STOCK PURCHASE AGREEMENT
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This Stock Purchase Agreement (the "Agreement") is made and entered into
this 31st day of March, 2005, by and among Rick's Cabaret International, Inc.,
a Texas corporation (the "Company" or "Seller"), and MBG Acquisition LLC, a
Delaware limited liability company (the "Buyer").
WHEREAS, Seller owns 1000 shares of common stock, $.01 par value (the
"Shares") of RCI Entertainment (Houston), Inc., a Texas corporation ("RCI
Houston"), which Shares represent all of the shares of capital stock of RCI
Houston presently issued and outstanding; and
WHEREAS, RCI Houston owns and operates an adult entertainment cabaret (the
"Business") known as Rick's Cabaret ("Rick's South") located at 15301 Gulf
Freeway, Houston, Texas 77034 (the "Premises").
WHEREAS, Seller desires to sell the Shares of RCI Houston to Buyer on the
terms and conditions set forth herein; and
WHEREAS, Buyer desires to purchase the Shares of RCI Houston from Seller on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreements and the respective representations and warranties herein contained,
and on the terms and subject to the conditions herein set forth, the parties
hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE SHARES
Section 1.1 Sale of the Shares. Subject to the terms and conditions
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set forth in this Agreement, at the Closing (as hereinafter defined) Seller
hereby agrees to sell, transfer, convey and deliver to Buyer all of the Shares,
free and clear of all encumbrances, which represents all of the issued and
outstanding capital stock of RCI Houston, and shall deliver to Buyer stock
certificates representing the Shares, duly endorsed to Buyer or accompanied by
duly executed stock powers in form and substance satisfactory to Buyer.
Section 1.2 Purchase Price. As consideration for the purchase of the
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Shares, Buyer shall pay to Seller the total consideration of $550,000, which
amount shall include all of the sums or "earnest money" deposits previously
deposited by Buyer with the Seller to secure performance by the Buyer of its
obligations under this Agreement (the "Purchase Price"), payable to Seller by
cashier's check, certified funds or wire transfer at the Closing (as hereinafter
defined).
ARTICLE II
CLOSING
Stock Purchase Agreement - Page 1
Section 2.1 The Closing. The closing of the transactions provided for
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in this Agreement shall take place on or before March 31, 2005 (the "Closing
Date"), at the law offices of Axelrod, Smith & Kirshbaum, 5300 Memorial Drive,
Suite 700, Houston, Texas 77007, or at such other time and place as agreed upon
among the parties hereto (the "Closing").
Section 2.2 Actions at the Closing. At the Closing:
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(a) the Buyer shall deliver to the Seller and/or the
Company the various certificates, instruments and documents
(and shall take the required actions) referred to in Section
5 below;
(b) the Seller shall deliver to the Buyer the various
certificates, instruments and documents (and shall take the
required actions) referred to in Section 5 below;
(c) the Seller shall deliver or cause to be delivered to
Buyer originally issued stock certificates representing
1,000 shares of common stock of RCI Houston duly endorsed
over to the Buyer in a form satisfactory to the Buyer; and
(d) the payment by Buyer of the unpaid balance of the
Purchase Price by cashier's check or wire transfer to the
Seller.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF SELLER
Seller hereby represents and warrants to the Buyer as follows:
Section 3.1. Organization, Good Standing and Qualification.
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(a) RCI Houston (i) is an entity duly organized, validly existing and
in good standing under the laws of the state of Texas, (ii) has all requisite
power and authority to own, operate and lease its properties and to carry on its
business, and (iii) is duly qualified to transact business and is in good
standing in all jurisdictions where its ownership, lease or operation of
property or the conduct of its business requires such qualification, except
where the failure to do so would not have a material adverse effect to Seller or
RCI Houston, respectively. Exhibit 3.1 sets forth each jurisdiction where the
Company is so qualified or licensed to do business.
(b) The authorized capital stock of RCI Houston consists of 1,000
shares of common stock, $.01 par value, of which 1,000 shares are validly issued
and outstanding. There are no shares of preferred stock authorized or issued and
there is no other class of capital stock authorized or issued by RCI Houston.
All of the issued and outstanding shares of common stock of RCI Houston are
owned by Seller and are fully paid and non-assessable. None of the shares
issued are in violation of any preemptive rights. RCI Houston has no obligation
to repurchase, reacquire, or redeem any of its outstanding capital stock. There
are no outstanding securities convertible into or evidencing the right to
purchase or subscribe for any shares of capital stock of RCI Houston, there are
no
Stock Purchase Agreement - Page 2
outstanding or authorized options, warrants, calls, subscriptions, rights,
commitments or any other agreements of any character obligating RCI Houston to
issue any shares of its capital stock or any securities convertible into or
evidencing the right to purchase or subscribe for any shares of such stock, and
there are no agreements or understandings with respect to the voting, sale,
transfer or registration of any shares of capital stock of RCI Houston.
Section 3.2 Ownership of the Shares. Seller owns, beneficially and of
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record, all of the Shares of RCI Houston free and clear of any liens, claims,
equities, charges, options, rights of first refusal, or encumbrances. Seller
has the unrestricted right and power to transfer, convey and deliver full
ownership of the Shares without the consent or agreement of any other person and
without any designation, declaration or filing with any governmental authority.
Upon the transfer of the Shares to Buyer as contemplated herein, Buyer will
receive good and valid title thereto, free and clear of any liens, claims,
equities, charges, options, rights of first refusal, encumbrances or other
restrictions (except those imposed by applicable securities laws).
Section 3.3 Authorization. The Seller has all requisite corporate
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power and authority to execute and deliver this Agreement and to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
All action on the part of Seller necessary for the authorization, execution,
delivery and performance of this Agreement have been taken by the Seller. This
Agreement, when duly executed and delivered in accordance with its terms, will
constitute legal, valid and binding obligations of Seller enforceable against it
in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization and other similar laws of general application
affecting creditors' rights generally or by general equitable principles.
Section 3.4 Consents. No consent of, approval by, order or
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authorization of, or registration, declaration or filing by the Seller or RCI
Houston with any court or any governmental or regulatory agency or authority
having jurisdiction over the Seller or any of its property or assets is required
on the part of the Seller or RCI Houston (a) in connection with the consummation
of the transactions contemplated by this Agreement or (b) as a condition to the
legality, validity or enforceability as against the Company of 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 RCI
Houston. Except for the landlord's consent, no consent or approval of any other
third party is required in connection with the execution, delivery and
performance by the Seller of this Agreement.
Section 3.5 Litigation. Except as set forth in Exhibit 3.5, there is
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no claim, suit, arbitration, investigation, judgment, action or other
proceeding, whether judicial, administrative or otherwise, now pending or, to
the best of Seller's knowledge, threatened 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 a material adverse effect upon RCI
Houston or the transfer by Seller to Buyer of the Shares under this Agreement.
Section 3.6 Taxes. RCI Houston has timely and accurately filed all
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federal, state, foreign and local tax returns and reports required to be filed
prior to such dates and have timely paid all taxes shown on such returns as owed
for the periods of such returns, including all sales taxes and withholding or
other payroll related taxes shown on such returns and any taxes required to have
been
Stock Purchase Agreement - Page 3
withheld and paid in connection with amounts paid or owing to any employee,
creditor or independent contractor. RCI Houston has 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 tax or governmental charge of any nature. No assessments or notices of
deficiency or other communications have been received by RCI Houston with
respect to any tax return which has not been paid, discharged or fully reserved
against and no amendments or applications for refund have been filed or are
planned with respect to any such return. RCI Houston does not have knowledge of
any actions by any taxing authority in connection with assessing additional
taxes against or in respect of it for any past period. There are no agreements
between RCI Houston and any taxing authority waiving or extending any statute of
limitations with respect to any tax return.
Section 3.7 Financial Statements. Seller has delivered to Buyer the
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unaudited balance sheet of RCI Houston as of September 30, 2003 and 2004 and the
unaudited balance sheet for the quarter ended December 31, 2004, together with
the related unaudited statements of income, for the year, or quarter, then
ended, for RCI Houston (collectively, the "Financial Statements"). Such
Financial Statements, are in accordance with the books and records of RCI
Houston and fairly represent the financial position of RCI Houston and the
results of operations of RCI Houston as of the dates and for the periods
indicated, in each case in conformity with generally accepted accounting
principles applied on a consistent basis. Except as, and to the extent
reflected or reserved against in the Financial Statements, RCI Houston, as of
the date of the Financial Statements, has no material liability or obligation of
any nature, whether absolute, accrued, continued or otherwise, not fully
reflected or reserved against in the Financial Statements. As of the Closing
Date, Seller represents there have been no adverse changes in the financial
condition or other operations, business, properties or assets of RCI Houston in
excess of $50,000 from that reflected in the latest financial statements of RCI
Houston as furnished pursuant to this Agreement.
Section 3.8 Labor Matters. RCI Houston is not a party or otherwise
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subject to any collective bargaining agreement with any labor union or
association. RCI Houston is not a party to any written or oral contract,
agreement or understanding for the employment of any officer, director or
employee of RCI Houston. RCI Houston is not a party to any employee benefit
plans (as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended) or any other fringe or employee benefit plan, programs or
arrangements.
Section 3.9 Compliance with Laws; Permits. (a) Except as set forth in
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Exhibit 3.9(a), RCI Houston is, and at all times prior to the date hereof has
been, to the best of its knowledge, in compliance with all statutes, orders,
rules, ordinances and regulations applicable to it or to the ownership of their
assets or the operation of their businesses, except for failures to be in
compliance that would not have a material adverse effect on the business,
properties or condition (financial or otherwise) of RCI Houston. (b) Except as
set forth in Exhibit 3.9(b), RCI Houston owns, holds, possesses or lawfully uses
in the operation of its business all permits and licenses which are in any
manner necessary for it to conduct its business as now or previously conducted.
All such permits and licenses are listed and described on Exhibit 3.9(b).
Section 3.10 No Conflicts. Except as listed on Exhibit 3.10, the
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execution and delivery by the Company of this Agreement does not, and the
performance and consummation by the Company
Stock Purchase Agreement - Page 4
of the transactions contemplated hereby will not (i) conflict with the articles
of incorporation or bylaws of the Company or RCI Houston; (ii) conflict with or
result in a breach or violation of, or default under, or give rise to any right
of acceleration or termination of, any of the terms, conditions or provisions of
any note, bond, lease, license, agreement or other instrument or obligation to
which RCI Houston is a party or by which RCI Houston's assets or properties are
bound; (iii) result in the creation of any encumbrance on any of the assets or
properties of RCI Houston; or (iv) violate any law, rule, regulation or order
applicable to RCI Houston or any of RCI Houston's assets or properties.
Section 3.11 Title to Properties; Encumbrances. RCI Houston has good
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and marketable title to all of the personal property and assets, that are used
in the business that are material to the condition (financial or otherwise),
business, operations or prospects of RCI Houston, free and clear of all
mortgages, claims, liens, security interests, charges, leases, encumbrances and
other restrictions of any kind and nature, except (i) as disclosed in the
Financial Statements of RCI Houston, (ii) any and all intellectual property
rights of the Seller, including but not limited to any and all copyrights,
trademarks, tradenames, tradedress, servicemarks, slogans, logos, corporate or
partnership names (and any existing or possible combination or derivation of any
or all of the same) associated with or used in connection with the operation or
business of Rick's Cabaret International, Inc., which may have been previously
used by RCI Houston, for which RCI Houston has no rights (iii) statutory liens
not yet delinquent, and (iv) such liens consisting of zoning or planning
restrictions, imperfections of title, easements, pledges, charges and
encumbrances, if any, as do not materially detract from the value or materially
interfere with the present use of the property or assets subject thereto or
affected thereby. RCI Houston does not own any real property.
Section 3.12 No Pending Transactions. Except for the transactions
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contemplated by this Agreement, neither Seller nor RCI Houston is a party to or
bound by or the subject of any agreement, undertaking, commitment or discussions
or negotiations with any person that could result in (i) the sale, merger,
consolidation or recapitalization of RCI Houston, (ii) the sale of any of the
assets of RCI Houston except in the ordinary course of business, or (iii) the
sale of any outstanding capital stock of RCI Houston.
Section 3.13 Contracts and Leases. Except as disclosed in Exhibit
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3.13, RCI Houston (i) has no leases of personal property relating to the assets
of the Company, whether as lessor or lessee; (ii) has no contractual or other
obligations relating to the assets of the Company, whether written or oral; and
(iii) has not given any power of attorney to any person or organization for any
purpose relating to the assets of the Company. Other than as contemplated by
this Agreement, as of the Closing Date, there will not be any lease agreements
for the Premises where Rick's South is located. RCI Houston has provided Buyer
with a copy of each and every material contract, lease or other document
relating to the assets of RCI Houston. All 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 RCI Houston and the other
respective parties thereto and are enforceable in accordance with their terms.
Seller has no knowledge of any default or breach under such contracts, leases or
other documents or of any pending or threatened claims under any such contracts,
leases or other documents.
Stock Purchase Agreement - Page 5
Section 3.14 Material Agreements; Action There are no material
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contracts, agreements, commitments, understandings or proposed transactions,
whether written or oral, to which RCI Houston is a party or by which it is bound
that involve or relate to: (i) any of the respective officers, directors,
stockholders or partners of RCI Houston; (ii) the sale of any of the assets of
RCI Houston other than in the ordinary course of business; (iii) the acquisition
by RCI Houston of any operating business or the capital stock of any other
Person; or (iv) the borrowing of money.
Section 3.15 No Default. RCI Houston is not (a) in violation of any
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provision of its articles of incorporation or bylaws or (b) in default under any
term or condition of (i) any instrument evidencing, creating or securing any
indebtedness of RCI Houston, and there has been no default in any material
obligation to be performed by RCI Houston 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 RCI Houston waived any material
right under any such contract, lease, agreement, commitment or undertaking or
(ii) except as set forth in Exhibit 3.15, any judicial or governmental decree or
order applicable to RCI Houston.
Section 3.16 Books and Records. The books of account, minute books,
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stock record books and other records of RCI Houston are accurate and complete
and have been maintained in accordance with sound business practices.
Section 3.17 Insurance Policies. Copies of all insurance policies
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maintained by RCI Houston relating to the operation of Rick's South have been
delivered to Buyer. The policies of insurance held by RCI Houston are in such
amounts, and insure against such losses and risks, as RCI Houston reasonably
deems appropriate for its property and business operations. All such insurance
policies are in full force and effect, and all premiums due thereon have been
paid. Valid policies for such insurance will be outstanding and duly in force
at all times prior to the Closing.
Section 3.18 Disclosure. No representation or warranty of Seller
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contained in this Agreement (including the exhibits hereto) contains any untrue
statement or omits to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances under
which they were made, not misleading.
Section 3.19 Brokerage Commission. No broker or finder has acted for
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the Seller, or RCI Houston 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 Seller or RCI Houston.
Section 3.20 Environmental. RCI Houston has not received any citation,
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directive, letter or other communication, written or oral, or any notice of any
proceeding, claim or lawsuit relating to any environmental issue arising out of
the ownership or occupation of the Property.
Section 3.21 Banks and Brokerage Accounts. Exhibit 3.21 sets forth (a)
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a true and complete list of the names and locations of all banks, trust
companies, securities brokers and other financial institutions at which RCI
Houston has an account or safe deposit box or maintains a banking, custodial,
trading or other similar relationship, and (b) a true and complete list and
description of each such account, box and relationship, indicating in each case
the account number
Stock Purchase Agreement - Page 6
and the names of the respective officers, employees, agents or other similar
representatives of RCI Houston having signatory power with respect thereto.
Section 3.22 Intellectual Property. Neither RCI Houston nor the
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conduct of the Business as heretofore or presently conducted up to the Closing
Date by the Seller infringes or misappropriates any Proprietary Right of any
third party, violates the privacy rights of any third party, or breaches any
license or other agreement a Seller has with any third party.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF BUYER
Buyer hereby represents and warrants to Seller as follows:
Section 4.1 Organization, Good Standing and Qualification. Buyer (i)
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is an entity duly organized, validly existing and in good standing under the
laws of the state of Delaware, (ii) has all requisite power and authority to
carry on its business, and (iii) is duly qualified to transact business and is
in good standing in all jurisdictions where its ownership, lease or operation of
property or the conduct of its business requires such qualification, except
where the failure to do so would not have a material adverse effect to Buyer.
Section 4.2 Authorization. Buyer is a limited liability company duly
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organized in the state of Delaware and has full power, capacity, and authority
to enter into this Agreement and perform the obligations contemplated hereby.
All action on the part of Buyer necessary for the authorization, execution,
delivery and performance of this Agreement by it has been taken and will be
taken. This Agreement, when duly executed and delivered in accordance with its
terms, will constitute legal, valid, and binding obligations of Buyer
enforceable against Buyer in accordance with its terms, except as may be limited
by bankruptcy, insolvency, and other similar laws affecting creditors' rights
generally or by general equitable principles.
Section 4.3 Consents. No permit, consent, approval or authorization
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of, or designation, declaration or filing with, any governmental authority or
any other person or entity is required on the part of Buyer in connection with
the execution and delivery by Buyer of this Agreement or the consummation and
performance of the transactions contemplated hereby other than as may be
required under the federal securities laws.
Section 4.4 No Rights to Intellectual Property of Seller. Buyer
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acknowledges and represents that by the purchase of RCI Houston that it will not
acquire and it will not have any right, title or interest in and to any and all
intellectual property of the Seller, including but not limited to any and all
copyrights, trademarks, tradenames, tradedress, servicemarks, slogans, logos,
corporate or partnership names (and any existing or possible combination or
derivation of any or all of the same) associated with or used in connection with
the operation or business of Rick's Cabaret International, Inc., which may have
been previously used by RCI Houston for which RCI Houston has no rights and,
further, represents that it will cease using the name Rick's Cabaret
International, Inc. or any derivative thereof immediately subsequent to the
Closing.
Stock Purchase Agreement - Page 7
Section 4.5 Disclosure. No representation or warranty of Buyer
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contained in this Agreement (including the exhibits hereto) contains any untrue
statement or omits to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances under
which they were made, not misleading.
Section 4.6 Brokerage Commission. No broker or finder has acted for
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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 Buyer.
ARTICLE V
CONDITIONS TO CLOSING
The obligations of the parties to effect the transactions contemplated
hereby are subject to the satisfaction at or prior to the Closing of the
following conditions:
Section 5.1 Conditions to Obligations of Buyer.
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(a) Representations and Warranties of the Seller. The
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representations and warranties of RCI Houston and the Seller 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) Resolutions. Seller shall deliver resolutions of the Seller,
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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.
(c) Third-Party Consents. Any and all consents or waivers
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required from third parties relating to this Agreement or any of the other
transactions contemplated hereby shall have been obtained.
(d) Satisfactory Diligence. Buyer shall have concluded its due
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diligence investigation of RCI Houston and its assets and properties and all
other matters related to the foregoing, and shall be satisfied, in its absolute
and sole discretion, with the results thereof.
(e) No Actions or Proceedings. No claim, action, suit,
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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.
(f) Government Approvals. All authorizations, permits, consents,
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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.
(g) Landlord Consent. The Landlord of the Premises shall consent
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in writing to the transfer of the Shares to the Buyer at the time of Closing.
Section 5.2 Conditions to Obligations of RCI Houston and the Seller
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Stock Purchase Agreement - Page 8
(a) Representations, Warranties and Agreements of Buyers. The
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representations and warranties of Buyer 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) Resolutions. Buyer shall deliver resolutions of the Buyer,
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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.
(c) Resignation of Officer. Eric Langan shall have resigned as an
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officer and director of RCI Houston.
(d) Third-Party Consents. Any and all consents or waivers
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required from third parties relating to this Agreement or any of the other
transactions contemplated hereby shall have been obtained.
(e) No Actions or Proceedings. No claim, action, suit,
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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.
(f) Government Approvals. All authorizations, permits, consents,
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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.
(g) Landlord Consent. The Landlord of the Premises shall consent
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in writing to the transfer of the Shares to the Buyer at the time of Closing.
ARTICLE VI
INDEMNIFICATION
Section 6.1 Indemnification from Seller. Seller hereby agrees to and
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shall indemnify, defend (with legal counsel reasonably acceptable to Buyer), and
hold Buyer, its officers, directors, employees, affiliates, agents, legal
counsel successors and assigns (collectively, the "Buyer Group") harmless at all
times after the date of this Agreement, from and against any and all actions,
suits, claims, demands, debts, liabilities, obligations, losses, damages, costs,
expenses, penalties or injury (including reasonable attorneys fees and costs of
any suit related thereto) (collectively, "Indemnifiable Loss" or "Indemnifiable
Losses") suffered or incurred by any of the Buyer Group arising from: (a) any
material misrepresentation by, or material breach of any covenant or warranty of
Seller contained in this Agreement, or any exhibit, certificate, or other
instrument furnished or to be furnished by Seller hereunder; (b) any
nonfulfillment of any material agreement on the part of Seller under this
Agreement; or (c) any suit, action, proceeding, claim or investigation against
Buyer which arises from or which is based upon or pertaining to Seller's conduct
or the operation or liabilities of the business of RCI Houston prior to the
Closing Date (including expenses and liabilities incurred in the ordinary course
of business, regardless to whether such expenses or liabilities are accrued on
the Financial Statements).
Stock Purchase Agreement - Page 9
Section 6.2 Indemnification from Buyer. Buyer agrees to and shall
----------------------------
indemnify, defend (with legal counsel reasonably acceptable to Seller) and hold
Seller, its officers, directors, employees, agents, affiliates, legal counsel,
successors and assigns (collectively, the "Seller's Group") harmless at all
times after the date of the Agreement from and against any and all actions,
suits, claims, demands, debts, liabilities, obligations, losses, damages, costs,
expenses, penalties or injury (including reasonably attorneys fees and costs of
any suit related thereto) suffered or incurred by any of the Seller's Group,
arising from (a) any material misrepresentation by, or material breach of any
covenant or warranty of Buyer contained in this Agreement or any exhibit,
certificate, or other agreement or instrument furnished or to be furnished by
Buyer hereunder; (b) any nonfulfillment of any material agreement on the part of
Buyer under this Agreement; or (c) any suit, action, proceeding, claim or
investigation against Seller which arises from or which is based upon or
pertaining to Buyer's conduct or the operation or liabilities of the business of
Buyer subsequent to the Closing Date.
Section 6.3 Defense of Claims.
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(a) If any indemnitee receives notice of assertion or commencement of
any claim, action or proceeding made or brought by any person or entity who or
which is not a party to this Agreement or an affiliate of a party to this
Agreement ("Third Party Claim") against such indemnitee with respect to which an
indemnifying party is obligated to provide indemnification under this Agreement,
the indemnitee will give such indemnifying party reasonably prompt written
notice thereof, but in any event not later than thirty (30) calendar days after
receipt of such notice of such Third Party Claim. Such notice will describe the
Third Party Claim in reasonable detail, will include copies of all material
written evidence thereof and will indicate the estimated amount, if reasonably
practicable, of the Indemnifiable Loss that has been or may be sustained by the
indemnitee. The indemnifying party will have the right to participate in, or,
by giving written notice to the indemnitee, to assume, the defense of any Third
Party Claim at such indemnifying party's own expense and by such indemnifying
party's own counsel (reasonably satisfactory to the indemnitee), and the
indemnitee will cooperate in good faith in such defense.
(b) If, within ten (10) calendar days after giving notice of a Third
Party Claim to an indemnifying party pursuant to Section 5.3(a), an indemnitee
receives written notice from the indemnifying party that the indemnifying party
has elected to assume the defense of such Third Party Claim as provided in the
last sentence of Section 5.3(a), the indemnifying party will not be liable for
any legal expenses subsequently incurred by the indemnitee in connection with
the defense thereof; provided, however, that if the indemnifying party fails to
take reasonable steps necessary to defend diligently such Third Party Claim
within ten (10) calendar days after receiving written notice from the indemnitee
that the indemnitee believes the indemnifying party has failed to take such
steps or if the indemnifying party has not undertaken fully to indemnify the
indemnitee in respect of all Indemnifiable Losses relating to the matter, the
indemnitee may assume its own defense, and the indemnifying party will be liable
for all reasonable costs or expenses paid or incurred in connection therewith.
Without the prior written consent of the indemnitee, the indemnifying party will
not enter into any settlement of any Third Party Claim which would lead to
liability or create any financial or other obligation on the part of the
indemnitee for which the indemnitee is not entitled to indemnification
hereunder. If a firm offer is made to settle a Third Party Claim without
leading to
Stock Purchase Agreement - Page 10
liability or the creation of a financial or other obligation on the part of the
indemnitee for which the indemnitee is not entitled to indemnification hereunder
and the indemnifying party desires to accept and agree to such offer, the
Indemnifying party will give written notice to the indemnitee to that effect.
If the indemnitee fails to consent to such firm offer within ten (10) calendar
days after its receipt of such notice, the indemnitee may continue to contest or
defend such Third Party Claim and, in such event, the maximum liability of the
indemnifying party as to such Third Party Claim will not exceed the amount of
such settlement offer, plus costs and expenses paid or incurred by the
indemnitee through the end of such ten calendar day period.
(c) A failure to give timely notice or to include any specified information
in any notice as provided in Sections 6.3(a) or 6.3(b) will not affect the
rights or obligations of any party hereunder except and only to the extent that,
as a result of such failure, any party which was entitled to receive such notice
was deprived of its right to recover any payment under its applicable insurance
coverage or was otherwise damaged as a result of such failure.
(d) The indemnifying party will have a period of thirty (30) calendar days
within which to respond in writing to any claim by an indemnitee on account of
an Indemnifiable Loss which does not result from a Third Party Claim (a "Direct
Claim"). If the indemnifying party does not so respond within such thirty (30)
calendar day period, the indemnifying party will be deemed to have rejected such
claim, in which event the indemnitee will be free to pursue such remedies as may
be available to the indemnitee on the terms and subject to the provisions of
this Article VI.
(e) If the amount of any Indemnifiable Loss, at any time subsequent to the
making of an indemnity payment, is reduced by recovery, settlement or otherwise
under or pursuant to any insurance coverage, or pursuant to any claim, recovery,
settlement or payment by or against any other entity, the amount of such
reduction, less any costs, expenses, premiums or taxes incurred in connection
therewith (together with interest thereon from the date of payment thereof at
the annualized rate of interest equal to the "prime" or "reference" rate of
interest as publicly announced by Chemical Bank, N.A. and in effect from time to
time during the relevant period, calculated on the basis of the actual number of
days elapsed over 365) will promptly be repaid by the indemnitee to the
indemnifying party. Upon making any indemnity payment the indemnifying party
will, to the extent of such indemnity payment, be subrogated to all rights of
the indemnitee against any third party that is not an affiliate of the
indemnitee in respect of the Indemnifiable Loss to which the indemnity payment
related; provided, however, that (i) the indemnifying party shall then be in
compliance with its obligations under this Agreement in respect of such
Indemnifiable Loss and (ii) until the indemnitee recovers fully payment of its
Indemnifiable Loss, any and all claims of the indemnifying party against any
such third party on account of said indemnity Payment will be subrogated and
subordinated in right of payment to the indemnitee's rights against such third
party. Without limiting the generality or effect of any other provision hereof,
each such indemnitee and indemnifying party will duly execute upon request all
instruments reasonably necessary to evidence and perfect the above-described
subrogation and subordination rights.
Section 6.4 Default of Indemnification Obligation. If an entity or
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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)
Stock Purchase Agreement - Page 11
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.
Section 6.5 Termination. Indemnification obligations of the Seller and
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the Buyer shall terminate fifteen (15) months after the date of Closing.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Amendment; Waiver. Neither this Agreement nor any
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provision hereof may be amended, modified or supplemented unless in writing,
executed by all the parties hereto. Except as otherwise expressly provided
herein, no waiver with respect to this Agreement shall be enforceable unless in
writing and signed by the party against whom enforcement is sought. Except as
otherwise expressly provided herein, no failure to exercise, delay in
exercising, or single or partial exercise of any right, power or remedy by any
party, and no course of dealing between or among any of the parties, shall
constitute a waiver of, or shall preclude any other or further exercise of, any
right, power or remedy.
Section 7.2 Notices. Any notices or other communications required or
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permitted hereunder shall be sufficiently given if in writing and delivered in
person, transmitted by facsimile transmission (fax) or sent by registered or
certified mail (return receipt requested) or recognized overnight delivery
service, postage pre-paid, addressed as follows, or to such other address has
such party may notify to the other parties in writing:
(a) if to the Seller: Rick's Cabaret International, Inc.
10959 Cutten Road
Houston, Texas 77066
with a copy to: Robert D. Axelrod
Axelrod, Smith & Kirshbaum
5300 Memorial Drive, Ste. 700
Houston, Texas 77007
(b) if to Buyer: Mike McCombs
15301 Gulf Freeway
Houston, Texas 77034
with a copy to: Mike Forshey
Patton Boggs LLP
2001 Ross Avenue, Suite 3000
Dallas, Texas 75201
Stock Purchase Agreement - Page 12
A notice or communication will be effective (i) if delivered in person or by
overnight courier, on the business day it is delivered, (ii) if transmitted by
telecopier, on the business day of actual confirmed receipt by the addressee
thereof, and (iii) if sent by registered or certified mail, three (3) business
days after dispatch.
Section 7.3 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
Section 7.4 Assignment; Successors and Assigns. Except as otherwise
----------- -----------------------
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors and permitted assigns of the parties hereto. No
party hereto may assign its rights or delegate its obligations under this
Agreement without the prior written consent of the other parties hereto, which
consent will not be unreasonably withheld.
Section 7.5 Public Announcements. The parties hereto agree that prior
--------------------
to making any public announcement or statement with respect to the transactions
contemplated by this Agreement, the party desiring to make such public
announcement or statement shall consult with the other parties hereto and
exercise their best efforts to (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.
Section 7.6 Entire Agreement. This Agreement and the other documents
-----------------
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subject matter hereof and
thereof and supersede and cancel all prior representations, alleged warranties,
statements, negotiations, undertakings, letters, acceptances, understandings,
contracts and communications, whether verbal or written among the parties hereto
and thereto or their respective agents with respect to or in connection with the
subject matter hereof.
Section 7.7 Jurisdiction. This Agreement shall be governed by, and
------------
construed in accordance with, the laws of the State of Texas, without regard to
principles of conflict of laws. The parties agree that venue for purposes of
construing or enforcing this Agreement shall be proper in Harris County, Texas.
Section 7.8 Counterparts and Facsimiles. This Agreement may be
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executed in multiple counterparts and in any number of counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute and be deemed to be one and the same instrument and each of which
shall be considered and deemed an original for all purposes. This Agreement
shall be effective with the facsimile signature of any of the parties set forth
below and the facsimile signature
Stock Purchase Agreement - Page 13
shall be deemed as an original signature for all purposes and the Agreement
shall be deemed as an original for all purposes.
Section 7.9 Costs and Expenses. Each party shall pay their own
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respective fees, costs and disbursements incurred in connection with this
Agreement.
Section 7.10 Section Headings. The section and subsection headings in
----------------
this Agreement are used solely for convenience of reference, do not constitute a
part of this Agreement, and shall not affect its interpretation.
Section 7.11 No Third-Party Beneficiaries. Nothing in this Agreement
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will confer any third party beneficiary or other rights upon any person
(specifically including any employees of RCI Houston) or any entity that is not
a party to this Agreement.
Section 7.12 Attorneys' Review. In connection with the negotiation and
-----------------
drafting of this Agreement, the parties represent and warrant to each other they
they have had the opportunity to be advised by attorneys of their own choice.
Section 7.13 Further Assurances. Each party covenants that at any
-------------------
time, and from time to time, after the Closing Date, it will execute such
additional instruments and take such actions as may be reasonably be requested
by the other parties to confirm or perfect or otherwise to carry out the intent
and purposes of this Agreement.
Section 7.14 Exhibits Not Attached. Any exhibits not attached hereto
----------------------
on the date of execution of this Agreement shall be deemed to be and shall
become a part of this Agreement as if executed on the date hereof upon each of
the parties initialing and dating each such exhibit, upon their respective
acceptance of its terms, conditions and/or form.
[SIGNATURES ON FOLLOWING PAGE]
Stock Purchase Agreement - Page 14
IN WITNESS WHEREOF, the undersigned have executed this Stock Purchase
Agreement to become effective as of the date first set forth above.
RICK'S CABARET INTERNATIONAL, INC.
/s/ Eric Langan
-------------------------------------
By: Eric Langan, President
Date: March 31, 2005
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MGB ACQUISITION, LLC
/s Michael McCombs
-------------------------------------
By: Michael McCombs
Date: March 31, 2005
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Stock Purchase Agreement - Page 15