amount which DPC receive from the sale of the Monthly Real Property Shares and the Value of the Rick’s Real Property Shares (the “Real Property Deficiency”) shall be paid by Rick’s within three (3) business days after receipt of written notice from DPC of the sale of the Monthly Real Property Shares which shall provide the written sales confirmation and the amount of the Real Property Deficiency.  Rick’s obligation under this Section 1.5(b) to purchase the Monthly Real Property Shares from DPC shall terminate and cease at such time as DPC has received an aggregate amount of $1,447,950 from (i) the sale of the Rick’s Real Property Shares, regardless of whether sold to Rick’s, sold in the open market or in a private transaction or otherwise, and (ii) the payments of any Real Property Deficiency by Rick’s.  DPC agrees to provide monthly statements to Rick’s as to the total number of Rick’s Real Property Shares which DPC sold and the amount of proceeds derived therefrom.  Except as set forth in Section 1.5(c) below, nothing contained in this Section 1.5(b) shall limit or preclude the Sellers from selling the Rick’s Real Property Shares in the open market or require DPC to “Put” the Rick’s Real Property Shares to Rick’s during any given month.

 

(c)

Messrs. Golding, Meyer and McClure, individually, and Rick’s will enter into a Lock-Up/Leak-Out Agreement which will provide that each of Messrs. Golding, Meyer and McClure will sell (i) not more than 2,414 Shares per 7-day period, (ii) not more than 6,035 Shares per 30-day period, and (iii) not more than 16,898 Shares per 90-day period, regardless of whether each of Messrs. Golding, Meyer and McClure “Put” the Shares to Rick’s or sell them in the open market or otherwise.  In the event that Messrs. Golding, Meyer or McClure elect to sell their Shares pursuant to this Section 1.5(c), then any amount sold at prices less than $25.00 shall be deemed to be sold at $25.00 for purposes of Section 1.5.

 

(d)

DPC and Rick’s will enter into a Lock-Up/Leak-Out Agreement which will provide that DPC will sell (i) not more than 2,758 Shares per 7-day period, (ii) not more than 6,895 Shares per 30-day period, and (iii) not more than 19,306 Shares per 90-day period, regardless of whether DPC “Puts” the Shares to Rick’s or sells them in the open market or otherwise.  In the event that DPC elects to sell its Shares pursuant to this Section 1.5(d), then any amount sold at prices less than $25.00 shall be deemed to be sold at $25.00 for purposes of Section 1.5.

 

(a)

Each of the Sellers will enter into a five (5) year covenant not to compete pursuant to the terms of which the Sellers will agree not to compete, either directly of indirectly, with the Purchaser, RCI, Rick’s or any of their affiliates, by operating an establishment featuring live adult entertainment in Dallas County, Tarrant County or any of the adjacent counties thereto; and

 

(b)

Rick’s. DPC and the Sellers shall have entered into a Lock-Up/Leak-Out Agreement.

 

(a)

Hotel Development, HD, Illusions and DPC (i) are entities duly organized, validly existing and in good standing under the laws of the state of Texas, (ii) have all requisite power and authority to own, operate and lease its properties and to carry on its business, and (iii) are duly qualified to transact business and are in good standing in all jurisdictions where their ownership, lease or operation of property or the conduct of its business requires such qualification, except where the failure to do so would not have a material adverse effect to the Sellers, Hotel Development, HD, Illusions or DPC, respectively.

 

(b)

The authorized capital of Hotel Development consists of the units of Partnership Interest listed on Exhibit 3.1(b) which are validly issued and outstanding. There is no other class of capital authorized or issued by Hotel Development.  All of the issued and outstanding Partnership Interest of Hotel Development are owned by the Sellers and are fully paid and non-assessable.  None of the Partnership Interest issued are in violation of any preemptive rights.  Hotel Development has no obligation to repurchase, reacquire, or redeem any of its outstanding Partnership Interest.  There are no outstanding securities convertible into or evidencing the right to purchase or subscribe for any Partnership Interest of Hotel Development, there are no outstanding or authorized options, warrants, calls, subscriptions, rights, commitments or any other agreements of any character obligating Hotel Development to issue any Partnership Interest or any securities convertible into or evidencing the right to purchase or subscribe for any Partnership Interest, and there are no agreements or understandings with respect to the voting, sale, transfer or registration of any Partnership Interest of Hotel Development.

 

(c)

The authorized capital of HD consists of the units of Membership Interest listed on Exhibit 3.1(c) which are validly issued and outstanding. There is no other class of capital authorized or issued by HD.  HD is the sole General Partner of Hotel Development.  All of the issued and outstanding Membership Interest of HD are owned by the Sellers and are fully paid and non-assessable.  None of the Membership Interests issued are in violation of any preemptive rights.  HD has no obligation to repurchase, reacquire, or redeem any of its outstanding Membership Interest.  There are no outstanding securities convertible into or evidencing the right to purchase or subscribe for any Membership Interest of HD, there are no outstanding or authorized options, warrants, calls, subscriptions, rights, commitments or any other agreements of any character obligating HD to issue any Membership Interest or any securities convertible into or evidencing the right to purchase or subscribe for any Membership Interest, and there are no agreements or understandings with respect to the voting, sale, transfer or registration of any Membership Interest of HD.

 

(a)

None of Hotel Development, HD and Illusions will authorize, declare, pay or effect any dividend except as is consistent with past practices of Hotel Development, HD and/or Illusions, or liquidation or other distribution in respect of the units of Partnership Interest of Hotel Development or Membership Interest of HD, or any other equity interest or any direct or indirect redemption, purchase or other acquisition of any equity interest of Hotel Development, HD or Illusions;

 

(b)

None of Hotel Development, HD and Illusions will make any changes in their condition (financial or otherwise), liabilities, assets, or business or in any of their business relationships, including relationships with suppliers or customers, that, when considered individually or in the aggre­gate, might reasonably be expected to have a material adverse effect on Hotel Development, HD or Illusions or the results of operations of the Club;

 

(c)

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

 

(d)

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

 

(e)

None of Hotel Development, HD or Illusions will accelerate, terminate, modify or cancel any agreement, contract, lease or license (or series of related agreements, contracts, leases and licenses) involving more than $1,000 to which Hotel Development, HD or Illusions is a party;

 

(f)

None of Hotel Development, HD or Illusions will make any loans to any person or entity, or guarantee any loan, absent the consent of the Buyer;

 

(g)

None of Hotel Development, HD or Illusions will waive or release any right or claim held by Hotel Development, HD or Illusions, absent the consent of the Buyer;

 

(h)

Hotel Development, HD and Illusions will operate their respective businesses in the ordinary course and consistent with past practices so as to preserve their business organization intact, to retain the ser­vices of their employees and to preserve their goodwill and relationships with suppliers, creditors, cus­tomers, and others having business relationships with them;

 

(i)

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

 

(j)

None of Hotel Development, HD or Illusions will delay or postpone the payment of accounts payable and other liabilities outside the ordinary course of business;

 

(k)

None of Hotel Development, HD or Illusions will make any loan to, or enter into any other transaction with, any of their directors, officers, and employees, outside the ordinary course of business;

 

(l)

None of Hotel Development, HD or Illusions will make any change in any method, practice, or principle of accounting involving the business of Hotel Development, HD and/or Illusions, or the assets of Hotel Development, HD and/or Illusions;

 

(m)

Hotel Development will not issue, sell or otherwise dispose of any of its Partnership Interests, or create, sell or dispose of any options, rights, conversion rights or other agreements or commitments of any kind relating to the issuance, sale or disposition of any of its Partnership Interests;

 

(n)

HD will not issued, sell or otherwise dispose of any of its Membership Interests, or create, sell or dispose of any options, rights, conversion rights or other agreements or commitments of any kind relating to the issuance, sale or disposition of any of its Membership Interests;

 

(o)

Hotel Development will not reclassify, split up or otherwise change any of its Partnership Interests;

 

(p)

HD will not reclassify, split up or otherwise changes of its Membership Interests;

 

(q)

None of Hotel Development, HD or Illusions will be a party to any merger, consolidation or other business combination; and

 

(r)

None of Hotel Development, HD or Illusions will agree to take any action described in this Section 6.3.

 

(a)

Representations and Warranties of Hotel Development, HD, Illusions, DPC and the Sellers.  The representations and warranties of Hotel Development, HD, Illusions, DPC and the Sellers shall be true and correct on the date hereof and on and as of the Closing Date, as though made on and as of the Closing Date;

 

(b)

Covenants.  All covenants, agreements and conditions contained in this Agreement to be performed by Hotel Development, HD, Illusions, DPC and the Sellers on or prior to the Closing Date shall have been performed or complied with in all respects;

 

(c)

Delivery of Certificates.  The Sellers, Hotel Development, HD, Illusions and DPC shall provide to Buyer, RCI and Rick’s certificates, dated as of the Closing Date and signed by each of the Sellers and by representatives of Hotel Development, HD, Illusions and DPC, respectively, to effect set forth in Section 7.1(a) and 7.1(b) for the purpose of verifying the accuracy of such representations and warranties and the performance and satisfaction of such covenants and conditions;

 

(d)

Resolutions.  Hotel Development, HD, DPC and Illusions shall have delivered resolutions of Hotel Development, HD DPC and Illusions, which authorize the execution, delivery and performance of this Agreement and the documents referred to herein to which it is or is to be a party dated as of the Closing Date;

 

(e)

Delivery of Partnership Interest and Membership Interest.  The Sellers shall deliver or cause to be delivered to Buyer (i) originally issued certificate representing the Partnership Interest of Hotel Development and (ii) the originally issued certificate representing the Membership Interest of HD duly endorsed over to the Buyer in a form satisfactory to the Buyer;

 

(f)

Delivery of Real Property.  DPC shall deliver or cause to be delivered to RCI a General Warranty Deed and any other documents necessary to convey good and marketable title to the Real Property, free and clear of all encumbrances;

 

(g)

Management Agreement.  The Management Agreement between Illusions and Hotel Development shall be in full force and effect;

 

(h)

Legal Opinion.  Illusions shall deliver to Buyer, RCI and Rick’s a legal opinion confirming the validity of the actions to be taken by Illusions hereunder in a form mutually acceptable to the parties hereto ;

 

(i)

Related Transactions.  The Related Transactions set forth in Section 2.3 shall be consummated concurrently with the Closing;

 

(j)

Permits.  Buyer shall possess all necessary permits and other authorizations, whether city, county, state or federal, which may be needed to conduct topless entertainment with the sale of alcoholic beverages on the Premises and all such permits and authorizations shall be in good order, and, unless otherwise waived by the Buyer and Rick’s, without any administrative actions pending or concluded that may challenge or present an obstacle to the continued performance of topless entertainment and sale of alcoholic beverages at the Club and the Certificate of Occupancy issued by the City of Dallas which zones the Premises for an adult oriented business shall be in full force and effect;

 

(k)

Zoning.  Illusions shall continue to hold any and all permits, zoning classifications or authorizations necessary to sell alcoholic beverages at the Club and the Buyer shall have been issued any permits, zoning classifications or authorizations necessary to conduct topless entertainment at the Club and these permits, zoning classifications or authorizations shall be held and/or issued to Buyer at or prior to the Closing.

 

(l)

Financial Records.  The financial records of Hotel Development and HD shall be maintained and exist in such a manner as to allow for a certified audit as determined by Rick’s;

 

(m)

Liabilities.  None of Hotel Development, HD or Illusions shall have any liabilities as of the date of Closing except for any contingent liabilities which may exist as set forth in Exhibit 3.22;

 

(n)

Financing.  RCI shall have obtained bank financing acceptable to it in its sole discretion in an amount of not less than $3,200,000 in connection with the financing of the Property;

 

(o)

Third-Party Consents.  Any and all consents or waivers required from third parties relating to this Agreement or any of the other transactions contemplated hereby shall have been obtained;

 

(p)

Satisfactory Diligence.  Buyer shall have concluded its due diligence investigation of Hotel Development and HD and their respective assets and properties, RCI shall have concluded to its satisfaction its due diligence investigation related to the title to the Real Property, and all other matters related to the foregoing, and shall be satisfied, in its absolute and sole discretion, with the results thereof;

 

(q)

No Actions or Proceedings.  No claim, action, suit, investigation or proceeding shall be pending or threatened before any court or governmental agency which presents a substantial risk of the restraint or prohibition of the transactions contemplated by this Agreement;

 

(r)

Government Approvals.  All authorizations, permits, consents, orders, licenses or approvals of, or declarations or filings with, or expiration of waiting periods imposed by, any governmental entity necessary for the consummation of the transactions contemplated by this Agreement shall have been filed, occurred or been obtained; and

 

(s)

Appointment of Manager/Officer/Resignations.  At Closing, (i) Eric Langan shall have been appointed as President/Chief Executive Officer of Hotel Management and HD; (ii) Buyer shall have been appointed as Manager of HD; (iii)the Board of Directors of Illusions shall have caused a membership meeting to have occurred wherein the then existing Board of Directors will resign and nominate three new members as chosen by the Buyer to serve on the new Board of Directors of Illusions; and (iv) each of the Sellers shall resign any and all officer positions held in Hotel Development and/or HD.

 

(a)

Representations, Warranties and Agreements of Buyer, RCI and Rick’s.  The representations and warranties of Buyer, RCI and Rick’s shall be true and correct on the date hereof and on and as of the Closing Date, as though made on and as of the Closing Date;

 

(b)

Covenants.  All covenants, agreements and conditions contained in this Agreement to be performed by the Buyer, RCI or Rick’s on or prior to the Closing Date shall have performed or complied with in all respects;

 

(c)

Delivery of Certificates.  Buyer, RCI and Rick’s shall provide to Hotel Development, HD, Illusions, DPC and the Sellers certificates dated as of the Closing Date and signed by a representative of the Buyer, RCI and Rick’s to the effect set forth in Section 7.2(a) and 7.2(b) for the purpose of verifying the accuracy of such representations and warranties and the performance and satisfaction of such covenants and conditions;

 

(d)

Resolutions.  Buyer, RCI and Rick’s shall deliver resolutions of the Buyer, RCI and Rick’s, which authorize the execution, delivery and performance of this Agreement and the documents referred to herein to which it is or is to be a party dated as of the Closing Date;

 

(e)

Payment of Purchase Price.  (i) Buyer and RCI shall have tendered the cash portions of the Purchase Price set forth in Section 1.2 and 1.4, and (ii) Rick’s shall have delivered the Shares representing the stock portions of the Purchase Price to the Sellers as set forth in Section 1.2 and 1.4 or shall deliver a letter of instruction to the transfer agent instructing the issuance of the Shares to the Sellers;

 

(f)

Related Transactions.  The Related Transaction set forth in Section 2.3 shall be consummated concurrently with the Closing;

 

(g)

Consents; Transfer of Licenses.  All necessary transfers of licenses and leases required for the operation of the business of Hotel Development and HD shall have been obtained.  The Certificate of Occupancy issued by the City of Dallas which zones the Premises for an adult oriented business shall be in full force and effect;

 

(h)

Third Party Consents.  Any and all consents or waivers required from third parties relating to this Agreement or any of the other transactions contemplated hereby shall have been obtained;

 

(i)

No Actions or Proceedings.  No claim, action, suit, investigation or proceeding shall be pending or threatened before any court or governmental agency which presents a substantial risk of the restraint or prohibition of the transactions contemplated by this Agreement;. and

 

(j)

Government Approvals.  All authorizations, permits, consents, orders or approvals of, or declarations or filings with, or expiration of waiting periods imposed by, any governmental entity necessary for the consummation of the transactions contemplated by this Agreement shall have been filed, occurred or been obtained.

(a)

if to the Sellers:

The Address listed on Exhibit 9.2(a)

 

 

with a copy to:

Karen S.  Hockstad

Hockstad Law Office, Ltd.

5003 Horizons Drive, Suite 200

Columbus, Ohio  43220

Fax: (614) 451-3156

(b)

if to Illusions:

Illusions-Dallas Private Club, Inc.

8550 N. Stemmons Freeway

Dallas, Texas  75226

With a copy to:

Roger Albright

Law Offices of Roger Albright

3301 Elm Street

Dallas, Texas   ###-###-####

Fax: (214) 939-9229

(c)

if to Buyer, RCI or Rick’s:

RCI Entertainment (Dallas), Inc.

Attn:  Eric Langan, President

10959 Cutten Road

Houston, Texas  77066

Fax:   ###-###-####

with a copy to:

Robert D. Axelrod

Axelrod Smith & Kirshbaum

5300 Memorial Drive, Suite 700

Houston, Texas  77007

Fax:   ###-###-####

By:  Eric Langan, President

Date: March 4, 2008

By:  Eric Langan, President

Date: March 4, 2008

By:  Eric Langan, President

Date: March 4, 2008

Jerry W. Golding, Individually

Date:  February 29, 2008

Kenneth L. Meyer, Individually

Date:  March 3, 2008

Charles A. McClure, Individually

Date:  March 3, 2008

 

By:  HD Texas Management, LLC

Its:  General Partner

By:  Charles A. McClure

Its:  Co-Chief Executive Officer

Date: March 4, 2008

By:

Its:  Manager

By:  Charles A. McClure

Its:  Co-Chief Executive Officer

Date: March 4, 2008

By:  Charles A. McClure

Its:  President

Date: March 4, 2008