SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the registrant |X|
Filed by a party other than the registrant | |
Check the appropriate box:
| | Preliminary proxy statement. | | Confidential for use of
the commission only (as
|X| Definitive proxy statement. permitted by Rule 14a-6(e)(2)).
| | Definitive additional materials.
| | Soliciting material pursuant to Rule 14a-12.
RICK'S CABARET INTERNATIONAL, INC.
(Name of Registrant as Specified in Its Charter)
Payment of filing fee: (check the appropriate box):
|X| No fee required.
| | Fee computed on table below per Exchange Act Rule 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: ___
(2) Aggregate number of securities to which transaction applies: ___
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined): ___
(4) Proposed maximum aggregate value of transaction: ___
(5) Total fee paid: ___
| | Fee paid previously with preliminary materials: ___
| | Check box if any part of the fee is offset as provided by Exchange Act Rule
0-1(a)(2) and identify the filing for which the offsetting fee was paid
previously, identify the previous filing by registration statement number, or
the form or schedule and the date its filing.
(1) Amount Previously Paid: ___
(2) Form, Schedule or Registration Statement No.: ___
(3) Filing Party: ___
(4) Date Filed: ___
RICK'S CABARET INTERNATIONAL, INC.
10959 CUTTEN ROAD
HOUSTON, TEXAS 77066
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 2006
The Annual Meeting of Stockholders (the "Annual Meeting") of Rick's Cabaret
International, Inc. (the "Company") will be held at 50 West 33rd Street, New
York, New York ("Rick's New York") on May 22, 2006 at 9:30 AM (CST) for the
following purposes:
(1) To elect five (5) directors.
(2) To ratify the selection of Whitley Penn, LLP as the
Company's independent registered public accounting firm for the
fiscal year ending September 30, 2006.
(3) To act upon such other business as may properly come before
the Annual Meeting.
Only holders of common stock of record at the close of business on April 17,
2006, will be entitled to vote at the Annual Meeting or any adjournment thereof.
You are cordially invited to attend the Annual Meeting. Whether or not you plan
to attend the Annual Meeting, please sign, date and return your proxy to us
promptly. Your cooperation in signing and returning the proxy will help avoid
further solicitation expense.
BY ORDER OF THE BOARD OF DIRECTORS
/S/ ERIC S. LANGAN
CHAIRMAN OF THE BOARD AND PRESIDENT
APRIL 24, 2006
HOUSTON, TEXAS
1
RICK'S CABARET INTERNATIONAL, INC.
10959 CUTTEN ROAD
HOUSTON, TEXAS 77066
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 2006
This proxy statement (the "Proxy Statement") is being furnished to stockholders
(the "Stockholders") in connection with the solicitation of proxies by the Board
of Directors of Rick's Cabaret International, Inc., a Texas corporation (the
"Company") for their use at the Annual Meeting (the "Annual Meeting") of
Stockholders of the Company to be held at 50 West 33rd Street ("Rick's New
York"), New York, New York, on Monday, May 22, 2006, at 9:30 AM, and at any
adjournments thereof, for the purpose of considering and voting upon the matters
set forth in the accompanying Notice of Annual Meeting of Stockholders (the
"Notice"). This Proxy Statement and the accompanying form of proxy (the
"Proxy") are first being mailed to Stockholders on or about April 24, 2006. The
cost of solicitation of proxies is being borne by the Company.
The close of business on April 17, 2006, has been fixed as the record date for
the determination of Stockholders entitled to notice of and to vote at the
Annual Meeting and any adjournment thereof. As of the record date, there were
4,798,038 shares of the Company's common stock, par value $0.01 per share (the
"Common Stock"), issued and outstanding. The presence, in person or by proxy,
of a majority of the outstanding shares of Common Stock on the record date is
necessary to constitute a quorum at the Annual Meeting. Each share is entitled
to one vote on all issues requiring a Stockholder vote at the Annual Meeting.
Each nominee for Director named in Proposal Number 1 must receive a majority of
the votes cast in person or by proxy in order to be elected. Stockholders may
not cumulate their votes for the election of Directors. The affirmative vote of
a majority of the shares of Common Stock present or represented by proxy and
entitled to vote at the Annual Meeting is required for the ratification of
Number 2 set forth in the accompanying Notice.
All shares represented by properly executed proxies, unless such proxies
previously have been revoked, will be voted at the Annual Meeting in accordance
with the directions on the proxies. If no direction is indicated, the shares
will be voted (I) FOR THE ELECTION OF THE NOMINEES NAMED HEREIN AND (II) FOR THE
RATIFICATION OF WHITLEY PENN, LLP AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 2006. The Board of
Directors is not aware of any other matters to be presented for action at the
Annual Meeting. However, if any other matter is properly presented at the
Annual Meeting, it is the intention of the persons named in the enclosed proxy
to vote in accordance with their best judgment on such matters.
The enclosed Proxy, even though executed and returned, may be revoked at any
time prior to the voting of the Proxy (a) by execution and submission of a
revised proxy, (b) by written notice to the Secretary of the Company, or (c) by
voting in person at the Annual Meeting.
2
-------------------------------------------------------------------
(1) TO ELECT FIVE (5) DIRECTORS FOR THE ENSUING YEAR
-------------------------------------------------------------------
NOMINEES FOR DIRECTORS
The persons named in the enclosed Proxy have been selected by the Board of
Directors to serve as proxies (the "Proxies") and will vote the shares
represented by valid proxies at the Annual Meeting of Stockholders and
adjournments thereof. They have indicated that, unless otherwise specified in
the Proxy, they intend to elect as Directors the nominees listed below. Each
duly elected Director will hold office until his successor shall have been
elected and qualified.
Unless otherwise instructed or unless authority to vote is withheld, the
enclosed Proxy will be voted for the election of the nominees listed below.
Although the Board of Directors of the Company does not contemplate that any of
the nominees will be unable to serve, if such a situation arises prior to the
Annual Meeting, the persons named in the enclosed Proxy will vote for the
election of such other person(s) as may be nominated by the Board of Directors.
The Board of Directors unanimously recommends a vote FOR the election of each of
the nominees listed below. All of the nominees are presently our directors.
Eric S. Langan, age 38, has been a Director of the Company since 1998 and the
President/Chief Executive Officer of the Company since March 1999. Mr. Langan
is also the Acting Chief Financial Officer of the Company. He has been involved
in the adult entertainment business since 1989. From January 1997 through the
present, he has held the position of President with XTC Cabaret, Inc. Since
1989, Mr. Langan has exercised managerial control over the grand openings and
operations of more than twelve adult entertainment businesses. Through these
activities, Mr. Langan has acquired the knowledge and skills necessary to
successfully operate adult entertainment businesses.
Robert L. Watters, age 54, has been a director of the Company since 1986. Mr.
Watters was president and chief executive officer of the Company from 1991 until
March 1999. He was also a founder in 1989 and operator until 1993 of the
Colorado Bar & Grill, an adult cabaret located in Houston, Texas and in 1988
performed site selection, negotiated the property purchase and oversaw the
design and permitting for the cabaret that became the Cabaret Royale, in Dallas,
Texas. Mr. Watters practiced law as a solicitor in London, England and is
qualified to practice law in New York state. Mr. Watters worked in the
international tax group of the accounting firm of Touche, Ross & Co. (now
succeeded by Deloitte & Touche) from 1979 to 1983 and was engaged in the private
practice of law in Houston, Texas from 1983 to 1986, when he became involved in
the full-time management of the Company. Mr. Watters graduated from the London
School of Economics and Political Science, University of London, in 1973 with a
Bachelor of Laws (Honours) degree and in 1975 with a Master of Laws degree from
Osgoode Hall Law School, York University. Since 1999, Mr. Watters has operated
a cabaret in New Orleans.
Alan Bergstrom, age 60, has been our director since 1999. Since 1997, Mr.
Bergstrom has been the Chief Operating Officer of Eagle Securities which is an
investment consulting firm. Mr. Bergstrom is also a registered investment
broker with Crescent Securities Group, Inc. From
3
1991 until 1997, Mr. Bergstrom was a vice president--investments with Principal
Financial Securities, Inc. Mr. Bergstrom holds a B.B.A. Degree in Finance
(1967) from the University of Texas.
Travis Reese, age 36, has been a director of the Company since 1999 and is the
Company's Vice President/Director of Technology. Mr. Reese also serves as
Executive Vice President/Secretary for RCI Internet Services, our wholly owned
subsidiary. From 1997 through 1999, Mr. Reese was a senior network
administrator at St. Vincent's Hospital in Santa Fe, New Mexico. During 1997,
Mr. Reese was a computer systems engineer with Deloitte & Touche. From 1995
until 1997, Mr. Reese was a vice-president with Digital Publishing Resources,
Inc., an Internet Service Provider. From 1994 until 1995, Mr. Reese was a pilot
with Continental Airlines. From 1992 until 1994, Mr. Reese was a pilot with
Hang On, Inc., an airline company. Mr. Reese has an Associates Degree in
Aeronautical Science from Texas State Technical College.
Steven L. Jenkins, age 48, has been a director of the Company since 2001. Mr.
Jenkins has been a certified public accountant with Pringle Jenkins &
Associates, P.C., located in Houston, Texas. Mr. Jenkins is the President and
owner of Pringle Jenkins & Associates, P.C. Mr. Jenkins has a BBA Degree (1979)
from Texas A&M University. Mr. Jenkins is a member of the AICPA and the TSCPA.
OUR DIRECTORS AND EXECUTIVE OFFICERS
Our Directors are elected annually and hold office until the next annual meeting
of our stockholders or until their successors are elected and qualified.
Officers are elected annually and serve at the discretion of the Board of
Directors. There is no family relationship between or among any of our
directors and executive officers. Our Board of Directors consists of five
persons.
-------------------------------------------------------------------
NAME AGE POSITION
----------------- ------- ---------------------------------------
Eric S. Langan 38 Director, Chief Executive Officer/
President and Acting Chief Financial
Officer
----------------- ------- ---------------------------------------
Travis Reese 36 Director and Vice President/Director of
Technology
----------------- ------- ---------------------------------------
Robert L. Watters 54 Director
----------------- ------- ---------------------------------------
Alan Bergstrom 60 Director
----------------- ------- ---------------------------------------
Steven L. Jenkins 48 Director
-------------------------------------------------------------------
RELATED TRANSACTIONS
Our Board of Directors has adopted a policy that our business affairs will be
conducted in all respects by standards applicable to publicly held corporations
and that we will not enter into any future transactions and/or loans between us
and our officers, directors and 5% shareholders unless the terms are no less
favorable than could be obtained from independent, third parties and will be
approved by a majority of our independent and disinterested directors. In our
view, all of the transactions described below meet this standard.
4
In May 2002, we loaned $100,000 to Eric Langan who is our Chief Executive
Officer. The promissory note is unsecured, bears interest at 11% and is
amortized over a period of ten years. The note contains a provision that in the
event Mr. Langan leaves the Company for any reason, the note immediately becomes
due and payable in full. The balance of the note was $73,779 as of April 17,
2006, and is included in other assets in our balance sheet.
On July 22, 2005, we issued a Secured Convertible Debenture to Ralph McElroy, a
greater than 10% shareholder of the Company, for the principal sum of $660,000
bearing interest at the rate of 12% per annum, with a maturity date of August 1,
2008. Under the terms of the Debenture, we are required to make monthly
interest payments beginning September 1, 2005. We have the right to redeem the
Debenture in whole or in part at any time during the term of the Debenture. At
the election of the Holder, the Holder has the right to require the Debenture to
be repaid in thirty (30) equal monthly installments commencing February 2006.
The Holder has the option to convert all or any portion of the principal amount
of the Debenture into shares of our common stock at a rate of $3.00 per share,
subject to adjustment under certain conditions. The Debenture provides, absent
shareholder approval, that the number of shares of our common stock that may be
issued by us or acquired by the Holder upon conversion of the Debenture shall
not exceed 19.99% of the total number of issued and outstanding shares of our
common stock. The Debenture is secured by certain of our assets. Additionally,
we issued Mr. McElroy a Warrant to purchase 50,000 shares of our common stock at
an exercise price of $3.00 per share until July 22, 2008. The shares of Common
Stock underlying the principal amount of the Debenture and the Warrants have
piggyback registration rights.
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors held six (6) meetings and acted by unanimous written
consent five (5) times during the fiscal year ended September 30, 2005. All of
our Directors attended at least 75% of our Board meetings. All members of our
Audit Committee, Nominating Committee and Compensation Committee attended at
least 75% of their respective meetings.
AUDIT COMMITTEE
We have an Audit Committee whose members are Robert L. Watters, Alan Bergstrom
and Steven L. Jenkins. Mr. Watters was our President until March 1999, and has
not been an officer or employee since March 1999. Mr. Watters, Mr. Bergstrom
and Mr. Jenkins are independent Directors. The primary purpose of the Audit
Committee is to oversee the Company's financial reporting process on behalf of
the Board of Directors. The Audit Committee meets privately with our Chief
Accounting Officer and with our independent registered public accounting firm
and evaluates the responses by the Chief Accounting Officer both to the facts
presented and to the judgments made by our outside independent registered public
accounting firm. Our Audit Committee reviewed and discussed our audited
financial statements for the year ended September 30, 2005, with management.
Steven L. Jenkins serves as the Audit Committee's Financial Expert.
In May 2000, our Board adopted a Charter for the Audit Committee. A copy of
the Audit Committee Charter is attached hereto as Exhibit "A." The Charter
establishes the independence
5
of our Audit Committee and sets forth the scope of the Audit Committee's duties.
The Purpose of the Audit Committee is to conduct continuing oversight of our
financial affairs. The Audit Committee conducts an ongoing review of our
financial reports and other financial information prior to their being filed
with the Securities and Exchange Commission, or otherwise provided to the
public. The Audit Committee also reviews our systems, methods and procedures of
internal controls in the areas of: financial reporting, audits, treasury
operations, corporate finance, managerial, financial and SEC accounting,
compliance with law, and ethical conduct. A majority of the members of the
Audit Committee will be independent. The Audit Committee is objective, and
reviews and assesses the work of our independent registered public accounting
firm and our internal audit department.
The Audit Committee reviewed and discussed the matters required by SAS 61 and
our audited financial statements for the fiscal year ended September 30, 2005,
with management and our independent registered public accounting firm. The
Audit Committee has received the written disclosures and the letter from our
independent registered public accounting firm required by Independence Standards
Board No. 1, and the Audit Committee has discussed with the independent
registered public accounting firm the independent registered public accounting
firm's independence. The Audit Committee recommended to the Board of Directors
that the Company's audited financial statements for the fiscal year September
30, 2005, be included in our Annual Report on Form 10-KSB for the fiscal year
ended September 30, 2005. The Audit Committee held four (4) meetings during the
fiscal year ended September 30, 2005.
NOMINATING COMMITTEE
We have a Nominating Committee whose members are Robert L. Watters, Alan
Bergstrom and Steven L. Jenkins. In July 2004, the Board unanimously adopted a
Charter with regard to the process to be used for identifying and evaluating
nominees for director. The Charter establishes the independence of our
Nominating Committee and sets forth the scope of the Nominating Committee's
duties. Under the Nominating Committee Charter, a majority of the members of
the Nominating Committee will be independent. A copy of the Nominating
Committee's Charter can be found on the Company's website at www.Ricks.com. The
-------------
Nominating Committee met one time during the fiscal year ended September 30,
2005.
COMPENSATION COMMITTEE
We have a Compensation Committee whose members are Robert Watters, Alan
Bergstrom and Steven L. Jenkins. The primary purpose of the Compensation
Committee is to evaluate and review the compensation of executive officers.
The Compensation Committee met one time during the fiscal year ended September
30, 2005.
There is no family relationship between or among any of the directors and
executive officers of the Company.
SHAREHOLDER COMMUNICATIONS
We do not currently have a process for security holders to send communications
to the Board of Directors, which we believe is appropriate based on our size,
the limited number of our shareholders and the limited number of communications
which we receive. However, we welcome comments and questions from our
shareholders. Shareholders can direct communications to our Chief Executive
Officer, Eric Langan at our executive offices, 10959 Cutten Road, Houston, Texas
77066. While we appreciate all comments from shareholders, we may not be able
to individually respond to all communications. We attempt to address
shareholder questions and concerns in our press releases and documents filed
with the SEC so that all shareholders have access to information about the
Company at the same time. Mr. Langan collects and evaluates all shareholder
communications. If the communication is directed to the Board of Directors
generally or to a specific director, Mr. Langan will disseminate the
communications to the appropriate party at the next scheduled Board of Directors
meeting. If the communication requires a more urgent response, Mr. Langan will
direct that communication to the appropriate executive officer or director. All
communications addressed to our directors and executive officers will be
reviewed by those parties unless the communication is clearly frivolous.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and
executive officers, and persons who own beneficially more than ten percent of
our common stock, to file
6
reports of ownership and changes of ownership with the Securities and Exchange
Commission. Based solely on the reports we have received and on written
representations from certain reporting persons, we believe that the directors,
executive officers, and greater than ten percent beneficial owners have complied
with all applicable filing requirements, with the exception of Ralph McElroy, a
greater than 10% shareholder who had one late filing.
EXECUTIVE COMPENSATION
The following table reflects all forms of compensation for services to us for
the fiscal years ended September 30, 2005, 2004 and 2003 of certain executive
officers. No other executive officer of ours received compensation that
exceeded $100,000 during fiscal 2005. Mr. Langan is Chairman of the Board, a
Director, Chief Executive Officer, President and Chief Financial Officer. Mr.
Reese is Director and V.P.-Director of Technology.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Awards Payouts
Other Securities
Name and Annual Restricted Underlying All Other
Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation (1) Awards SARs Payouts sation
($) ($) ($) ($) (#) ($) ($)
---------------------------------------------------------------------------------------------------------------
Eric Langan
2005 $ 344,100 -0- -0- -0- 5,000 -0- -0-
2004 $ 326,038 -0- -0- -0- 280,000 -0- -0-
2003 $ 260,000 -0- -0- -0- 5,000 -0- -0-
Mr. Langan is our Chairman, a Director, Chief Executive Officer, President and Chief Financial Officer.
Travis Reese
2005 $ 165,531 -0- -0- -0- 5,000 -0- -0-
2004 $ 161,000 -0- -0- -0- 55,000 -0- -0-
2003 $ 158,855 -0- -0- -0- 5,000 -0- -0-
Mr. Reese is a Director and V.P.-Director of Technology
__________________________________
(1) We provide certain executive officers certain personal benefits.
Since the value of such benefits does not exceed the lesser of $50,000
or 10% of annual compensation, the amounts are omitted.
7
OPTION/SAR GRANTS IN LAST FISCAL YEAR (INDIVIDUAL GRANTS)
Number of Percent of Total
Securities Options/SARs
Underlying Granted To
Options/SARs Employees In Exercise of Expiration
Name Granted Fiscal Year Base Price Date
# % $/share
---------------------------------------------------------------------------
Eric Langan 5,000 shares (1) 5.56 % $ 2.80 7/20/2010
Travis Reese 5,000 shares (1) 5.56 % $ 2.80 7/20/2010
---------------------------------------------------------------------------
(1) These options were granted to Messrs. Langan and Reese for serving in their
capacity as Directors. There were 27,500 shares of options exercised by Messrs.
Langan and Reese during the fiscal year ended September 30, 2005.
AGGREGATED OPTION/SAR EXERCISES IN
LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
Number Of Unexercised
Securities Underlying Value of Unexercised
Options/SARs In-The-Money Options/
Shares At FY-End SARs At FY-End
Acquired On Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
# $ # $
--------------------------------------------------------------------------------------
Eric Langan 5,000 (1) $ 6,363 290,000 / 105,000 $ 178,350 / $55,150
Travis Reese 22,500 (1) $ 25,131 47,500 / 30,500 $ 29,975 / $14,650
--------------------------------------------------------------------------------------
(1) There were 27,500 shares of options exercised by these persons during the
fiscal year ended September 30, 2005.
DIRECTOR COMPENSATION
We do not currently pay any cash directors' fees, but we pay the expenses of our
directors in attending board meetings. In July 2005, we issued 10,000 options
to each Director who is a member of our audit committee and 5,000 options to our
other Directors. These options have a strike price of $2.80 per share and expire
in July 2010.
EMPLOYMENT AGREEMENTS
We have a two year employment agreement with Mr. Eric S. Langan (the "Langan
Agreement"). The Langan Agreement extends through April 1, 2008, and provides
for an annual base salary of $400,000. The Langan Agreement also provides for
participation in all benefit plans maintained by us for salaried employees. The
Langan Agreement contains a confidentiality provision and an
8
agreement by Mr. Langan not to compete with us upon the expiration of the Langan
Agreement. We have not established long-term incentive plans or defined benefit
or actuarial plans.
We also have a three-year employment agreement with Mr. Travis Reese (the "Reese
Agreement"). The Reese Agreement extends through February 1, 2007, and provides
for an annual base salary of $175,000. The Reese Agreement also provides for
participation in all benefit plans maintained by us for salaried employees. The
Reese Agreement contains a confidentiality provision and an agreement by Mr.
Reese not to compete with us upon the expiration of the Reese Agreement. We have
not established long-term incentive plans or defined benefit or actuarial plans.
EMPLOYEE STOCK OPTION PLANS
While we have been successful in attracting and retaining qualified personnel,
we believe that our future success will depend in part on our continued ability
to attract and retain highly qualified personnel. We pay wages and salaries
that we believe are competitive. We also believe that equity ownership is an
important factor in our ability to attract and retain skilled personnel. We
have adopted Stock Option Plans for employee and directors. The purpose of the
Plans is to further our interests, our subsidiaries and our stockholders by
providing incentives in the form of stock options to key employees and directors
who contribute materially to our success and profitability. The grants
recognize and reward outstanding individual performances and contributions and
will give such persons a proprietary interest in the Company, thus enhancing
their personal interest in our continued success and progress. The Plans also
assist the Company and our subsidiaries in attracting and retaining key
employees and directors. The Plans are administered by the Board of Directors.
The Board of Directors has the exclusive power to select the participants in the
Plans, to establish the terms of the options granted to each participant,
provided that all options granted shall be granted at an exercise price equal to
at least 85% of the fair market value of the common stock covered by the option
on the grant date and to make all determinations necessary or advisable under
the Plans.
In 1995 we adopted the 1995 Stock Option Plan. A total of 300,000 shares may be
granted and sold under the 1995 Plan. As of September 30, 2001, a total of
167,500 stock options had been granted and are outstanding under the Plan, none
of which have been exercised. We do not plan to issue any additional options
under the 1995 Plan.
In August 1999 we adopted the 1999 Stock Option Plan (the "1999 Plan") with
500,000 shares authorized to be granted and sold under the 1999 Plan. In August
2004, shareholders approved an Amendment to the 1999 Plan (the "Amendment")
which increased the total number of shares authorized to 1,000,000. As of
September 30, 2005, 878,000 stock options were outstanding under the 1999 Plan.
As of April 17, 2006, 169,000 of these stock options have been exercised.
9
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth all equity compensation plans as of September 30,
2005:
----------------------------------------------------------------------------------------------------------------
Number of securities remaining
Number of securities to Weighted-average available for future issuance
be issued upon exercise exercise price of under equity compensation plans
of outstanding options, outstanding options, (excluding securities reflected in
warrants and rights warrants and rights column (a))
Plan category (a) (b) (c)
------------------------- ------------------------ ---------------------- -----------------------------------
Equity compensation plans
approved by security
holders 878,000 $ 2.47 52,000
------------------------- ------------------------ ---------------------- -----------------------------------
Equity compensation plans
not approved by security
holders 0 0 300,000
------------------------- ------------------------ ---------------------- -----------------------------------
TOTAL 878,000 $ 2.47 352,000
----------------------------------------------------------------------------------------------------------------
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information at April 17, 2006, with
respect to the beneficial ownership of shares of Common Stock by (i) each person
known to us who owns beneficially more than 5% of the outstanding shares of
Common Stock, (ii) each of our directors, (iii) each of our executive officers
and (iv) all of our executive officers and directors as a group. Unless
otherwise indicated, each stockholder has sole voting and investment power with
respect to the shares shown. As of April 17, 2006, there were 4,798,038 shares
of common stock outstanding.
-------------------------------------------------------------------------------
NAME/ADDRESS NUMBER OF SHARES TITLE OF CLASS PERCENT OF
CLASS (9)
-------------------------------- ----------------- -------------- ----------
Eric S. Langan 1,133,010 (1) Common stock 22.2%
10959 Cutten Road
Houston, Texas 77066
-------------------------------- ----------------- -------------- ----------
Robert L. Watters 35,000 (2) Common stock <1%
315 Bourbon Street
New Orleans, Louisiana 70130
-------------------------------- ----------------- -------------- ----------
Steven L. Jenkins -0- Common stock 0%
16815 Royal Crest Drive
Suite 160
Houston, Texas 77058
-------------------------------- ----------------- -------------- ----------
Travis Reese 57,275 (3) Common stock 1.1%
10959 Cutten Road
Houston, Texas 77066
-------------------------------- ----------------- -------------- ----------
Alan Bergstrom 25,000 (4) Common stock <1%
904 West Ave.-Suite 100
Austin, Texas 78701
-------------------------------- ----------------- -------------- ----------
All of our Directors and 1,250,285 (5) Common stock 24.1%
Officers as a
Group of five (5) persons
-------------------------------- ----------------- -------------- ----------
E. S. Langan. L.P. 578,632 Common stock 12.0%
10959 Cutten Road
Houston, Texas 77066
-------------------------------- ----------------- -------------- ----------
Ralph McElroy 768,661 (6) Common stock 15.8%
1211 Choquette
Austin, Texas, 78757
-------------------------------- ----------------- -------------- ----------
William Friedrichs 379,760 (7) Common stock 7.9%
16815 Royal Crest Dr., Suite 260
Houston, Texas 77058
-------------------------------- ----------------- -------------- ----------
Jeffrey W. Benton 286,145 (8) Common stock 5.7%
47 Summit Avenue
Summit, NJ
-------------------------------------------------------------------------------
10
(1) Mr. Langan has sole voting and investment power for 264,378 shares that he
owns directly. Mr. Langan has shared voting and investment power for
578,632 shares that he owns indirectly through E. S. Langan, L.P. Mr.
Langan is the general partner of E. S. Langan, L.P. This amount also
includes options to purchase up to 290,000 shares of common stock that are
presently exercisable. This number specifically excludes 15,050 shares of
common stock held by his wife which is separate property.
(2) Includes 5,000 shares of common stock and options to purchase up to 30,000
shares of common stock that are presently exercisable.
(3) Includes 9,775 shares of common stock and options to purchase up to 47,500
shares of common stock that are presently exercisable.
(4) Includes 5,000 shares of common stock and options to purchase up to 20,000
shares of common stock that are presently exercisable.
(5) Includes options to purchase up to 387,500 shares of common stock that are
presently exercisable.
(6) Includes 718,661 shares of common stock held by Mr. McElroy, and 50,000
shares of common stock that would be issuable upon exercise of warrants
held by Mr. McElroy. This number specifically excludes 220,000 shares of
common stock that are issuable upon the conversion of a convertible
debenture in the amount of $660,000 held by Mr. McElroy. Under the terms of
the debenture, Mr. McElroy has the option to convert all or any portion of
the principal amount into shares of our common stock at the rate of $3.00
per share, subject to adjustment under certain conditions. The debenture
further provides, absent shareholder approval, that the number of shares of
our common stock that may be issued to or acquired by Mr. McElroy upon
conversion of the debenture shall not exceed 19.99% of the total number of
issued and outstanding shares of our common stock.
(7) Includes 170,000 shares of common stock owned by WMF Investments, Inc. Mr.
Friedrichs is a control person of WMF Investments, Inc.
(8) Includes 60,299 shares of common stock held individually, 210,726 shares of
common stock held indirectly by Fairfield Investment Group, LLC that are
issuable upon the conversion of a convertible debenture and 15,120 held
indirectly by Fairfield Investment Group, LLC. Mr. Benton is the Managing
Director of Fairfield Advisors and has investment decision and voting
authority for this entity.
(9) These percentages exclude treasury shares in the calculation of percentage
of class.
___________________________
We are not aware of any arrangements that could result in a change of control.
11
------------------------------------------------------------------------
(2) TO RATIFY THE SELECTION OF WHITLEY PENN, LLP
AS THE COMPANY'S INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
FOR THE FISCAL YEAR ENDING
SEPTEMBER 30, 2006
------------------------------------------------------------------------
The Board of Directors has selected Whitley Penn, LLP as the Company's
independent registered public accounting firm for the current fiscal year.
Although not required by law or otherwise, the selection is being submitted to
the Stockholders of the Company as a matter of corporate policy for their
approval. The Board of Directors wishes to obtain from the Stockholders a
ratification of their action in appointing their existing independent registered
public accounting firm, Whitley Penn, LLP, for the fiscal year ending September
30, 2006. Such ratification requires the affirmative vote of a majority of the
shares of Common Stock present or represented by proxy and entitled to vote at
the Annual Meeting.
In the event the appointment of Whitley Penn, LLP as the Company's independent
registered public accounting firm is not ratified by the Stockholders, the
adverse vote will be considered as a direction to the Board of Directors to
select another independent registered public accounting firm for the fiscal year
ending September 30, 2006. A representative of Whitley Penn, LLP is expected to
be present at the Annual Meeting with the opportunity to make a statement if he
so desires and to respond to appropriate questions. The Board of Directors
unanimously recommends a vote FOR the ratification of Whitley Penn, LLP as
independent registered public accounting firm for fiscal year ending September
30, 2006.
The following table sets forth the aggregate fees paid or accrued for
professional services rendered by Whitley Penn, LLP for the audit of our annual
financial statements for fiscal year 2005 and fiscal year 2004 and the aggregate
fees paid or accrued for audit-related services and all other services rendered
by Whitley Penn, LLP for fiscal year 2005 and fiscal year 2004.
2005 2004
------- ------
Audit fees 137,529 77,613
Audit-related fees 8,106 -
Tax fees 12,550 -
All other fees - -
------- ------
Total 158,185 77,613
------- ------
The category of "Audit fees" includes fees for our annual audit, quarterly
reviews and services rendered in connection with regulatory filings with the
SEC, such as the issuance of comfort letters and consents.
The category of "Audit-related fees" includes employee benefit plan audits,
internal control reviews and accounting consultation.
12
The category of "Tax fees" includes consultation related to corporate
development activities.
All above audit services, audit-related services and tax services were
pre-approved by the Audit Committee, which concluded that the provision of such
services by Whitley Penn, LLP was compatible with the maintenance of that firm's
independence in the conduct of its auditing functions. The Audit Committee's
outside auditor independence policy provides for pre-approval of all services
performed by the outside auditors.
AUDITOR INDEPENDENCE
Our Audit Committee considered that the work done for us in fiscal 2005 by
Whitley Penn, LLP was compatible with maintaining Whitley Penn, LLP's
independence.
AUDITOR'S TIME ON TASK
All of the work expended by Whitley Penn, LLP on our fiscal 2005 audit was
attributed to work performed by Whitley Penn, LLP's full-time, permanent
employees.
-------------------------------------------------------------------
(3)
OTHER MATTERS
-------------------------------------------------------------------
The Board of Directors is not aware of any other matters to be presented for
action at the Annual Meeting. However, if any other matter is properly
presented at the Annual Meeting, it is the intention of the persons named in the
enclosed proxy to vote in accordance with their best judgment on such matters.
FUTURE PROPOSALS OF STOCKHOLDERS
The deadline for stockholders to submit proposals to be considered for inclusion
in the Proxy Statement for the 2006 Annual Meeting of Stockholders is December
15, 2006.
BY ORDER OF THE BOARD OF DIRECTORS
/S/ ERIC S. LANGAN
------------------
CHAIRMAN OF THE BOARD AND PRESIDENT
APRIL 24, 2006
HOUSTON, TEXAS
13
EXHIBIT "A"
RICK'S CABARET INTERNATIONAL, INC.
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
1. Purpose. The Audit Committee of the Board of Directors shall conduct
continuing oversight of the financial affairs of Rick's Cabaret
International, Inc.
2. Scope of Review. The Audit Committee shall conduct an ongoing review the
Corporation's:
* Financial reports and other financial information prior to their
being filed with the U.S. Securities and Exchange Commission or
otherwise provided to the public.
* Systems, methods and procedures of internal controls in the areas
of: financial reporting, audits, treasury operations, corporate
finance, managerial, financial and SEC accounting, compliance with
law, and ethical conduct.
3. General Tasks. The Audit Committee shall:
* Be objective. A majority of the Audit Committee shall be independent.
* Recommend and encourage improvements in the Corporation's
financial affairs.
* Review and assess the work of the Corporation's independent
accountant and internal audit department.
* Solicit and encourage comments from the Corporation's independent
accountant, financial and senior management, internal audit department
and the Board of Directors.
4. Audit Committee Members. The Audit Committee shall consist of one or more
Members (the "Members"), a majority of whom are independent Directors. The
Board of Directors shall elect the Members annually. Members shall serve
until their successors are duly elected and qualified. Unless an Audit
Committee Chairperson is elected by the full Board, the Members of the
Committee may designate a Chairperson by majority vote of the all Members.
5. The independent members shall be free from any relationship that could
conflict with an independent member's independent judgment. Any
non-independent member shall exercise judgment as if that member was
independent. All Members must be able to read and understand fundamental
financial statements, including a balance sheet, income statement, and cash
flow statement. At least one member must have past employment experience in
finance or accounting, requisite professional certification in accounting,
or other comparable experience or background, including a current or past
position as a
1
chief executive or financial officer or other senior officer with financial
oversight responsibilities.
6. Independence. Independent Director is defined as a director who has:
* Not been employed by the Corporation or its affiliates in the
current or past three years.
* Not accepted any compensation from the Corporation or its
affiliates in excess of $60,000 during the previous fiscal year
(except for board service, retirement plan benefits, or
non-discretionary compensation).
* No immediate family member who is, or has been in the past three
years, employed by the Corporation or its affiliates as an executive
officer.
* Not been a partner, controlling shareholder or an executive
officer of any other for-profit entity to which the Corporation made,
or from which it received, payments (other than those which arise
solely from investments in the Corporation's securities) that exceed
five percent of the other entity's consolidated gross revenues for
that year, or $200,000, whichever is more, in any of the past three
years.
* Not been employed as an executive of another entity where the
Corporation's executives serve on the other entity's compensation
committee.
7. Meetings. The Audit Committee shall meet at least four times per year, and
may meet as frequently as deemed necessary. The Audit Committee shall meet
separately in closed meetings at least once each year with management, the
director of internal audit and the independent accountant to discuss any
matter. The Audit Committee shall select one of its Members each quarter to
meet with management, the director of internal audit and the independent
accountant for the purposes set forth below.
8. Specific Tasks. The Audit Committee shall:
(a) Assess and, if necessary, update this Charter at least annually.
(b) Review the Corporation's annual, quarterly and other financial
statements and any other reports, financial information or other
material filed with any governmental body (except for litigation
matters in the ordinary course of business) or announced to the
public, including the independent accountant's certifications,
reports, opinions, or reviews.
(c) Review the regular internal reports to management prepared by the
internal audit department and management's response thereto.
(d) Review with management and the independent accountant all Form
10-QSB's prior to the filing or prior to the release of earnings
information to the public. The
2
Chairperson of the Audit Committee may represent the entire Audit
Committee for the review of the Form 10-QSB.
(e) Recommend to the Board of Directors the selection of the
independent accountant for each fiscal year, considering independence
and effectiveness, and approve the fees and other compensation to be
paid to the independent accountant. On an annual basis, the Audit
Committee shall review and discuss with the independent accountant all
significant relationships the independent accountant has with the
Corporation to determine the accountant's independence.
(f) Review the performance of the independent accountant and approve
any proposed discharge of the independent accountant when
circumstances warrant.
(g) Periodically consult with the independent accountant, out of the
presence of management, about internal controls and the completeness
and accuracy of the Corporation's financial statements.
(h) Continually review the integrity of the Corporation's internal
and external financial reporting processes. The Audit Committee shall
consult with the independent accountant and the internal auditors for
this review.
(i) Consider the independent accountant's judgments about the quality
and appropriateness of the Corporation's accounting principles in
relation to the Corporation's internal and external financial
reporting.
(j) Consider and approve, if appropriate, major changes to the
Corporation's auditing and accounting principles and practices.
(k) Establish regular and separate systems of reporting to the Audit
Committee by each of management, the independent accountant and the
internal auditors in connection with the appropriateness and
application of accounting principles made in management's preparation
of the financial statements.
(l) Following completion of the annual audit, review separately with
each of management, the independent accountant and the internal audit
department whether any difficulties were encountered during the course
of the audit, including any restrictions on the scope of work or
access to required information.
(m) Review any disagreement among management and the independent or
the internal auditing department in connection with the preparation of
the financial statements or the appropriateness and application of
accounting principles made in management's preparation of the
financial statements.
(n) Review with the independent accountant, the internal audit
department and management whether and how changes or improvements in
the Corporation's financial or accounting practices, as approved by
the Audit Committee, have been implemented. The Audit Committee shall
conduct this review promptly after the implementation of the changes
or improvements.
3
(o) Establish a code of corporate compliance with law and a code of
ethical conduct, and review the Corporation's implementation and
enforcement of these codes.
(p) Review activities, organizational structure, and qualifications
of the internal audit department.
(q) Review, with the Corporation's counsel, legal compliance matters
including policies regarding trading in the Corporation's securities.
(r) Review, with the Corporation's counsel, any legal matter that
could have a material impact on the Corporation's financial
statements.
(s) Perform any other activities consistent with this Charter, the
Corporation's Articles of Incorporation, By-laws and governing law, as
the Audit Committee or the Board of Directors deems necessary or
appropriate.
4
RICK'S CABARET
[LOGO OMITTED]
LETTER TO SHAREHOLDERS OF RICK'S CABARET INTERNATIONAL, INC.
------------------------------------------------------------
FROM: ERIC LANGAN
CHIEF EXECUTIVE OFFICER
SUBJECT: FISCAL 2005 RESULTS
TO OUR SHAREHOLDERS:
Rick's Cabaret International, Inc. passed a major milestone in its development
in 2005 and we are poised to move forward steadily as we implement our strategic
vision in 2006 and the years ahead.
The successful opening of Rick's Cabaret-New York City gave our company
visibility in the nation's largest market and most important financial center.
Now, when a potential investor, portfolio manager or analyst wants to do due
diligence on Rick's, all he or she has to do is visit us at 50 West 33rd Street.
Once in our club the financial professional instantly grasps our business model:
an upscale venue with exceptionally gracious staff and entertainers, an
outstanding steakhouse with one of the best lunch and dinner menus in Manhattan,
and terrific entertainment where the customer leaves eager to return.
HIGHLIGHTS:
The year ended September 30, 2005 was a time of building the base for future
growth and expansion. Here are some of the highlights of the year:
- On January 18, 2005 we completed the acquisition of our New York
City club at a cost of $7.6 million and immediately began a $3.3
million renovation of the three-story venue just opposite the Empire
State Building and near Penn Station and Madison Square Garden. The
transaction was concluded with $2.5 million paid at closing and a 4
percent convertible note for $5.125 million.
- On February 15, 2005 we entered into an agreement to acquire a
30,000 square foot nightclub in Charlotte, North Carolina. The club
has a Rick's Cabaret in one wing and a male review for women five
nights a week in an adjoining self-contained 8,000 square foot club.
The agreement called for us to pay $1 million through the issuance of
shares of restricted common stock and a seven-year promissory note.
- On March 31, 2005 we sold our Rick's Cabaret-South Houston club
for $550,000. The sale was a part of our strategy to focus our
resources on venues with consistent earnings and strong growth
potential.
- On June 2, 2005 we celebrated the first anniversary of Club Onyx,
our upscale urban gentlemen's club in the Galleria section of Houston.
It has become a popular relaxation spot for an A-list clientele of
athletes, hip-hop musicians and urban professionals and consistently
operates at near capacity. The "customer appreciation" anniversary
included a gala party and became a media event when we offered our
guests free curbside car washes by girls wearing bikinis.
- On September 21, 2005 we launched Rick's Cabaret-NYC with a
four-day Grand Opening Party that was packed each night. One reporter
summed up the experience: "Rick's is geared towards an upscale,
professional clientele but everyone from all walks of life is welcomed
knows how to get to a man's heart by laying out a spread of
mouth-watering dishes as for the girls, they're playful, very friendly
but they won't hassle you as for the rest of the staff, I can't say
enough nice things: they're courteous and respectful to everyone and
more than go out of their way to show each customer a memorable
experience. Even the customers were friendly. "
RESULTS:
Because we recorded $982,500 in start-up expenses attributed to opening and
operating new clubs in New York City and Charlotte, we ended the year 2005 with
a net loss of $215,148. This compared with net income of $775,253 in 2004. Net
income for nightclub operations for the same-location-same-period increased by
3.78 percent. Our Internet operations for the same-web-site-same-period
increased by 28.71 percent.
Total revenues for the year were $14,824,407, compared with $13,858,434 in 2004.
After adjusting for discontinued operations following the sale of our Rick's
Cabaret -South Houston club, revenues increased by $965,973 or 6.97 percent.
As a result of the New York City and Charlotte transactions, our company's
long-term debt increased to $13,246,836 as of September 30, 2005 compared to
$3,693,560 at the end of the previous year. We have already begun to reduce this
debt and it is our intention to amortize it as quickly as possible. We used
$6,307,508 of cash in investing in 2005 compared to $867,206 for the previous
year. Financing activities provided $4,801,197, compared to $153,749 used in the
previous year.
The start-up expenses associated with New York City and Charlotte are now behind
us. We do not anticipate that future acquisitions will entail the exceptionally
high costs associated with New York City, where unique circumstances required a
complete remodel and related expenses.
Our experience in New York City and Charlotte has strengthened confidence in our
strategy of acquiring new clubs in excellent business and tourism locations. At
the same time, growth at Club Onyx and Rick's Cabaret-Minneapolis has
demonstrated the powerful leverage we gain by focusing marketing and management
power on building same-club sales.
On the balance sheet, the total assets of the company increased significantly in
2005, to $25,029,018 on September 30, 2005, compared with $12,760,877 at the end
of the previous fiscal year.
The strategic moves in 2005 have already had a positive impact on our 2006
results to date. Driven by improved sales at existing clubs as well as the
effect of our new nightclubs in New York City and Charlotte, first quarter total
revenues increased by 73.45 percent to $5,779,735 while we generated net income
of 12 cents per share compared to no earnings per share in the first quarter of
the previous year.
BRAND NAME ENHANCEMENT:
We have been working diligently to build and enhance our brand name through
marketing and public relations efforts and investor relations outreach.
We have received extensive publicity. The New York Times featured our company on
January 21st in a colorful story by Mike Brick entitled "Moving In on New York
Laps." ABC 20-20 did a respectful and extensive report on Rick's Cabaret just
prior to the opening of our New York City club, and we were interviewed on Fox
News. The publicity has continued into the current year and we have been
featured in The Wall Street Journal, The New York Sun, USA Today, The
International Herald Tribune and other media including Time Out New York, the
popular events magazine that concluded our steakhouse merits listing in the
"TONY 100" list of top restaurants.
Shortly after the close of our fiscal year 2005, we made our first major
presentation to the financial community, appearing on October 11, 2005 before
the Financial Analysts and Money Managers, Inc. in New York City. We have
subsequently made capital markets presentations before the Bull & Bear Club,
Equities Magazine and Arch Conferences.
We believe that the successful opening of our New York City club and the
continued success of clubs in Houston, Minneapolis and other markets have
increased brand awareness of Rick's Cabaret and will be the foundation for
building a truly national business. The market value of Rick's has risen and we
are working to assure that it continues to do so by making smart, strategic
acquisitions and constantly improving results at our existing locations.
I want to thank our dedicated managers and staff and our talented entertainers
for the outstanding jobs they do. They are the real heart of our business. The
warm smile that a manager or waitress gives a customer and the cheerful
conversation with one of our entertainers keeps our patrons coming back for
repeat visits.
We hope all of our shareholders will visit Rick's Cabaret in the coming year.
You can be assured that you will get a friendly Rick's welcome whenever you do.
Meanwhile, if I can answer any specific questions, please contact me through our
investor relations office at ir@ricks.com.
------------
With good wishes,
/s/ Eric Langan
Eric Langan
President and CEO
PROXY
RICK'S CABARET INTERNATIONAL, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 2006
The undersigned hereby appoints Eric S. Langan and Travis Reese, and each
of them as the true and lawful attorneys, agents and proxies of the undersigned,
with full power of substitution, to represent and to vote all shares of Common
Stock of Rick's Cabaret International, Inc. held of record by the undersigned on
April 17, 2006, at the Annual Meeting of Stockholders to be held on May 22,
2006, at 9:30 AM (EST) at 50 West 33rd Street, New York, New York, and at any
adjournments thereof. Any and all proxies heretofore given are hereby revoked.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DESIGNATED BY THE
UNDERSIGNED. IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED FOR THE
---
NOMINEES LISTED IN NUMBER 1, AND FOR THE RATIFICATION IN NUMBER 2.
---
1. ELECTION OF DIRECTORS OF THE COMPANY. (INSTRUCTION: TO WITHHOLD AUTHORITY
TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH, OR OTHERWISE
STRIKE, THAT NOMINEE'S NAME IN THE LIST BELOW.)
[ ] FOR all nominees listed [ ] WITHHOLD authority to
below except as marked vote for all nominees
to the contrary. below.
Eric S. Langan
Robert L. Watters
Steven L. Jenkins
Alan Bergstrom
Travis Reese
2. PROPOSAL TO RATIFY THE SELECTION OF WHITLEY PENN AS THE COMPANY'S
INDEPENDENT AUDITOR FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 2006.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized
person.
NUMBER OF
SHARES OWNED
_________________ ____________________________________
[NAME]
DATED: ____________________________
THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED AT THE MEETING. PLEASE
MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY.