Securities and Exchange Commission
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant To Section 13 or 15(d) Of
The Securities Exchange Act of 1934
Date of Report: November 10, 2006
RICK'S CABARET INTERNATIONAL, INC.
(Exact Name of Registrant As Specified in Its Charter)
Texas 0-26958 76-0037324
(State Or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
10959 Cutten Road
Houston, Texas 77066
(Address Of Principal Executive Offices, Including Zip Code)
(281) 397-6730
(Issuer's Telephone Number, Including Area Code)
ITEM 8.01 OTHER EVENTS.
On November 10, 2006, our subsidiary, RCI Entertainment (Austin), Inc. ("RCI"),
completed the acquisition of 51% of the membership interest of Playmates
Gentlemen's Club, LLC ("Playmates") from Behzad Bahrami ("Seller"). Playmates
owns an adult entertainment cabaret known as "Playmates" (the "Club") located at
8110 Springdale Road, Austin, Texas 78724 (the "Premises"). Under the terms of
the previously announced Purchase Agreement, RCI paid a total purchase price of
$1,500,000 which was paid $500,000 in cash at the time of closing and the
issuance of 125,000 shares of our restricted common stock valued at $8.00 per
share (the "Shares").
Pursuant to the terms of the Purchase Agreement, on or after one year after the
closing date, the Seller shall have the right, but not the obligation to have us
purchase from Seller 5,000 Shares per month (the "Monthly Shares"), calculated
at a price per share equal to $8.00 ("Value of the Shares") until the Seller has
received a total of $1,000,000 from the sale of the Shares. Seller shall notify
us during any given month of its election to "Put" the Monthly Shares to us
during that particular month. At our election during any given month, we may
either buy the Monthly Shares or, if we elect not to buy the Monthly Shares from
the Seller, then the Seller shall sell the Monthly Shares in the open market.
Any deficiency between the amount which the Seller receives from the sale of the
Monthly Shares and the Value of the Shares shall be paid by us within three (3)
business days of the date of sale of the Monthly Shares during that particular
month. Our obligation to purchase the Monthly Shares from the Seller shall
terminate and cease at such time as the Seller has received a total of
$1,000,000 from the sale of the Shares.
In the event the Seller elects not to "Put" the Shares to us, the Seller shall
not sell more than 10,000 Shares per week in the open market, provided that
Seller complies with Rule 144 of the Securities Act of 1933, as amended, in
connection with his sale of the Shares.
As part of the transaction, under the terms of Playmates' Amended and Restated
Regulations, RCI will be the Manager of Playmates and will operate the
day-to-day business of Playmates, including the operations of the Club. RCI
will provide, if necessary, an initial $200,000 line of credit for operation of
the Club. The Seller and Playmates entered a five-year covenant not to compete
with the Club. Further, Playmates executed a new lease agreement with the
landlord giving it the right to lease the Premises for ten (10) years at $29,000
per month, with the right to an option for an additional ten (10) years at
$37,000 per month, with RCI agreeing to guarantee the first two (2) years of the
lease. RCI and the Seller also entered into a Members' Agreement relating to
the ownership of their membership interest. Finally, as part of the
transaction, the Seller entered a Lock-up/Leak-out Agreement with us regarding
the Shares.
The transaction was funded by our issuance of three (3) separate Convertible
Debentures (collectively, the "Debentures") to Wade McElroy, Ryan McElroy and
Doris King, the sons and sister, respectively, of Ralph McElroy, a greater than
10% shareholder (the "Holders"). Each of the Debentures bears interest at the
rate of 12% per annum and has a maturity date of November 9, 2008. Under the
terms of the Debentures, we are required to make monthly interest payments
beginning December 9, 2006. We have the right to redeem the Debentures in whole
or in part at any time during the term of the Debentures. The Holders have the
option to convert all or any
portion of the principal amount of the Debentures into shares of our common
stock at a rate of $7.50 per share (the "Conversion Shares"), subject to
adjustment under certain conditions. The Debentures provide, absent shareholder
approval, that the number of shares of our common stock that may be issued by us
or acquired by a Holder and any affiliates of a Holder upon conversion of the
Debentures shall not exceed 19.99% of the total number of issued and outstanding
shares of our common stock. The Conversion Shares have piggyback registration
rights.
The terms and conditions of the transaction were the result of arms-length
negotiation between the parties. A copy of the press release related to this
transaction is attached hereto as Exhibit 99.1.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
Exhibit Number Description
99.1 Press release dated November 10, 2006
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report on Form 8-K to be signed on its behalf by
the undersigned hereunto duly authorized.
RICK'S CABARET INTERNATIONAL, INC.
By: /s/ Eric Langan
----------------
Date: November 14, 2006 Eric Langan
Chairman, President,
Chief Executive Officer and
Principal Accounting Officer